Melbourne, Australia’s 530 Collins Street is one of the world’s most energy-efficient office buildings, thanks to a 2009 retrofit by Golden Valley–based Honeywell Building Solutions. The Honeywell unit does what’s known as energy performance contracting—a turnkey approach to efficiency retrofits in which the service company evaluates potential savings, plans projects to achieve them, arranges zero-down financing, and even guarantees the energy savings.
Honeywell does similar work in Minnesota, but almost exclusively in government buildings. The commercial retrofit market Honeywell sees in the Twin Cities is nowhere near as robust as in Australia, where the company does millions in annual energy contracts. Why? Honeywell credits Australia’s national building rating law that prohibits government agencies from leasing space in lower-rated buildings.
It’s “the single best thing I’ve seen done to get progress made in the commercial sector,” says Jeremy Eaton, vice president and general manager of Honeywell Smart Grid Solutions.
The National Australian Built Environment Rating System, or NABERS, requires owners of all buildings of more than 2,000 square meters (about 20,000 square feet) to annually calculate their energy use, which translates into a star rating.
The government, which is Australia’s largest office tenant, won’t lease space in buildings with less than a 4.5 star rating (out of a maximum six). Instead of mandating a minimum efficiency standard, NABERS makes it a business decision. “If I’m a landlord and I want to be in the market for government tenancies, I’ve got to have an efficient building. So what am I going to do? I’m going to start hiring contractors like Honeywell to make my buildings more efficient,” says Eaton.
The challenge Honeywell encounters most often in the Twin Cities is that building owners don’t believe they’ll benefit from investing in energy efficiency because most of the direct savings accrue to tenants, who typically pay utility bills.
Commercial buildings account for about one-fifth of U.S. energy consumption, mostly for lighting, heating, and cooling. Commercial building energy use grew faster than square footage from 1980 to 2009, according to the Energy Information Administration. The Twin Cities has several success stories, largely due to Xcel Energy’s rebates and conservation programs, which have helped conserve about 2,700 megawatts since 1990, with 90 percent coming from commercial and industrial buildings. Still, many more megawatts of opportunity remain. Minneapolis may soon adopt part of Australia’s solution.
Council Member Elizabeth Glidden introduced a proposal in November to create an energy benchmarking and disclosure requirement for large buildings (though it wouldn’t restrict city government leasing like Australia’s law does). The proposal, which was expected to have its first committee hearing in January, would require owners of commercial buildings of 50,000 square feet and larger to file annual reports on energy consumption, which would be published online by the city.
Think of it as a miles-per-gallon rating for buildings. Tenants could use efficiency scores in leasing decisions, and if that happens, owners of less efficient buildings would have incentive to improve.
Not everyone thinks lack of incentive is the biggest barrier facing commercial building efficiency. Scott Muldavin, a senior advisor to the Rocky Mountain Institute, who studies landlord-tenant issues involving energy, says the split incentive argument is a myth.
“It’s one of those things owners love to bring up,” says Muldavin, but in reality they see benefits from efficiency because it’s easier to attract and retain tenants. Also, most leases allow owners to pass on costs of energy upgrades to tenants.
Kevin Lewis, executive director of the Building Owners and Managers Association of greater Minneapolis (BOMA), says market forces have been successful at driving efficiency investments, and that he’s concerned about the potential for “unintended negative consequences.”
Glidden praises Minneapolis BOMA members as leaders in energy efficiency through programs like the Kilowatt Crackdown, but more work needs to be done, she says. “We want to be able to extend some of the really great best practices by these premier office buildings downtown to a broader range of large buildings in Minneapolis,” says Glidden.
She doesn’t think the requirement will be onerous for building owners. Reporting would require free Energy Star software that’s already used by many buildings, and the city has received a state grant to train owners who need assistance.
In New York, which adopted a building benchmarking program in 2009, compliance in 2011 was at 75 percent. Officials were optimistic that relatively high compliance rates would translate into more engagement on efficiency from owners. Other cities implementing building energy benchmarking programs include Austin, Texas; Seattle; San Francisco; and Washington, D.C. But Eaton wonders whether reporting alone will have an impact.
“It’s helpful, but is it actually going to meaningfully move anything? Probably not,” says Honeywell’s Eaton. “The key difference with NABERS is the government led by example.”