The business case for energy efficiency investments in buildings and plants

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Energy efficiency investments can pay for themselves by increasing the value of buildings and plants. Energy efficient buildings and plants enjoy lower operating costs and better financing terms, and energy efficient commercial real estate properties have been shown to command higher rents. Read on to learn more about the financial value of energy efficiency.

Even Small Investments Can Dramatically Lower Operating Costs

We have seen facilities reduce their energy use by up to 30 percent through low- or no-cost measures. The potential for savings varies, but for most facilities, significant gains in energy efficiency are possible through minimal investment. Below are some examples:

  • Kimberly Clark invested $350,000 to retrofit one of their fabric mills with LEDs. A utility rebate brought their cost down to $257,000. The project yielded energy savings of $160,000 annually, paying for itself in just over 1.5 years. Read more.
  • Installing occupancy sensors throughout a building cost one ENERGY STAR partner $28,400 and yielded total first-year savings of $89,200—a four-month payback period.
  • In search of low-hanging fruit, one ENERGY STAR partner invested $70,000 in various efficiency measures for its HVAC system and chilled water plant. These projects yielded $426,000 in total savings in the first year, paying for themselves within two months.
  • Corning identified nearly 60 air leaks in one of their plant’s compressed air systems. They expect that an investment of an estimated $166,600 will $85,400 per year. Read more.

While new technologies and renewable energy sources are on the rise, energy efficiency remains the single most cost-effective way to cut energy use in buildings.

Energy efficiency means better financing terms

Several studies on commercial mortgages find evidence of lower default risk among buildings with labels such as ENERGY STAR. As a result, these properties often secure better loan terms (longer

interest-only periods) and lower interest rates (typically about 30 - 35 basis points) than similar non-labeled buildings.

Tenants put a premium on energy efficiency

Studies show that ENERGY STAR certified office buildings command higher rental rates and have higher occupancy rates. The table below summarizes the results of six such studies.

CoStar Group/
Eichholtz, Kok & Quigley Fuerst & McCallister Pivo & Fisher Wiley & Johnson
Rental rate premium 16% 12% 3% 5% 5% 8%
Sale price premium 6% 1% 16% 31% 9% 0%
Occupancy premium 3% 0% 6% 3% 1% 0%

Source: Benchmarking and Disclosure: Lessons from Leading Cities, based on data from the Institute for Market Transformation.

The competitive advantage of energy efficiency

Hard numbers aside, ENERGY STAR can create additional competitive advantages. The ENERGY STAR mark is one of the most influential consumer emblem in the nation, with 92 percent of survey respondents reporting that they use it in their decision-making. That’s just one of the reasons why tens of thousands of organizations—including half of the Fortune 100®--work with ENERGY STAR to improve their properties’ energy performance. Their customers, tenants, and employees are paying attention.

Energy efficiency & financial value

The Department of Energy summarized 50 market studies on the financial value of energy efficiency. Read their review here (PDF, 273 KB).

Other ways to look at cost savings

For businesses with high operating leverage, even small cost savings have a dramatic financial impact. Every dollar of cost savings equals five dollars in revenue. For example. a seven percent energy use reduction over three years:

For a 500,000-square-foot office building:

  • Cumulative cost savings of $120,000
  • Increase in asset value of over $1 million

For a medium-box retailer with 500 stores:

  • Cumulative cost savings of $2.5 million
  • Increase in sales of 0.89%

For a full-service hotel chain with 100 properties:

  • Cumulative cost savings of $4.1 million
  • Increase in revenue per available room of $1.41

For an 800,000-square-foot school district:

  • Cumulative cost savings of $140,000
  • Salary of 1.2 full-time teachers each year