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06 June 2024
Understanding the financial challenges, policy dynamics, and strategic considerations in owning commercial properties aiming for net-zero energy status is critical.
Understanding the financial challenges, policy dynamics, and strategic considerations in owning commercial properties aiming for net-zero energy status is critical.
Morag Murray, with over 30 years of experience in the industry, serves as Director at Linesight, based in New York. She brings extensive expertise in cost management across various sectors including commercial, transportation, retail, healthcare, and education.
Passionate about sustainable construction, Morag has authored this insightful article to demonstrate that achieving zero energy use in commercial developments is not only necessary but also achievable with strategic planning and determination.
This article was initially published on Propmodo on February 29th, 2024. To read the original version, click here.
Net-zero energy buildings represent a significant step toward sustainability, designed to match renewable energy production with consumption. With the international target of carbon neutrality by 2050, countries, including the United States, are setting standards and offering incentives to promote these buildings. They exemplify the construction industry's commitment to environmental responsibility, energy efficiency, and economic sensibility.
Understanding the financial challenges, policy dynamics, and strategic considerations in owning commercial properties aiming for net-zero energy status is critical. It illuminates potential hurdles and reveals effective cost-management strategies to mitigate financial barriers to sustainability goals. It also offers insights into evolving eco-friendly regulations and building codes, providing a roadmap for achieving net-zero energy building standards in commercial real estate.
Historically, net-zero building initiatives faced higher costs due to limited demand and the availability of advanced materials. However, increased investment has brought economies of scale, reducing costs for construction firms. Advancements in construction technology are also decreasing premiums as the workforce adapts to new methods. Selecting the right materials and relying on trusted advisors are crucial for maximizing purchasing power. Leveraging relationships with reputable vendors and using benchmarking to compare budgets to recent similar projects enables robust budget stress-testing.
Understanding the long-term cost impact of implementing net-zero technology is crucial for clients investing in properties. Although initial costs may be higher, these technologies offer benefits throughout the building's lifecycle. Advanced building components reduce heating and cooling costs, while management systems decrease operational costs by optimizing energy usage.
Buildings with net-zero initiatives also attract tenants, potentially leading to higher rental prices due to their high-performance features. Companies looking to rent space consider factors such as the building envelope and the core services of mechanical, electrical, and plumbing systems for their impact on operational costs. The efficiency of building components is increasingly a major factor in renters' decisions, offering potential benefits to owners who invest.
Retrofits present particular challenges compared to new constructions in achieving net-zero goals. Existing structures have inherent limitations, and hidden conditions can also pose challenges. Both scenarios offer opportunities to employ passive and active strategies. Passive strategies focus on minimizing energy use through recycling and repurposing existing elements, integrating efficient equipment, low-energy systems, thermal improvements, and sustainable architectural designs, often at minimal additional cost. Active strategies, including renewable energy installations, should also be explored to maximize energy efficiency.
To address the financial challenges posed by fluctuating energy costs, Energy Service Companies (ESCOs) play a critical role. They develop, design, build, and arrange financing for projects that save energy, reduce energy costs, and decrease operations and maintenance costs at their customers’ facilities. Furthermore, the US government's investment in domestic alternative energy solutions marks a positive shift from gas-powered to electric buildings, reflecting a commitment to reducing fossil fuel reliance and promoting sustainable solutions. These changes signify a promising direction for the industry.
Building codes are essential in shaping construction practices and are significantly transforming to meet the demand for net-zero energy buildings. The 2021 International Energy Conservation Code (IECC) introduced Zero Code appendices for residential and commercial buildings, establishing stringent efficiency requirements and mandating renewable energy generation to meet specific energy performance goals.
Advanced energy codes, known as “stretch codes” or “reach codes,” are emerging as essential tools to enhance energy efficiency at the jurisdiction level. The Massachusetts Stretch Energy Code is an example that prioritizes energy performance over prescriptive requirements, promoting cost-effective and more energy-efficient construction than the base energy code. California’s well-established reach codes cover various aspects, including energy efficiency, electrification, renewables, process loads, water use, and electric readiness.
Beyond energy codes, jurisdictions are enhancing their strategies with related ordinances and standards, including energy benchmarking and building commissioning programs. Standards like New York City’s Local Law 97 set minimum energy performance requirements for existing buildings, encouraging the retrofitting of older structures to meet contemporary energy efficiency standards. This nuanced approach to building codes reflects a comprehensive shift toward fostering sustainable construction practices and supporting the evolution of net-zero energy buildings.
President Biden’s Executive Order 14057 is pivotal within the Federal Sustainability Plan, strategically advancing American clean energy industries and addressing climate change. This comprehensive directive actively facilitates tangible improvements in building sustainability, promoting energy efficiency upgrades, encouraging measures like enhanced insulation and the implementation of smart HVAC systems. The order also champions the integration of renewable energy sources, such as solar panels, reducing reliance on traditional, carbon-intensive power. Additionally, it incentivizes the modernization of building infrastructure through smart technologies, fostering more efficient energy management.
The executive order emphasizes supporting green building certifications like LEED or ENERGY STAR. This backing includes providing financial incentives to encourage adherence to stringent sustainability standards. The directive sets the stage for resilient building design, enhancing structures’ ability to withstand environmental challenges. The executive order aspires to influence the nationwide adoption of sustainable construction and operational practices by establishing a precedent with federal buildings.
The role of a specialist in cost management extends beyond consultation, actively providing actionable insights to clients. Setting an accurate budget is crucial in the initial stages of a project, which involves transparent communication of net-zero strategies, specifying building type, total area, assumed construction materials, net-zero elements, risk allowances, procurement strategies, and benchmark data for stress testing.
As the design progresses, the cost manager role transitions into continuous budget development, management, and stress testing, aligning with design updates. Cost managers ensure real-time information sharing with the project team, emphasizing a flexible and collaborative approach. Strategies for net-zero energy buildings may undergo iterations, and furnishing accurate cost data during option consideration proves invaluable.
Tailoring procurement options to project requirements is another facet of cost management. Early in the process, contractor involvement may be recommended to provide design input, coordination, and constructability insights, particularly in net-zero energy building projects. Cost managers contribute to contractor selection, ensuring relevant capabilities and experience.
Continuous risk management is central to the cost management process, involving regular review, monitoring, and updating risks at each stage. As more information is acquired, contingency allowances may be adjusted, reflecting a dynamic and iterative approach to risk management. Collaboration is essential in net-zero energy building projects, recognizing that no party operates in isolation. Cost managers aim to communicate accurate, clear, and concise cost data to key decision-makers throughout the project, ensuring that various parties contribute to overall success.
Looking beyond immediate construction expenses, cost managers emphasize assessing maintenance, repair, and replacement costs over the building’s lifespan. This comprehensive approach enables property owners to make informed decisions supporting resiliency and ensuring long-term financial stability.
Sustainability now takes center stage in commercial real estate, once synonymous with energy consumption. The collaboration between government agencies, research institutions, and the commercial sector is pivotal. Achieving a greener future means embracing net-zero energy building principles, but that can’t be done without a clear, practical understanding of financial hurdles. The only way that properties can achieve net-zero is if its ownership and management teams stay updated on evolving policies and implementing effective cost-management strategies. We can achieve the goal of reducing our buildings’ energy use to zero, but like any big goal, it won’t happen without planning and perseverance.
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