Economics + Operational Cost

I. General Operational Cost Benefits

High performance design can significantly reduce utility costs through energy and water efficiency (Dodge 2018). Energy use reduction from carbon-intensive sources is an essential feature of a high performance building due to the urgent need of reducing CO2 emissions to prevent catastrophic climate change. The associated operational cost savings are significant, with a recent survey of over 2,000 respondents including architects, contractors, and developers indicates that high performance design features save on average 14% in operational cost over five years for new construction and 13% over five years for green retrofits and renovations (Dodge 2018). Reduction of energy use in high performance buildings is well documented (Bhavsar 2020, Taemthong 2019, World Green Building Council 2018, Fowler 2011). A study by Eichholtz on green real estate found that on average, every dollar saved in energy cost increased the market value by $18.32 assuming a capitalization (“cap”) rate of 5.5 percent. If that cap rate were raised to 6 percent, a $20.73 increase in market value was found per dollar of energy savings (Eichholtz 2010).

Savings on operational expenses such as energy and water can also be thought of as an on-going revenue stream over the lifetime of the building. While not traditionally seen through this lens, savings in utility costs can be seen as an equivalent to other income-generating activities. For example, in a 5% net-operating environment, it can take $20 of gross revenue to generate $1 in net-profit. Large commercial or institutional buildings can easily consume $1,000,000 worth of utilities annually (Burpee 2009). Reducing that expense through energy efficiency by 20% would result in a $200,000 annual reduction of utility bills, and would be equivalent to $4,000,000 of gross revenue for an organization (Burpee 2009).

High performance design can also reduce repair and maintenance costs and fixed costs. Repair and maintenance costs can be reduce through selection of sustainable material and durable building systems (WGBC 2013). Reducing reliance of mechanical systems through integration of passive design systems reduces maintenance and cleaning required of HVAC (Dean 2016). Use of natural landscaping can also significantly reduce maintenance cost (EPA Greenacres Report 2016). Fixed costs are reduced through inherent flexibility of high performance design spaces (WGBC 2013).

II. Goal Setting

The process for realizing energy cost savings begins early in the design phase, where building owners, architects, engineers, and consultants set energy goals and work collaboratively to integrate building systems effectively (Bhavsar 2020). For buildings with highly ambitious reductions in energy consumption, it is often most successful when there is a dedicated energy “champion.” One way that design teams have formally incorporated an energy champion is through a relatively new design team role, the “master system integrator,” who assists in the integration and implementation of sustainable technologies (Dean 2016). This kind of role is becoming increasingly common on high performance design teams and it is important for them to participate in early design through early occupancy to maximize system efficiencies and operational cost savings (Dean 2016, Dean 2018).

Assessing sustainably through an established framework can be an effective exercise during goal setting and “enables capturing the status of the attributes that the built environment exhibits, determining what needs to be done, and establishing how design and construction aspects can be improved to meet the policies for sustainable development” (Raouf 2018). Established frameworks can also help design and ownership teams have a common decision-making and assessment framework, clarifying communication and commitment among various stakeholder groups (Rauof 2018). There are three sustainability assessment methods that are widely used: Cumulative Energy Demand (CED), Life Cycle Assessment (LCA), and Total Quality Assessment (TQA) (Berardi 2012). The CED is a common exercise of goal setting for energy consumption using baseline and target energy use intensity (Raouf 2018). The LCA method assesses “the compilation and evaluation of the inputs and outputs and the potential environmental impacts of a product system throughout its life cycle” (ISO, 2006). The TQA, also known as the check-list method, “considers environmental, social, and economic aspects of sustainability in a multi-criterion system that compares real and reference performances” (Raof 2018). The TQA methodology is used for many rating systems including Leadership in Energy and Environmental Design (LEED) (Rauof 2018).

III. Integrating Passive & Climate Responsive Design

Integrated design is a holistic approach to design where various team members from different disciplines regularly work together to achieve project goals. Operational cost reduction, and specifically energy use reduction, in high performance buildings is a result of an integrated design approach that incorporates passive and climate responsive design, daylighting design, and further reduction of loads through equipment efficiency and occupant behavior (Lechner 2014). With an integrated design approach, cost and energy savings are realized by maximizing the use and synergies between individual building elements. For example, using an integrative design approach, a window will be part of multiple systems including the daylighting, ventilation, heating, and cooling strategy.

Case Study: 435 Indio Way
To demonstrate the potential operational cost savings of an integrative design approach, the following sections outline a case study of the 435 Indio Way Office Building in Sunnyvale, California (Dean 2016). This office project is a renovation of an existing, 31,800 sf tilt-up concrete building and was designed to be Net-Zero energy and more profitable than a code-minimum alternative. The developer engaged with an engineering team and contractor early on in the design process and constantly assessed financial implications of energy-related design decisions. Apart from low energy costs, the developer determined that views to the outside and high indoor air quality would appeal to tenants and were important design drivers for repositioning the building in the market (Dean 2016).

Passive Design Strategies
The passive design strategy for the 435 Indio Way Office Building included adding additional 6” of insulation to the outside of the concrete walls. The additional thickness to the wall added 326 sf to the rentable area, with rentable area measured to the outside of the exterior wall using BOMA standards. The project was designed to prevent heat gains to the windows using electrochromic glass. Preventing heat gains on windows can cut down significantly on energy use and peak cooling load (Chen 2015). Using electrochromic glass instead of exterior blinds or fixed shading devices also provided the additional benefit of unobstructed views to the outside. Skylights were also added to the building and designed to adequately daylight all of the office spaces during business hours throughout the year. While electric lighting on dimmers are provided, electric lighting is rarely used due to ample daylight during operational hours. This is quite remarkable considering that in 2019, commercial and institutional buildings used 141 billion kWh of electricity for lighting, representing about 10% of the total energy consumption in these types of buildings (EIA website: https://www.eia.gov/tools/faqs/faq.php?id=99&t=3).

For passive cooling, the building night “flushes”, using night time outside air to cool the exposed concrete walls and floors which are used for thermal mass. There are multiple studies supporting the efficacy of passive cooling, with an observed reduction in energy between 12-54% (Schulze 2013, Imesssad 2014). At night during the warm months, windows at the perimeter and the skylights open and large ceiling fans operate to facilitate heat transfer between the concrete and cool air. The operable windows at the perimeter also serve the purpose of providing fresh air during the day, and for this reason, conference rooms and higher capacity spaces that require more fresh air ventilation are located on the perimeter.

All of the passive and climate responsive design elements in 435 Indio Way were designed to relate to multiple building systems and respond to multiple needs. This integrated approach is outlined in Table 1 and is responsible for significant savings in energy use and increased rental income due to improved indoor environment from unobstructed views to the outside, natural daylight throughout the office space, and improved indoor air quality.

Table 1. Passive and climate responsive design elements (listed on left) address multiple needs in 435 Indio Way. Maximizing use of different elements adds to cost efficiency and energy savings

Designing with the passive design strategies similar to those outlined above for the 435 Indio Way Office Building has been shown to significantly reduce energy use in buildings. According to Lechner in his book Heating, Cooling and Lighting: Sustainable Design Methods for Architects, up to a 60% reduction in heating, cooling, and lighting loads can be achieved through “basic building design”, which consists of climate responsive massing and orientation, shading windows, insulation, and other strategies (Lechner 2014). According to Mechanical and Electrical Equipment for Buildings, a passive solar house built in Seattle can use 59% less energy than baseline construction taking into account thermal mass, insulation, and solar glazing alone (Grondzik 2014).

Mixed-Mode Ventilation
The 435 Indio Way Office Building operates under a mix-mode ventilation sequence. Mixed-mode ventilation is widely acknowledge as energy saving and can lead to up to 31% of energy cost savings (Daaboul 2018). The building closes to the outdoors when outdoor temperatures are low and may require supplemental heating if outdoor temperatures are very low. As outdoor temperatures rise, operable windows and skylights open for natural ventilation and fresh air supply. As outdoor temperatures continue to rise, windows and skylights close and prevent the building from overheating and air-conditioning units begin to operate.

Energy Efficient HVAC
The 435 Indio Way Office Building has two, 11 ton air-source heat pump units that supplement the passive heating and cooling systems (Dean 2016). The heat pumps are sized for peak events, but normally operate under reduced loads. Heat pumps are a common feature in high performance buildings because they run on electricity and are highly efficient. Ground source heat pumps use the ground as a medium of heat transfer and are the most efficient, with typical efficiency at 500% (Fredin 2009). While the initial first cost of these systems can be over twice that of conventional systems, those cost can be recovered through reduction in operation costs (Bhavsar 2020). Ground source heat pumps used with variable refrigerant flow systems can reduce energy consumption by 32-42% (Karr 2011).

There are many other HVAC strategies and equipment that reduce energy use. Decoupling heating and cooling from fresh air ventilation, a strategy adopted in 435 Indio Way, can significantly reduce HVAC operating costs. A cost analysis performed by Dr. Stanley Mumma, a scholar in dedicated outdoor air systems, determined that mechanical costs can be reduced by 23% annually when switching from a VAV system to a DOAS system that uses radiant heating and cooling (http://doas-radiant.psu.edu/). Utilizing demand control dampers (DCDs) that vary ventilation rates based on space CO2 concentrations can also significantly reduce energy costs. Typical energy cost savings can range on average between 5 to 27 percent (Prill 2013), but savings up to 35% was shown using a DCD for a stand-alone retail building in Seattle, which corresponded to a payback period of three years (Wang 2011).

Reduction in Peak Loads and Peak Energy Consumption
High performance design can avoid peak “demand charges” by avoiding high energy consumption during peak utility demand times. A high performance envelope, building shading, daylighting, efficient HVAC, demand-response ventilation, thermal storage, and batteries can all reduce peak demands (Lee 2012, Chen 2015, Dean 2016, Dean 2018). Reducing peak demand also reduces the size requirement of HVAC that is required, which can save on first-cost acquisition of the equipment as well as can reduce the overall size of the equipment. Sometimes, this can even result in overall floor-to-floor height reductions, which reduce the initial first cost of the building (t100.be.uw.edu). Reduced peak loads can also enable alternative building mechanical strategies such as radiant heating and cooling, which require lower peak loads to perform optimally (t100.be.uw.edu). To frame this concept through integrated design thinking, the envelope becomes part of the heating and cooling strategy by mitigating peak loads (t100.be.uw.edu).

Repair/Maintenance and Fixed Cost Reduction
Like many high performance buildings, the 435 Indio Way building has natural landscaping as opposed to conventional landscaping. Maintenance factors that are associated with conventional landscaping include “high labor cost, water, fertilizer, herbicides, insecticides, fungicides, replanting annual flowers, and mowing” (EPA Greenacres Report 2016). Landscaping with native wildflowers and grasses is 1/5th the cost of conventional landscaping over a ten year period, and provides other benefits such as reduced soil erosion, improved water quality, reduced air pollution, and habitat restoration and protection (EPA Greenacres Report 2016).

Fixed costs are also reduced in high performance buildings. In 435 Indio Way, the reserve requirement is much lower than a typical building because of the smaller HVAC system (Dean 2016). Reserve requirements are also reduced for tenant improvements due to flexibility of HVAC system to accommodate various space configurations with the variable refrigerant flow system (Dean 2016).

Using durable materials with a long life span can reduce the number and frequency of foreseen and unforeseen replacements, which also reduce operational costs. For the greatest impact, the Carbon Leadership Forum recommends durability and long lifespans for roof, internal finishes, loose furniture, mechanical equipment, and façade (CLF 2018).

Energy Performance of 435 Indio Way
The modeled EUI of the 435 Indio Way Office Building was EUI of 21.1 kBtu/sf-year (Dean 2016), compared to a 52.9 kBtu/sf-year for typical office buildings in the United States (2018 Energy Start Report). Similar to many low energy buildings that reduce heating and cooling loads, plug loads dominate the EUI. Plug loads, lighting, ventilation, cooling, and heating make up 56%, 24%, 14%, 4%, and 2% of the total energy consumption respectively. Since plug load directly correlates to occupant behavior, encouraging occupants to adopt energy saving practices such as unplugging devices at the end of the day can have a significant effect on EUI. After one year, the actual EUI of the 435 Indio Way Office Building was 13.5 kBtu/sf-year, 35% less than indicated from modeling.

Financial Performance of 435 Indio Way
The 435 Indio Way project cost an additional $49.84/SF more than a conventional office building including soft costs, hard costs, and a 113.2 kW Solar PV array (Table 2). Through integrating design strategies such as passive and climate responsive design, daylighting, HVAC efficiencies, and natural landscaping the operating expenses were reduced by $0.45/SF/month, creating a value of $83.08/SF with a 6.5% market capitalization rate. Taking into account above market rent prices, additional rent received due to early lease up, and extra rent from increasing rentable area through adding exterior insulation, the total additional value of the project is $100.29/SF. The cost effectiveness of high performance design has motivated the developer of 435 Indio Way to only build this way in the future (Dean 2016).

IV. References

Review Articles

• Attema, Jeremy, Fowell, S.J., Macko, M.J., & Neilson, W.C. “The Financial Case for High Performance Buildings.” San Francisco: Stok LLC. (2018).
• Berardi, Umberto. “Sustainability assessment in the construction sector: rating systems and rated buildings.” Sustainable Development 20, no. 6 (2012): 411-424.
• Burpee, Heather, M. Hatten, J. Loveland, and Stan Price. “High performance hospital partnerships: reaching the 2030 challenge and improving the health and healing environment.” In ASHE Conference on Health Facility Planning, Design and Construction (PDC). Phoenix, AZ. 2009.
• Chen, Xi. “A comprehensive review on passive design approaches in green building rating tools.” Renewable and Sustainable Energy Reviews 50 (2015): 1425-1436.
• Dean, Edward. Zero Net Energy Case Study Buildings. Volume 2. 2016. Pacific Gas and Electric Company
• Dean, Edward. Zero Net Energy Case Study Buildings. Volume 3. 2018. Pacific Gas and Electric Company
• Karr, M. “Ground-Source Variable Refrigerant Flow Heat Pumps: A Solution for Affordable Housing, Assisted Living, Hotels and Dorms.” Washington State University Extension Energy Program (2011): 1-7.
• Prill, R. “Measuring Carbon Dioxide Inside Buildings–Why is it Important.” Energy Proram, WSU, Washington, USA (2013).
• Raouf, Ayman MI, and Sami G. Al-Ghamdi. “Building information modelling and green buildings: challenges and opportunities.” Architectural Engineering and Design Management 15, no. 1 (2019): 1-28.
• WGBC (World Green Building Council). The Business Case for Health and Wellbeing in Green Building. 2018.
• WGBC (World Green Building Council). The Business Case for Green Buildings: A Review of the Costs and Benefts for Developers, Investors and Occupants. 2013.

Primary Research

• Bhavsar, Rutul. “Mohawk College’s Net Zero Energy And Zero Carbon Building – A living lab for high efficiency and renewable energy technologies in buildings.” Journal of Green Building 15, no. 1 (2020): 185-214.
• Daaboul, Jessica. “Mixed-mode ventilation and air conditioning as alternative for energy savings: a case study in Beirut current and future climate.” Energy Efficiency 11, no. 1 (2018): 13-30.
• Eichholtz, Piet, Nils Kok, and John M. Quigley. “Doing well by doing good? Green office buildings.” American Economic Review 100, no. 5 (2010): 2492-2509.
• Fowler, Kimberly M, et. al. Re-assessing green building performance: A post occupancy evaluation of 22 GSA buildings. No. PNNL-19369. Pacific Northwest National Lab, Richland, WA, 2010.
• Imessad, K., L. “Impact of passive cooling techniques on energy demand for residential buildings in a Mediterranean climate.” Renewable energy 71 (2014): 589-597.
• Lee, M. C., K. W. Mui, L. T. Wong, W. Y. Chan, E. W. M. Lee, and C. T. Cheung. “Student learning performance and indoor environmental quality (IEQ) in air-conditioned university teaching rooms.” Building and Environment 49 (2012): 238-244.
• Schulze, Tobias, and Ursula Eicker. “Controlled natural ventilation for energy effcient buildings.” Energy and Buildings 56 (2013): 221-232.
• Taemthong, Wannawit. “An analysis of green building costs using a minimum cost concept.” Journal of Green Building 14, no. 1 (2019): 53-78.
• Wang, Weimin. “Energy Savings and Economics of Advanced Control Strategies for Packaged Air-Conditioning Units with Gas Heat.” No. PNNL-20955. Pacific Northwest National Lab.(PNNL), Richland, WA (United States), 2011.

Print Media

• Grondzik, Walter T., and Alison G. Kwok. Mechanical and electrical equipment for buildings. John Wiley & Sons, 2014.
• Lechner, Norbert. Heating, cooling, lighting: Sustainable design methods for architects. John Wiley & Sons, 2014.