Study Finds Commercial Retrofits Could Save $41B Annually In Energy Costs

Although energy-efficient retrofitting of commercial buildings has the potential to return twice as much in savings to owners and tenants as they require in investments, interest in pursuing retrofits has remained relatively low, dampened by the financial constraints on building owners from the economic recession, and lack of available financing options, according to a recent analysis of retrofit market opportunities by Boulder, CO-based Pike Research.

The new report states that 80% of all commercial buildings in the United States are now more than 10 years old. This large existing stock of inefficient buildings is also one of the leading sources of energy consumption and carbon emissions in the U.S.

According to this report, if all of the nearly 80 billion square feet of commercial space built as of 2010 were included in a 10-year retrofit program, based on today’s best practices, the savings in energy expenses would have the potential to reach more than $41.1 billion each year, based on an annual retrofit investment of $22.5 billion over the 10-year period.

"The building retrofit industry faces a number of key challenges," said Pike Research managing director Clint Wheelock in a statement. "The current financial crisis has had a significant dampening effect on property owners’ investments in their properties. Financing for such projects is scarce, and the limited investment in building efficiency is not keeping pace with the growing national demand for energy."

One program for financing energy retrofit projects, Property Assessed Clean Energy (PACE) financing, involves the passage of state legislation enabling the creation of local bond financing districts which lend back capital to building owners to fund energy retrofit projects. Owners repay the loan through their property tax bills over 15 to 20 years.

State legislatures in Florida, California and a number of other states have adopted PACE legislation, with the idea starting to gain traction among some green commercial building proponents. In an previous study, Pike Research predicted that PACE will continue to grow in the U.S., reaching $2.5 billion invested in commercial building retrofits annually by 2015.

However, the Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mae, has asked municipalities to freeze their residential retrofit programs while regulators untangle questions over first mortgage liens that could pose "usual and difficult" risk management issues for lenders, servicers and investors.

For now, according to the latest Pike Research release, the best-funded opportunities are major upgrades in the nation’s institutional and government buildings, especially in federal buildings.

The federal market, already strong because of federal green building policy mandates and strong creditworthiness, also received a funding boost from the American Recovery and Reinvestment Act stimulus program.

However, federal non-industrial buildings make up less than 3% of existing commercial space. The largest untapped potential is for energy retrofits in private commercial buildings. The latest Pike report expects that "several key market barriers will be successfully overcome during the next few years," and the firm expects that the private retrofit sector will experience strong growth through 2014 and beyond.