Why President Obama’s better buildings initiative doesn’t work for multifamily

Guest blog By Michael Miller

You might think by this headline that I’m about to rant about the news regarding energy efficiency policy that was circulating last week. President Obama outlined a plan called the Better Buildings Initiative to incentivize energy efficiency in commercial buildings during his visit to Penn State. Actually, I want to explain why multifamily energy management struggles with this type of policy.

While we certainly applaud the President’s plan to create tax incentives for building efficiency and increase financing for building retrofits, the plan does not go far enough to suit the specific needs of the multifamily industry. These needs will be increasingly important given the nation’s current and future housing concerns.

The President’s plan takes on the energy consumption of commercial buildings. It incentivizes the upgrade of the buildings used for offices, stores, schools, universities, hospitals, and other municipal or commercial organizations. The ultimate goal is to make these types of buildings 20 percent more energy efficient in the next 10 years. President Obama’s plan attempts to create these incentives through tax breaks and additional financing opportunities, building on the American Recovery and Reinvestment Act (ARRA).

The National Multi Housing Council commended the Better Buildings Initiative, and was quoted on the White House blog as a supporter of the tax initiatives, finances, and education for commercial buildings. While NMHC (and American Utility Management) are in general agreement, it’s important to remember that the devil is in the details.

Traditionally, multifamily properties have been lumped in with commercial buildings when it comes to these types of initiatives. There are a number of problems with the practice of categorizing multifamily property as commercial and corresponding challenges to implement larger energy management initiatives:

There is not enough information available surrounding the multifamily industry’s energy consumption to create a policy (such as the Better Buildings Initiative) that will help to reduce it. Sustainability strategies must be rooted in facts that we don’t have in the multifamily arena.

• Unlike commercial buildings, very few multifamily buildings are master metered. Almost all units nationwide are individually metered for electricity and natural gas — which means building owners have no information about energy use in individual units.
• To gather this information, local electric, gas, and water utilities would have to share unit-specific information, but state laws bar disclosure.

Facility infrastructure is old and varied. Would the incentives go far enough to justify the investment?

• More than 15 million of the almost 24.5 million units in multifamily housing buildings with two or more units are at least 30 years old. New building codes will do little if anything to bring about efficiency improvements.
• Buildings are of widely varying sizes, shapes, types, and locations, meaning the information collected must take specific multifamily factors into consideration for measurement.

Financial incentives for residents are difficult to establish due to resident/property dynamics.

• More than 60 percent of tenants stay in their units for a year or less, making it difficult to assess and improve multifamily energy efficiency.
• Property managers usually have an economic incentive to keep rents low (and occupancy high), but limited incentive to incur expenses to improve building energy efficiency.

Assessment and benchmarking tools are non-existent in multifamily. As multifamily property owners you’re told by numerous people that they can benchmark your utilities. Let me tell you why you’re wasting your money.

• There is no uniform tool for measuring or assessing the energy efficiency of multifamily housing buildings or improvements to them. This makes it virtually impossible for residents to shop for housing based on energy efficiency, and it limits economic incentives to make building efficiency improvements.
• Jurisdictions such as New York and Seattle are taking steps through legislation that specifically categorizes multifamily — and it’s a step in the right direction. But the only accepted measurement is EPA’s portfolio manager, geared to commercial/industrial applications. It does not take into account factors specific to multifamily mentioned above.

Without addressing each of these issues, there can’t be a comprehensive sustainability strategy for multifamily. And until that happens, we need to focus on what we do know –that reducing energy consumption will save property owners money — and educate the industry about why individual sustainability initiatives are important to their business.

This is not as sexy as the President’s press-savvy Better Buildings plan, but preventing multifamily energy dollars from being sucked into a black hole of additional expense is definitely attractive to multifamily business owners.

Without industry-wide standards for energy consumption, multifamily property owners need to take the initiative to operate more sustainably and cost-effectively. There are a number of simple ways to reduce energy and utility consumption.

Motion sensor faucets, which ensure not a drop of water is wasted, can reduce consumption by 10 to 15 percent at a single property. Installing occupancy sensors for lighting throughout the property can reduce electricity consumption by another 10 to 15 percent. Properties can also provide digital control systems to more accurately monitor boiler system temperature. These three tactics alone achieve a total cost reduction of 10 to 15 percent, a huge return on a comparatively minor investment.

Implementing these types of cost savers is the first step in establishing the effectiveness of efficiency upgrades in supporting larger sustainability campaigns, and protecting the bottom line.

This was a long-winded explanation of why President Obama’s Better Buildings Initiative needs to go further to work for multifamily. But it’s important to understand that if our industry blindly follows the agenda this plan is pushing, there’s significant potential for consumer confusion, incomplete and inadequate data-gathering, and waste of resources.

Michael Miller is President and CEO of American Utility Management (AUM).www.aum-inc.com. For the full blog go to http://blog.aum-inc.com/2011/02/16/why-president-obamas-better-buildings-initiative-doesnt-work-for-multifamily/

Obama, better buildings and the innovators

By Elisa Wood

February 9, 2011

When Obama unveiled his “Better Building Initiative” last week, it wasn’t just the usual architects, builders, and energy efficiency service companies that perked up with interest. A whole new segment of energy efficiency companies saw opportunity: the innovators.

Emissaries from the high tech world, the innovators are a growing force in energy efficiency. They bring web and wireless to what was once a field more about windows and weatherization.

Obama’s plan would create new business for the innovators by providing incentives to reduce building energy use. Buildings represent a large market for the US energy efficiency industry because they eat up 20% of the nation’s energy. Obama has proposed tax deductions, financing, competitive grants and other incentives as part of his budget.

Where do the innovators fit into this? Daintree Networks offers one example. The Silicon Valley company provides open platform, wireless technology for lighting controls. Lighting is a big deal in buildings; it is responsible for about 40% of a building’s energy bill. http://old.aceee.org/ogeece/ch2_index.htm. Lighting controls increase efficiency by automatically shutting off or dimming unneeded lights. The controls are often used in conjunction with occupancy sensors. The sensor detects when people empty a room and signal to the control system to turn off the lights.

“Anyone who is considering lighting upgrades now is asking about controls. It is no longer just about replacing light bulbs and fixtures, but about the control implementation,” said Danny Yu, Daintree Networks CEO.

With controls in only about 7% of commercial buildings, the market potential is large for innovators like Daintree Networks. So Yu has his eye not only on federal energy policy, but also activity by the states.

“We are very keen on seeing what policies are coming down the line, exploiting them with innovation, and then educating the market. We have focused on California and the Northeast,” Yu said, adding that prime areas for lighting controls have the “magic combination” of high electric rates and strong efficiency incentives.

But he especially likes the Obama plan because of its national scope. Incentives that vary from state to state tend to discourage energy efficiency efforts that scale across geographic boundaries.

“The Obama Better Buildings Initiative is an important first step in establishing national policy to drive energy efficiency in the commercial building sector. Energy efficiency within existing buildings should be considered a massive and mostly untapped resource. Adding greater incentives, financing options and a more consolidated approach to strong building regulations helps to solve many of the challenges currently standing in the way of greener facilities,” Yu said.

Will the Obama’s initiative win Congressional support? Yu is optimistic. “Energy efficiency is often the low-hanging fruit. The government has realized this,” he said. “Among the innovation companies, there is a very clear sector rotation into energy efficiency. The government seems to be following the venture capital community. We are very worthy in this category. I’m very excited to see the validation of the business model.”

Details about the Obama Better Building Initiative are here.http://www.whitehouse.gov/the-press-office/2011/02/03/president-obama-s-plan-win-future-making-american-businesses-more-energy

Visit Elisa Wood at www.realenergywriters.com and pick up her free weekly newsletter and podcast.

Northeast US a smart energy testing ground

By Elisa Wood

August 19, 2010

Ben Franklin’s saying, “Out of adversity comes opportunity” seems to characterize the energy sector in US Northeast. Electricity rates are among the nation’s highest. Population density leaves scant room for new power plants and transmission lines. And the region has little indigenous generation fuel.

So what’s the good news?

“This is why a very large and well spent push for energy efficiency and energy conservation has taken place in the Northeast,” says Ron Tabroff member of the Institute of Electrical and Electronics Engineers (IEEE) and former chairman of its Power & Energy Society, Boston Chapter.

In fact, the Northeastern states make up a large portion of a thriving East Coast energy efficiency market, spurred by about $8.6 billion in incentives being distributed by utilities and state and local governments, according to “Energy Efficiency Incentives for Businesses 2010: Eastern States” by RealEnergyWriters.http://www.realwriters.net/rew/rtlnkpr.htm

IEEE is an organization known for its love of technological advancement – it publishes nearly a third of the world’s technical literature in electrical engineering, computer science and electronics. So it is little surprise that IEEE has a keen eye on the emerging smart grid and the new openings it creates for energy efficiency.

Real-time meters, appliances that ‘talk’ to the grid, and other smart applications offer both macro and micro remedies to the kind of strain and high prices faced by the Northeast electric grid, Tabroff says.

On the macro level, if these devices curb peak usage of electricity, they should result in less need to build and operate expensive peaking generators. That means less pressure to raise electricity rates, now up to 19.4 cents/kWh for households in Connecticut, the Northeast state with the highest rates and second in the nation to only Hawaii.

On the micro level, the consumer will have the ability for the first time to purchase electricity on sale. Digital displays placed in the home will reveal the ups and downs in electricity pricing over the course of the day. You can choose to do your laundry when it’s cheap, or cut back on air conditioning when electricity prices are high.

Smart meters are now making their way into Northeast households through pilot programs. A big question to be answered is whether or not people will take the time in their busy lives to act as personal electricity managers. Tabroff is confident consumers will as they “make the link between these devices and their electricity bill.”

And if they do not, no worries. Down the road, technology geeks are figuring out how to solve that one too. The next wave of smart electrical devices will act as our personal electricity shoppers. These include refrigerators programmed to defrost when electricity prices are cheap and dishwashers instructed not to turn on until the electric grid offers up a good deal.

The opportunity is great for engineers and energy service companies in the Northeast, where support is strong for new smart energy programs . The large investment the region is making into these technologies make it a testing ground. It’s a region for the world to keep an eye on.

Visit www.realenergywriters.com to pick up a free Energy Efficiency Markets podcast and newsletter.

Energy use drops: It’s not just the economy

By Elisa Wood

May 13, 2010

We’ve been hearing a lot about a drop in energy consumption as a result of the economic downturn. In fact, US energy use per person declined last year to its lowest level since 1968.

Economic activity and energy use are directly linked. But lately, several reports have noted that the economic slowdown is not the only reason energy consumption is falling. Aggressive energy efficiency efforts also have impact.

That impact will be “major” in the years to come, according to the Energy Information Administration, the chief energy data collector for the US government. The agency this week released its “Annual Energy Outlook 2010” with projections to 2035.

The federal report shows us decreasing energy use significantly if we employ best available efficiency technologies over the next 25 years – that is if we buy the most energy efficient appliances and build homes to the highest efficiency standards. Under this scenario, energy consumption could drop by as much as 27%. But if we stick to the status quo, homeowners will increase energy use by about 0.2%.

This drop in energy use will not happen immediately. In fact, EIA sees energy consumption rising slightly as the economy rebounds. It then begins fall in 2013 as higher efficiency standards take effect for vehicles and lighting.

Lighting standards will have the most profound impact on electric consumption. Federal requirements will reduce electricity used for lights by 30% in 2014. When the standards tighten further in 2020, power use for lighting drops 60%. Overall, by 2035 our lights should eat up 44% less electricity than in 2008.

This drop in energy consumption does not signal austerity. On the contrary, our use of electric devices is growing. The EIA sees us increasing our use of computers, household appliances, water heaters, stoves, heat, air conditioning and microwaves. And for the first time this year we’ll direct more of our electricity into television watching than food refrigeration.

So it appears the predictions of today’s energy efficiency advocates may be correct: the economy can reduce energy consumption without sacrificing creature comforts.

The compete EIA report is here. http://www.eia.doe.gov/oiaf/aeo/index.html

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

Ghost in green building

By Elisa Wood

January 8, 2010

In midtown Manhattan, home of the nation’s priciest office space, the equivalent of 16 office towers, each 40 stories high, now stand empty. This statistic, from the Wall Street Journal, underscores the vast damage inflicted on commercial real estate by the economic downturn.http://online.wsj.com/article/SB10001424052748703521904574614833750873314.html?mod=WSJ_Real+Estate_LeftTopNews

Given the ailing market, this hardly seems the time to invest in expensive green upgrades. But a recent report suggests just the opposite.

Issued by sustainability organization Ceres and investment services company Mercer, “Energy Efficiency in Real Estate Portfolios: Opportunities for Investors,” points out several reasons why both property owners and investors may want to consider improving buildings now.

• Several studies indicate that efficient buildings command a premium in both rent and sales prices, and a shortage of green buildings exists to meet demand.

• New programs and support are available through private and public sources to finance efficiency retrofits. The federal stimulus package alone earmarks $11.3 billion for energy efficiency.

• Efficiency upgrades can decrease operating expenses.

• Inefficiency could mean financial penalty if the US moves forward on pricing carbon dioxide emissions.

We are experiencing an unquestionable increase in the greening of buildings – a good thing since buildings account for 39% of energy use in the United States. But property owners would probably pursue more efficiency if not for the misconception that efficiency upgrades are expensive. Owners often believe energy efficiency upgrades will cost as much as 17% more than they do, according to the report. These “ghost expenditures” are scaring building owners away from making upgrades, the report says.

“Evidence suggests that in many cases, the most effective changes have low upfront costs and result in significant operational cost savings, rental premiums, shorter vacancies and reduced obsolescence, as well as slower depreciation, and therefore higher capital values,” the report says.

Some investors aren’t afraid of the ghosts. Financial services giant TIAA-CREF is well on its way to reducing energy use 10% for its real estate holdings, a goal it hopes to achieve before the year is out. Begun in 2008, the effort already is saving the company $4 million a year in reduced energy costs.

Likewise, the California Public Employees’ Retirement System (CalPERS), the world’s largest pension fund, is on target to meet a 20% cut in energy use for its real estate by the end of this year.

“As fiduciaries, focusing on energy efficiency in our real estate portfolios just makes sense,” said Anne Stausboll, CalPERS CEO, “CalPERS invests in millions of square feet of real estate so cutting back on energy use and lowering operating costs can only boost the value of the properties in our portfolio, while also contributing to climate change mitigation.”

The report provides advice about how to proceed with green investments for both property owners and those who invest in real estate trusts and other securities. It can be found at www.ceres.org/realestatereport.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.