Monthly Archives: June 2017

It’s Not Just Lower Energy Bills: Proof of Productivity Improvements By Going Green

Buildings account for about 73% of total U.S. electricity consumption, according to the U.S. Green Building Council (USGBC). Therefore, building owners and managers can help improve our energy efficiency and independence. However, the real estate industry has been slower than others in embracing and implementing energy efficiency, even though it stands to benefit greatly from energy efficiency gains.

The Many, Great Financial Benefits of Green Building

A recent report from CoreNet Global, “The Future of Corporate Real Estate”, discusses reasons why building owners will benefit from implementing such strategies:

• reduced utility costs,

• higher selling price for “green” buildings over non-green units,

• greater demand for such buildings, and thus, greater rental income.

Reduced Utility Costs

It goes without saying that if you use less electricity or gas or oil to heat a building, you will decrease your utility costs. Energy rates are among the fastest growing expenses of a building owner (greater than that of labor rates), and a potential drag to profitability. Using less energy gives you control to reduce this cost (you have no control over energy rates).

But utility cost benefits go beyond just this. More utilities – particularly in large cities – are charging not only for electricity usage, but also for peak demand. Whatever your electricity need for your building in (in most cases) one 15-minute period per month will lead to a huge additional charge, even if usage and demand are low for the rest of the month. Thus, ways to reduce peak usage can be very effective in reducing utility costs.

There is also a special value to investing in strategies to reduce energy usage and peak demand. Let’s assume you install technologies that reduce your utility costs by $50,000 per year. The other way to make money is to increase revenue. But it may be difficult to raise rents by $50,000 per year because in most markets rentals are quite competitive. In most cases, it is easier to save money with energy upgrades than to simply raise rents. And the nice thing about energy upgrades is that the savings due to installation of technologies (LED lights, upgraded HVAC equipment and motors, etc.) will continue year after year (one does not yank out insulation the year after it is installed!). So the $50,000 per year savings will occur year after year and in fact, will rise slightly as energy rates only rise. This year’s $50,000 will likely become $52,000 the next year and $55,000 the year after, etc. based on the one-time effort of investing in smart stratagies.

Green Buildings Reduce Operating Costs and Draw Higher Rents

As more properties are becoming certified as “green” over the last decade, comparative studies are beginning to be completed about the overall financial benefits of these upgrades, including their relative operating costs and demand for such properties, which has a large influence on rents. Of course, many factors influence what a building owner can collect in rent. Studies have recently been conducted that compare buildings with similarities in many areas except for their “greenness” to see if there is a difference, which can likely be attributed to energy and water efficiency and related factors.

A recent study indicated that in Los Angeles, owners collected rents that are 35% higher per sq. ft. for LEED-certified space compared to those in non-LEED space in buildings with similar vacancy rates. In addition, this same study compared operating costs of green-certified vs. non-green buildings, as well. Operating costs were shown to be 13.6% lower for new green construction compared to non-green buildings and 8.5% lower for existing buildings upgraded to a green standard compared to a building not upgraded of similar age.

There have been a number of studies showing that certified green buildings also increase worker productivity and satisfaction and reduced sick time, the crux of any business as profits stem from productive workers. A business that understands that a particular building has conditions that will lead to greater comfort and productivity will result in seeking to rent that property and to renew its lease.

In addition, a satisfied work force has concrete benefits for a business in terms of lower turnover, reduced business disruptions, lower risk, and less time training new workers. A relatively new certification program from the International Well Building Institute, called WELL standards, focuses on building conditions that will result in healthier, more satisfied, more productive workers. A number of studies from research institutions that specialize in productivity are showing – now that there are a growing number of upgraded and LEED-certified buildings – that significant improved worker productivity does occur, based on measurement of tests on tasks and memory. As this research is being publicized and accepted in the business world, companies are looking to relocate their business to LEED- or WELL-certified buildings to improve productivity even at the cost of greater demand and rents.

Assets’ Higher Resale Value

As more properties are becoming certified as a “green” building over the last decade, studies are beginning to be completed about the overall financial benefits of these buildings, including their value, based on sales.

A 2015 USGBC publication “The Business Case for Green Building” provides several facts concerning the resale value of and income from green buildings. In Los Angeles, in 2014, ENERGY STAR or LEED-certified buildings had an average selling price of $329/sq.ft., while that for a non-certified building was $244/sq.ft., 35% higher.

According to World Green Building Trends (http://naturalleader.com/wp-content/uploads/2016/04/McGrawHillGBStudy.pdf), building values increased by 10.9% for green new construction compared to non-green (6.8% increase for existing building upgrades) and asset valuation rose 5% for new green building projects vs. non-green (4% for green building retrofits).

CCES has the experts to help you assess how your buildings can be more “green”, whether it be certified in LEED or WELL programs or just more energy efficient. We can help you assess, strategize, design, implement, and test new systems to maximize the many financial benefits, like those listed here, with the least disruptions of your operations. Contact us today at 914-584-6720 or at karell@CCESworld.com.

Future of Renewable Energy Investments

The young Trump Administration and the House of Representatives have published preliminary tax reform plans that will likely have an adverse effect on the future growth of renewable energy in the US. If enacted, these may be a dis-investment for new projects. While exact details are unknown, as this is published, the fear of future dis-incentives to build or finance a project itself has a chilling effect.

One matter that has not been discussed openly is the future of renewable energy tax credits. Currently, investments in solar and wind projects are eligible for an investment tax credit. However, over the next few years the credit, used for many solar projects, is scheduled to decrease to and remain at 10% beginning in 2022. The production tax credit for producing power from wind will phase out entirely in 2020. Might the Trump Administration accelerate the decrease in these incentives or eliminate them sooner? During his confirmation hearings, Secretary of the Treasury Steven Mnuchin said that he does not intend to accelerate the phase-out of the production tax credit.

Note that the current renewable energy credit programs result in tax credits that can only be used to offset taxes (not increase a refund). With the proposed major reduction in corporate and individual income tax rates and accelerated write-offs for business expenses, the value of renewable energy credits would therefore be sharply reduced (lower taxes to offset with credits from a renewable energy project). This could take away the financial incentive to invest in large-scale renewable energy projects.
The Trump Administration’s proposed tax reform also includes a border adjustment tax, raising the cost of imported material and equipment. Since many solar and wind farms components come from China, this could add to the cost of new projects, if adopted.

In another tax-related item concerning energy, 22 US Senators recently introduced a bill containing a proposed extension of EPAct (Section 179D of the IRS Code) until 2019 and beyond. EPAct allows a building owner (or significant contributor for tax-exempt buildings) to earn tax deductions for successful energy efficiency projects. EPAct has expired and is currently not in effect. The proposed bill contains changes to the old language, including new technology-neutral tax incentives for clean energy. If this version of the bill is enacted, the maximum deduction for energy efficiency projects would increase to $4.75/sq.ft., based on achieving a minimum of $1.00/sq.ft. deduction for achieving a 25% reduction against the ASHRAE 90.1-2016 standard, and an additional $0.25/sq.ft. for every additional 5% reduction above that. The proposed bill also contains a new provision, entitling building owners to achieve a tax deduction of up to $9.25/sq.ft. for comprehensive energy upgrades that exceed energy saving targets. While the old 179D allows minor deductions for small upgrades, the proposed version would reward a building owner that exceeds robust energy goals. It is unsure whether this new version of 179D will pass Congress and, if so, when.

In summary, while details are unknown, the proposed new tax reforms of the new Administration may potentially hurt renewable energy projects. At this early stage, it is unknown whether these proposals will be enacted and in what form. Might the changes be enacted and the renewable energy industry in the US be hurt in order to raise revenue to offset the many tax rate reductions the reform plan currently proposes or as a way to discourage renewable energy and encourage growth of fossil fuel plants? The answers are unknown, but the implications should be part of any company’s planning.

This is meant as a general overview based on publicly published material. Discuss specific implications for your business with your accounting or tax professional. CCES is here to help you with technical assessments of your energy usage and systems. We can present sound technical strategies to reduce your energy use and peak demand and save you considerable cost and provide other tangible, financial advantages, as well. Contact us today at karell@CCESworld.com or at 914-584-6720.

Some Thoughts About the U.S. Leaving the Paris Climate Accord

June 2017

Of course, this blog and newsletter stays away from politics. But I will make a rare exception here just because the name of our firm, Climate Change & Environmental Services, is so close to the news at hand: President Trump decided that the U.S. should pull out of the Paris Climate Agreement. I wish to share some thoughts about it. Please feel free to comment, in agreement or disagreement. Respectful comments are what our democracy is about.

First of all, the withdrawal was no surprise. While I am not a professional psychologist nor have ever met President Trump, it is pretty obvious that he is a narcissist. He thinks of himself and raising he ego first, second, and at all times. Part of that is he not a team player. He thinks of himself first with others to be used and tossed away, even his most loyal supporters, whether they be contractors working on his projects or his own government professionals who he has embarrassed by changing his story. Thus, he would never have accepted being part of a deal where he represented only one of 195 countries, even if it were the most powerful. He does not know how to abide by rules and compromise meant for many. And especially in a topic he knows little about and probably fed falsehoods by some advisors. Nobody should have been surprised.

That said, I have my problems with the Paris Climate Agreement, in line with many critics (and Trump supporters): that it has no punitive actions for countries that do not succeed in their GHG emission reduction goals. This is no different from the previous Kyoto Accord. For example, Canada not only did not reduce GHG emissions by its goal in that Accord, but raised theirs significantly due to its discovery in the ‘90’s of the tar sands in Alberta. With the windfall Canadian companies made from that, even punitives would not have hurt Canada. How much might they have been fined? And who would collect it? And this went on for other countries, too. Same thing with the Paris Climate Agreement. Who would have the nerve and ability to “fine” a country for not making its goals and how much? Billions? However, that said, an agreement is an agreement and even one with flaws is better – given the Climate Change crisis facing us all – than business as usual. So it was important to work through this framework, and a missed opportunity for the U.S. to lead in Climate Change response and technology.

I am heartened, however, by the response to President Trump’s withdrawal by leaders in the U.S.: mayors, governors, and many business leaders. They have said they will re-double their efforts to reduce GHG emissions and use renewable power. They see the many business advantages of doing so, and will continue to do so. Let’s hope that their efforts will help the many, many small businesses and smaller governments in the U.S. to have the motivation to move forward and to help make such technologies affordable to them. If this momentum can grow and people see the advantages of addressing Climate Change issues, then this withdrawal from the Paris Climate Agreement may turn out – unexpectedly – to be a positive for the U.S. after all.

CCES has the experts to help you be on the right side of things when it comes to a Climate Change program and to help your company or entity get the greatest economic benefits from doing the right thing concerning GHG emission reductions with the lease disruption in your operations. Contact us today for a free discussion at karell@CCESworld.com or at 914-584-6720.