In the United States alone, commercial buildings are responsible for 18 percent of the nation’s energy as well as 18 percent of its greenhouse gas emissions. Commercial building retrofits are projected to create an estimated $18 billion industry annually over the next 10 years while directly and indirectly creating some 360,000 jobs.

The 2010 Energy Efficiency Indicator Study determined 92 percent of corporate decision makers consider energy management a top priority.

Yet financing limitations often cause the Commercial to choose other investments versus energy retrofits. A lack of capital required for the up-front costs and a lack of interest on the part of executives who can’t justify expenditures that will not provide a return on investment for anything more than a one to two year payback, has often stopped these projects from being considered. 

Several recent funding alternatives have been developed as possible solutions in the Commercial and are gaining traction with building owners. 

Performance contracting is one such option. A proven financing option that has been successful in the public sector with federal and state government, municipalities, schools and universities and healthcare facilities, performance contracting allows aging equipment and systems to be replaced with modern, energy- and resource-efficient technologies. The initial capital investment to make improvements is paid for through energy savings generated over the length of the contract. The energy service company that installs the improvements contractually guarantees a combination of savings of energy consumption and improved system performance, or both. Usually the payments are offset entirely by a reduction in energy cost. 

Other financing methods offer viable options for building owners to consider that create incentives for both landlords and tenants, eliminate the need for owners to provide capital and exposes financers to less risk. 

Property-Assessed Clean Energy (PACE) Bonds (also called tax lien financing) has helped expedite sustainability upgrades. Using PACE bonds, owners borrow from a newly established municipal financing district created exclusively for energy-efficient retrofits. They repay the money over a 20-year term through a special assessment on the property tax bill. Local governments have the ability to launch PACE programs in 21 states while 10 others have enabling legislation pending. These bonds, backed by federal loan guarantees, promises to accelerate the energy retrofitting of our country’s commercial facilities. 

The path to sustainability for commercial buildings not only provides economic benefits, it also provides environmental benefits with lower green house gas emissions, and social benefits through occupant education and awareness. Or the triple bottom line for commercial buildings. Sustainability for Commercial doesn’t require sacrifice: it is simply a new way of thinking about the total lifecycle cost of a building. 

Leland Smith and Peter White
Directors, Private Sector, Energy Solutions, Johnson Controls