Energy Alchemy: Turning Building Energy Use Into A Potential Profit Center

Most developers view electricity and other utility costs as a liability, a cost of doing business in real estate. This does not have to be the case. In fact, there has been no better time to use energy management and on-site electricity generation as opportunities not only to reduce operating costs, but potentially make a profit on energy. Below I outline four major opportunities to turn energy into gold: energy efficiency; energy choice; demand management; and on-site renewable energy production. 

Energy efficient construction or building upgrades, combined with demand management, are the most cost-effective way to reduce energy bills and get better return on investment from your property.

There have been several studies which have determined which systems are most cost-effective in terms of return on investment for commercial and multifamily projects.   According to a detailed study by the American Council for an Energy Efficient Economy on energy savings in Pennsylvania,[1] multi-family properties can potentially save ten percent or more of electricity costs through cost-efficient upgrades to efficient lighting, heating/ventilation/air conditioning (HVAC) systems, and water heating systems. Additional savings in natural gas are also available, up to 46% savings relative to a reference case. The primary areas of cost-effective saving of natural gas are through insulation and high efficiency heaters and boilers. 

Commercial buildings can see a similar savings profile. The most energy savings for commercial buildings come from HVAC systems, energy efficient lighting and building shell changes. Cost-effective HVAC systems, energy efficient lighting and building shell changes can potentially represent a 21% energy cost savings for commercial buildings. 

Now is an ideal time to invest in energy efficient construction or building upgrades because the financial incentives available for energy efficient systems have never been better. The Federal government provides a tax deduction of $.30-$1.20 per square foot for the energy efficient building systems[2], as well as accelerated depreciation for the systems.[3] In addition, incentives received from state and utility programs are exempted from federal taxes.[4]

      Most states and many utilities have programs to incentivize energy efficient construction and building upgrades as well. The utility programs are often overlooked, and they can be quite generous. A quick review of your utility’s website should have an overview of the available incentives in your area. These incentives can include building energy audits, discounts on energy efficient systems, rebates, loan programs and many more. 

      Finally, the Great Recession has a silver lining with respect to energy efficiency projects. Labor costs in the construction industry, as everyone knows, are at an all time low. This can cut the cost of projects significantly. 

     There are two more opportunities to benefit from energy: energy choice and demand management. In most states, energy is deregulated, meaning that there is a competitive market for electricity and natural gas. You should shop around for your energy. Many retail energy providers offer better prices and discounts than the default provider.

     Demand management is another way to cut energy usage. Energy demand management, also known as demand side management (DSM), are mechanisms for adjusting the quantity of use of energy consumed, particularly during times of peak demand when energy-supply systems are constrained. There are several different demand management strategies, including technology to monitor usage and onsite renewable energy production. Not only will these strategies reduce energy usage, you can potentially make a profit on your energy by selling energy back to the utility grid.   Many companies specialize in demand management and offer suites of services to capture this often overlooked value.

     In short, building owners and operators should stop looking at energy solely as a cost to be paid, but rather as a potential revenue generating opportunity. To capitalize on this opportunity, start with a free energy benchmark or energy model. You can get a sense of how your building stacks up against comparable projects or an energy baseline. From there, identify the incentives and programs through federal and state programs, as well as your local utility. Do a building energy audit to identify the specific steps you can take to upgrade your building, or work with your design and engineering professionals to select energy efficient systems for new projects. Take an active role in selecting your utility provider to get the best value. Finally, look into demand management systems to reduce use and potentially get revenue from your utility from managing load in times of peak demand. There is no better time to invest in energy management for your building to pay dividends today and return investment over the life of the building.