Office buildings are one of the largest energyconsuming building types in the United States. Perhaps not surprisingly, corporate America is a major occupier, manager and owner of office buildings. Often, however, the managers responsible for the energy efficiency of these buildings face stiff competition for internal capital to fund efficiency projects.1 Energy teams must compete with multiple business units for funding, including those directly related to products and services, health and safety. In addition, energy projects frequently show a longer return on investment (ROI) and can struggle to compete in funding structures that reward short-term ROI.
Rocky Mountain Institute’s (RMI) Reinventing Fire analysis2 — how to transition U.S. energy use from fossil fuels and nuclear energy to efficiency and renewable energy while strengthening the economy — demonstrates the vast opportunities to cost-effectively reduce energy consumption. This past year, RMI and AT&T teamed up as part of RMI’s Portfolio Retrofit Program in an attempt to address challenges associated with realizing energy efficiency in office buildings. RMI has a proven track record of helping organizations achieve higher levels of resource efficiency.
RMI and AT&T saw potential in working together for two major reasons. First, speeding the uptake of efficiency efforts already underway in AT&T’s office portfolio will create substantial direct impact when applied across the millions of square feet that AT&T operates. Second, and potentially much more impactful, successfully addressing this issue and communicating the results broadly can empower corporate office energy managers across the United States.
Over the past few years, AT&T has already made progress directly funding efficiency projects, producing annualized savings of $151 million across the portfolio from 2010 through 2012. Even with that progress, the collaboration uncovered additional opportunities that can be realized by making slight adjustments to how projects are planned and implemented.
The project included five major steps. First, the team reviewed the office portfolio to evaluate energy performance and physical characteristics at a building level. Second, it selected a “model” building that has characteristics common to many buildings in the portfolio. Third, RMI worked with AT&T to conduct a deep energy analysis of that building and conversed with the management team to understand the realities of that facility. Fourth, the team facilitated a corporate workshop to review findings and discuss barriers and opportunities. Finally, RMI and AT&T synthesized results and developed recommendations to move forward.
Recommended Approaches to Efficiency
One of the RMI-recommended approaches to efficiency is to leverage opportunities in evolving workplaces. AT&T is currently upgrading office buildings to refresh and foster more mobile workplaces. These upgrades often include demolishing walls, replacing ceilings and light fixtures, and other building interventions. Efficiency measures can be integrated into these activities with minimal hassle to the occupants and project team. In many cases, the Asset Management group responsible for the office improvements can integrate the well-designed efficiency measures into the original budget for each property.
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And there are often other ancillary and important benefits that go along with these efficiency upgrades. As John Schinter, Executive Director of Energy at AT&T explains, the changes often improve tenant satisfaction, as well. “The positive response to our sustainability efforts we have seen from our employees has been tremendous. Our LED lighting and motion sensor installations are something tangible that people can see when they come into work and relate to their daily lives. Projects like these are a win-win — they’re moving the needle in terms of efficiency and drawing the best from our employees.” Given the widespread trend toward more mobile workplaces, this approach could potentially create impact across all corporate real estate offices.
A complementary approach is to enable major capital upgrades through better coordination of funding and resources among the energy team, property managers and supply chain.
Even as windows, chillers, air-handling units and other equipment near their end of life, it can sometimes be challenging to replace them because neither the property managers nor the energy team alone has a strong enough business case. However, pooling resources can often provide the business case required to fund the project.
For example, after specifying the energy performance of the equipment, the energy team can commit a certain percentage of the funds, up to a level financially justified by the energy cost savings. This commitment of funds essentially reduces the cost of the major project in that funding cycle, which improves the likelihood that property managers could get the rest of the major project funded. At the same time, the energy performance specification gives supply chain enough information to find the right vendors and negotiate energy-specific performance standards and delivery metrics across key commodity, product and service streams (e.g. electricity sourcing, lighting, HVAC, sensors, motors, integrated dashboard technologies, etc.), which reduces hassle for the property managers. While this sort of collaboration happens to some extent, RMI believes there are increased opportunities to work collaboratively across teams to boost project viability.
A third approach to address funding challenges in office buildings is to look externally for capital sources. RMI believes that companies can leverage emerging finance mechanisms offered by banks and other financing organizations. Typical projects must be $50 million or greater, so many buildings and different types of measures can be bundled together. Other emerging capital sources include Property Assessed Clean Energy (PACE), on-bill repayment and forms of energy services agreements and contracts. These structures provide the upfront capital required for the efficiency measures and require repayment through property taxes, utility bills, or energy savings. Federal and local tax incentives and rebates are also available in many cases to at least partially fund an efficiency project. Because these options are typically location- specific, it is important for the energy team to evaluate and document all the opportunities for properties in each region.
Valuing Efficiency
At AT&T and other companies, property retrofits are currently implicitly valued in numerous ways, such as employee satisfaction, company sustainability reputation and higher property resale. Recent Carbon War Room research concludes a key barrier to energy efficiency is its undervaluation.3 A 2012 survey of Urban Land Institute leaders found that lack of demonstrated value was the leading impediment to greater adoption of building sustainability, and proving up value at the property level would be the most important intervention.4 To address this need, RMI is developing a framework for decision makers to take values into account in a more systematic and comprehensive way. Companies like AT&T will be helpful in testing the framework for proving this value.
AT&T Progress
AT&T has already taken steps toward implementing some of RMI’s recommendations. The company installed LED lights and motion sensors as part of its effort to consolidate and renovate portions of office space. These installations decreased energy costs associated with lighting by as much as 90 percent, while generating positive feedback to management. The energy team is also working with third party groups to examine various funding methods to eliminate both upfront capital cost as well as reduce overall utility bills. Moving forward, AT&T and RMI will continue working toward the common goal of securing greater energy efficiencies in real estate portfolios across the nation.
Sources
1 Carbon War Room, Raising the Roof: How to Create Climate Wealth through Efficiency Buildings, July 2013.
2 Rocky Mountain Institute, Reinventing Fire. http://www.rmi.org/reinventingfire
3 Carbon War Room, Raising the Roof: How to Create Climate Wealth through Efficiency Buildings, July 2013.
4 Survey of 370 leaders of the Urban Land Institute, 60.4% of whom were owners, principals or senior executives in the real estate industry. “Learning from the Inaugural Urban Green Index, Urban Green, Fall 2012. http://www.urbangreen.net/publications.html
