Written by: Sormeh Konjkav
The commercial real estate (CRE) market is widely known in the utility community as a “hard-to-reach” sector. While utilities have plenty of incentive programs for energy efficiency in the CRE market, there’s still a lack of participation despite the opportunity. Why is that? Waypoint Energy groups the commercial real estate barriers to energy efficiency in four main buckets:
1. Financial
The up-front cost of energy efficiency projects is a hurdle that commercial buildings stakeholders don’t often have readily available. It doesn’t help that more often than not, buildings’ capital budget cycles don’t align with utility offerings and timing. The CRE market is usually planning at least a year if not multiple years into the future and while they are putting together and solidifying their plans for the following year, the utilities usually haven’t advertised what the incentive levels and offerings are and will be. This causes tons of issues for the CRE decision makers and frustrates the utilities.
2. Market Structure
In the commercial real estate market, there are numerous stakeholders with differing priorities and motivations from the boots-on-the-ground facility engineers through the property managers, owners, and of course tenants as well. Depending on a building’s predominant lease structure, the costs and benefits of potential energy efficiency improvements are misaligned between owners and tenants, which can cause one or both parties to reject even the most financially attractive energy efficiency projects. The energy efficiency market is faced with navigating the CRE split-incentive barrier which occurs when the party who pays the upfront costs of an efficiency improvement is different from the one who benefits from energy savings.
3. Information and Knowledge
CRE stakeholders are often uninformed of utility incentive opportunities available to them, and if they are aware of them, they struggle to understand the requirements so much that they disregard the programs. Utilities commonly communicate benefits in terms of energy usage and peak demand reductions, while the CRE market thinks in dollars and financial value added to the net operating income (NOI) of the asset. Even though the properties have data and insight into how effectively a building is being run, they often deal with a lack of understanding of how to convert this knowledge into energy efficiency projects.
4. Physical Building
From acquisition, to base-building improvements, to tenant fit-outs and ongoing property maintenance, to disposition – there are certain times for certain energy efficiency activities with regards to building ownership receptiveness. For example, at the start of the lifecycle of a CRE property, a building owner who recently purchased a property is often more interested in upgrading the lobby with marble columns than adding advanced lighting controls to the space. If ownership is nearing the sell-period of their property, or only plans to hold the property for a short period of time, the owner will be less willing to invest in efficiency measures. Identifying and capitalizing on these critical times in the investment lifecycle of a building to offer appropriate incentive programs is a prevalent challenge across the market.
Waypoint Energy has years of experience overcoming market barriers to energy efficiency in the CRE market. Waypoint’s Connect Program for example, leverages existing market infrastructure, data and timing to successfully deploy utility energy efficiency programs to portfolios of properties at scale by identifying the right decision makers, with the right program at the right time. For more information about how we can navigate utility programs in the CRE market, contact us at info@waypoint-energy.com.