ValueofZeroNet

At Integral Group, we make every effort to guide our clients towards their greatest potential in sustainable design. Throughout California, there is major buzz around Zero Net Energy (ZNE) buildings.

The Vision of Zero Net Energy

For some, ZNE is about saving energy, avoiding carbon emissions, and balancing the energy used on a site with the energy generated on the site. This basic definition of a Zero Net Energy building is used by the International Living Future Institute (ILFI) for their ZNE certification program. After 12 months of building occupation, data can be analyzed to determine if you’ve been successful in reaching your ZNE goal.

To others, Zero Net Energy is purely an economic move. Buy low (when energy is cheap) and sell high (in the middle of the day, when energy costs are higher). This is often called Net Zero Cost. In the current Northern California commercial energy market, most Net Zero Cost buildings are utilizing renewable energy sources to cover 80% of their annual energy use. Eventually, changing regulations will likely affect this Net Zero Cost game, but for now, this is a very successful and profitable model for many projects.

In the last year, several California state agencies including the Department of General Services have aggressively stepped forward, setting targets to take their building portfolio to Zero Net Energy by 2020 for new construction and 2025 for 50% of existing buildings. The University of California’s Office of the President has also put forth a plan to be carbon neutral by 2025.

Both definitions bring a new level of excitement to building performance measurement. Even if a building is not operating at Zero Net Energy after a year, it is being monitored and can be compared and aggregated as an energy producer and energy user. This creates a cultural shift in the industry, with buildings able to bring more active feedback of information – in energy, in indoor air quality –and with data comes value. It is critical that we come to realize this is already possible for every building, at market value.

Value Trade-Offs to Zero Net Energy

In the current commercial construction market, cost is a major perceived hurdle to achieving Zero Net Energy. Everything is viewed as too expensive. Glazing is back-ordered. Labor is in short supply. Contractors are working overtime. People are humming as fast as they can. Overall, the industry is experiencing a boom, aside from costs.

Often, the true value opportunity is only possible when taking the time to design a great building. Finding ways to make a system as physically small and simple as possible are key to achieving optimal building performance. In truth, more buildings are often vastly overbuilt. Larger, thicker assemblies put together without attention to detail let in air, creating thermal bridges for heat transfer. Large HVAC systems, running at half their capacity, are specified using simple calculations and rules of thumb.

Zero Net Energy design help us zero in on a performance target and unlock the best means and methods for the design team to achieve it. The ideal solution is a building designed and built to perform as an integrated one. The construction-friendly method for holding on insulation and allowing the architecture itself to work keeps the heat out and keeps the HVAC system small and affordable. While not all projects can reduce the size of equipment, detailed focus in engineering and architecture can still simplify how these systems function and greatly reduce the time to commission and start them.

With high performance buildings, time and money are spent getting equipment to operate smoothly and communicate. One research study in the UK pointed out how few building owners and operators actually hold the designers to a measured target. With global institutions setting carbon and energy goals, the entire world of construction is being challenged to learn how to make performance a reality.

The Value Creation of Zero Net Energy

Overall, the industry is incentivized to design Zero Net Energy buildings because it directly creates value. With the falling cost of solar and wind power the ability to self-generate energy, especially in a state with net energy metering rules, is an amazing opportunity. For tenants who pay their own energy costs, there is some, although perhaps small, incentive. Energy costs in most office buildings roughly equate to 10% of rent costs.

Yet this value means different things to different parties. A tenant’s savings may be minimal for increased efficiency, yet for a building owner who is able to save energy and maintain the same revenue, the gains are more attractive. In several Zero Net Energy office renovations, owners are re-evaluating the standard idea of ‘triple net lease agreement’ and opting for a more traditional lease, including some energy costs. In commercial buildings, the value of revenue can be equated to the value of the property, depending on the market rate of return for property or the capitalization rate, or cap rate. In a good market, cap rates are low – 4% or 5%. In a poor market, cap rates might be 8% or 9%. Value = revenue / cap rate. If a building is able to save $1/sf of energy costs per year and charge this as rent, value increases of 20 times or more of increased revenue can add up, especially if a building is being renovated.

Property values and cap rates are the obvious value adds. But perhaps the bigger reward comes from Zero Net Energy buildings that utilize great architectural designs that emphasize abundant natural light and fresh air. The features are what attract tenants, earn coveted design awards, and can improve tenant retention, human health and wellness, reductions in sick days, students who are more awake, alert and ready to learn.

At the end of the day, it’s up to the design team to take a project to Zero Net Energy. Technology, human ingenuity, and simple products and methods are accelerating this market, and it’s when we really believe ZNE is possible that the world starts to align. So think big. Or call me for a pep talk.

 

 

 

Neil Bulger is a Principal at Integral Group and leads the Building Performance team in the western United States. He provides thermal comfort and low energy system design strategies for award-winning buildings, leveraging world-class simulation tools and years of experience in building science and HVAC.

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