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December 10, 2011
Green Retrofits Outpace New Construction for First Time
    by Robert Kropp

The US Green Building Council says that LEED-certified square footage of existing buildings now exceeds that of new construction.

The US Green Building Council (USGBC), the organization whose Leadership in Energy and Environmental Design (LEED) ratings certify green building design and construction, announced this week that the cumulative square footage of LEED-certified existing buildings now exceed that of new construction by some 15 million square feet.

Cumulative LEED for existing building, which has in fact been outpacing new construction on a yearly basis since 2009—a time frame coinciding with an industry-wide slowdown in new construction—now stands at 659.5 million square feet, compared to 633 million square feet for new construction.

Despite the industry-wide slowdown in new construction, LEED for new construction has continued to increase as well. Thus far in 2011, 172.5 million square feet of LEED-certified new construction have been added to the nation's stock of commercial building space. During the same time frame, 225 million square feet of certified green retrofits of existing buildings have been added.

Buildings in the US are responsible for 39% of the nation's CO2 emissions, as well as 40% of its energy consumption and 13% of water consumption. Two recent high-profile green retrofits demonstrate the energy savings that are possible for existing buildings.

In New York, the LEED-certified Empire State Building will reduce energy consumption by an estimated 38%. By saving $4.4 million in annual energy costs, the historic building's owners expect to recoup the cost of its green retrofit within three years.

And in San Francisco, the Transamerica Pyramid earned LEED Platinum status as an existing building, 39 years after it was originally built. The building's onsite co-generation plant saves an average of $700,000 annually in energy costs.

"The market is becoming increasingly aware of how building owners can get better performance through green operations and maintenance, and tools such as LEED for Existing Buildings: O&M are essential to cost-effectively driving improvements in our economy and environment," Rick Fedrizzi, President and CEO of USGBC, said. "LEED as a rating system is continuing to evolve an ever greater emphasis on performance, not only in energy, but also water, location, indoor environmental quality, and materials."

The Better Buildings Initiative, originally announced by President Obama in February, set a national target of improving energy efficiency in commercial buildings by 20% by 2020, which would save American businesses $40 billion per year in energy costs. Earlier this month, Obama announced the Better Buildings Challenge, which seeks to catalyze private sector investment to finance building energy upgrades totaling 1.6 billion square feet.

Obama also said he has directed all federal agencies to make at least $2 billion worth of energy efficiency upgrades over the next 2 years.

"Upgrading the energy efficiency of America's buildings is one of the fastest, easiest, and cheapest ways to save money, cut down on harmful pollution, and create good jobs right now," Obama said. "With today's extraordinary private sector commitments of $2 billion to upgrade businesses, factories, and military housing, America is taking another big step towards the competitive, clean energy economy it will take to win the future."

A report published last month finds that opportunities exist today to finance $150 billion per year in energy efficiency projects that yield double-digit financial returns.

Prepared by Capital E in collaboration with five of the ten largest banks in the US and other industry organizations, the report found that investments in the US of $150 billion a year "would, within a decade, save American businesses and households $200 billion annually and create more than 1 million new full time jobs."

However, the report continues, such a level of funding represents a dramatic increase over current investment levels of about $20 billion per year.

"In this report we evaluate and map out multiple pathways to scale private sector investment into energy efficiency," Greg Kats, President of Capital E, said.

Some of the more encouraging funding mechanisms analyzed in the report include preferential loans, which are extended by financial institutions and insurers. Since data exists to persuade lenders that energy efficiency measures reduce operating expenses, thus reducing risk, such loans merit preferential interest rates.

Insurance mechanisms such as loan guarantees and loan loss reserves, as well as new financial products such as e-loans that reduce transaction costs, also have the potential for significant contributions to the scale of private funding envisioned in the report.

An important initiative currently under development by Capital E is making energy efficiency financing a standardized financial asset class. "EE financing must become a mainstream investment product, with a high degree of standardization, predictability and scale," the organization states.

In order to do so, Capital E is working with banks to define transaction and management requirements, and with institutional investors to design financing products.


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