ENERGY STAR
SUMMARY OF THE FINANCIAL
BENEFITS OF ENERGY STAR®
LABELED OFFICE BUILDINGS
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Summary of the Financial Benefits of
ENERGY STAR® Labeled Office Buildings
A new study of commercial office buildings concludes there
are substantial financial benefits associated with achieving
the ENERGY STAR label for buildings.
The financial benefits of improved building energy efficiency and lowered energy costs
are widely recognized. Many corporations and real estate firms have actively invested
in energy efficiency, cutting energy costs while improving building
performance and financial returns.
Nonetheless, the national economy as a whole and its building stock in particular remain
inefficient and wasteful of energy. In 2001, total national energy expenditures were nearly
$700 billion.1 Commercial buildings accounted for nearly one-fifth of the total energy used
and one-third of end use electricity. Commercial buildings incur $132 billion per year in
energy bills, and this cost is rising rapidly.3 Many commercial properties waste about one-
third of the energy they consume, burdening their corporate owners with large and rising
energy bills.
This paper summarizes the findings from a study on the financial benefits of energy
efficiency in commercial buildings, prepared for the U.S. Environmental Protection Agency
(EPA), entitled, The Financial Benefits of ENERGY STAR9 Labeled Office Buildings. The study
provides a detailed analysis of the benefits of using ENERGY STAR to achieve a high level of
energy performance in commercial buildings.4 The benefits analyzed include significant direct
financial savings from reduced energy use and persistent savings from improvements in
energy performance, and improved building occupancy and greater building asset value. At a
time of rising energy costs, the use of ENERGY STAR is increasingly recognized as a
hallmark of fiscally sound building management and operation. ENERGY STAR is a smart
building strategy from both a fiscal and risk reduction perspective.
Summary of the Financial Benefits of ENERGY STAR® Labeled Office Buildings
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What Are ENERGY STAR Labeled
Buildings?
ENERGY STAR is a voluntary public-private
partnership program. As one important program
strategy, EPA supports ENERGY STAR in the
commercial sector to help businesses and other
organizations monitor, understand, and reduce
building-wide energy use, as well as assess the financial
impact of improved energy performance.
A key element of this approach is EPA's National
Energy Performance Rating System for buildings,
unveiled in 1999- EPA's online benchmarking system,
Portfolio Manager (PM), allows building owners and
managers to enter data about their buildings' energy
consumption, hours of operation, number of
occupants, location, and other building characteristics.
The system compares each building's energy
performance with the performance of similar
buildings across the country—providing insights into
how well each building is designed, maintained and
operated. Each building receives an ENERGY STAR
rating from 1 to 100 based on one year's energy
consumption.
EPA awards the ENERGY STAR label to owners of
buildings with ratings in the top 25 percent of energy
efficiency performance ratings nationally. To receive
the ENERGY STAR label, the owner of the building
must have a professional engineer verify that it has
earned a rating of 75 or higher based on 12
consecutive months of data. In addition, the building
must conform to current industry standards for
thermal comfort, air ventilation, control of indoor air
pollutants, and illumination.
Buildings can be re-benchmarked periodically, which
helps owners determine whether energy performance
is improving, remaining the same, or deteriorating,
and can also help owners verify the impact of building
improvements and changes in management practices.
EPA recognizes buildings rated 75 or higher in
The ENERGY STAR Label for Buildings
ENERGY STAR Buildings Program Elements
Portfolio Manager
(PM)—National
Energy
Performance
Rating System
National
Benchmark
ENERGY STAR
Label
An online benchmarking tool used
to measure a building's energy
performance on a 100-point scale.
This is the building's "rating."
A rating of 75 or greater, which denotes
superior energy performance.
A certification mark to recognize
superior energy performance for
buildings with a rating of 75 or greater.
ENERGY STAR Buildings Program Statistics
More than 26,000 buildings have used the rating system.
More than 2,500 buildings have earned the ENERGY STAR
Label.
More than 40% of ENERGY STAR labeled buildings are office
buildings.
subsequent years with a new ENERGY STAR label.
Through 2005, more than 2,500 buildings had earned
the ENERGY STAR, including more than 1,000
office buildings.
Many building owners find that the ENERGY STAR
rating process helps them identify opportunities to
cost-effectively reduce waste and achieve significant
energy savings. Some also attribute value to the
recognition provided by the ENERGY STAR for
buildings label. For example, Equity Office Properties
has stated that "the ENERGY STAR label signals to
its tenants and investors that it has capitalized on an
Summary of the Financial Benefits of ENERGY STAR® Labeled Office Buildings
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extraordinary opportunity to make its buildings
environmentally and fiscally sound."5
To help communicate the successful energy
management practices used in ENERGY STAR
labeled buildings, EPA encourages building owners to
submit case studies about their building upgrades and
the benefits realized, such as economic payback, peak
demand reduction, and increased valuation. These
case studies are available on the ENERGY STAR Web
site at .
What Are the Financial Benefits
of ENERGY STAR Labeled Office
Buildings?
Approach
To determine the financial benefits associated with
buildings that have earned the ENERGY STAR label,
data were analyzed for office buildings that earned the
ENERGY STAR label between 1999 and 2004. The
data come from three sources:
• Portfolio Manager data. Supplied by EPA, these
data cover 882 buildings that received the
ENERGY STAR label through September 2004.
The data consist of snapshots of each building at
the time it was labeled. There were 283 buildings,
labeled in multiple years, resulting in 540
additional observations. In all, 1,422 snapshots of
building energy performance were analyzed.
• ENERGY STAR Web site building profiles. A total
of 305 building profiles for ENERGY STAR
labeled office buildings had been submitted to
EPA for listing on the ENERGY STAR Web site
as of October 2004. The profiles provide
narratives of the buildings' energy upgrade
histories as well as insight into the financial
benefits of these upgrades.
• Interviews with ENERGY STAR partners.
Representatives of major ENERGY STAR
commercial partners—including Arden Realty,
Inc., Hines Interest Ltd., Transwestern
Commercial Services, and USAA Real Estate
Company—were interviewed about the benefits
they attribute to ENERGY STAR, and to draw
from the data that these companies have gathered
on their buildings.
The performance data for ENERGY STAR labeled
office buildings were compared to that of a national
subset of buildings derived from the U.S. Department
of Energy's Commercial Buildings Energy
Consumption Survey (CBECS). The "CBECS Subset"
shown in the figures below represents "average"
performance for the stock of buildings that is similar
in age, size, etc. to buildings that have earned the
ENERGY STAR label.
Key Findings
The analysis finds that ENERGY STAR labeled office
buildings provide benefits in several key areas:
• Direct energy savings. ENERGY STAR labeled
office buildings are one-third more energy
efficient than average U.S. office buildings,6 and
have annual energy bills that are, on average, at
least $0.50 per square foot lower per year, or 35
percent lower than the average building.
• Persistence of energy performance and savings.
The energy performance of ENERGY STAR
labeled office buildings improves over the first
several years, and these savings persist. Buildings
that earned the ENERGY STAR label in six
consecutive years are 20 percent more energy
efficient in the sixth year than in the first year
labeled.7
Summary of the Financial Benefits of ENERGY STAR® Labeled Office Buildings
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• Higher occupancy trend. Managers of Real Estate
Investment Trusts (REITs) with large ENERGY
STAR portfolios confirm that both tenant
comfort and occupancy are higher in their
ENERGY STAR labeled buildings.
• Increased asset value trend. Reliably persistent
energy performance makes it more likely that the
higher net operating income from energy cost
savings will be recognized through higher building
valuation. Experienced managers of large
portfolios of ENERGY STAR labeled buildings
interviewed for the study confirm that ENERGY
STAR helps increase building value.
• Additional benefits. In addition to the benefits
examined in this study, energy-efficient buildings
contribute to lower emissions, reduced exposure
to volatile fuel prices, and savings in operations
and maintenance costs.
Each of these key findings is discussed in more detail
below. In addition, analysis of the data provides some
insight into the characteristics of the best-performing
ENERGY STAR labeled buildings.
Direct Energy Savings
An important benefit from energy efficiency is direct
energy savings, resulting in lower energy bills.
ENERGY STAR labeled buildings, when compared to
an analagous subset from the national stock, were
found to use 40 percent less energy. As shown in
Figure 1, energy intensity in ENERGY STAR labeled
buildings was 61.6 kBTU per square foot per year
(kBTU/ft2/yr), compared to 103-2 kBTU/ft2/yr in an
average building—a difference of about 35-0
kBTU/ft2/yr, being conservative.
These energy savings are equivalent to about $0.50
per square foot per year in lower energy costs. For a
100,000 ft2 office building, this translates to an
annual energy bill that is $50,000 below that of an
average building.
Figure 1: Energy Intensity in ENERGY STAR
Labeled vs. CBECS Average Buildings
100
O) OQ
o> J*
0
103.2
61.6
ENERGY STAR
Source: Capital E Analysis of EPA data
CBECS Subset
Figure 2 shows the improvement in performance of
ENERGY STAR labeled buildings relative to average
buildings from CBECS by the construction year of
the buildings, thus confirming that 35-0 kBTU/ft /yr
is a conservative estimate for the improved
performance of ENERGY STAR labeled office
buildings compared to average buildings.
Figure 2. Energy Intensity in ENERGY STAR
Labeled vs. CBECS Average Buildings, by
Year Built
• CBECS Subset • ENERGY STAR
^ inn n
S 80.0 -
p
0}
tS ?n n
n n .
11RR
1
98.4
60.2
[0.
I 1
65
1
10
4
64
1
1
6f
3
1 98.0 961
60.9
5
8
1880- 1945- 1955- 1965- 1975- 1985- 1995+
1944 1954 1964 1974 1984 1994
Source: Capital E Analysis of EPA data
Summary of the Financial Benefits of ENERGY STAR® Labeled Office Buildings
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The energy savings potential from ENERGY STAR
labeled buildings, and the value of the energy savings,
will vary across the country, as shown in Table 1 below.
It is important to note that the ENERGY STAR
designation recognizes energy efficiency performance,
without regard to the steps taken to achieve higher
performance. Thus, the lower energy costs associated
with ENERGY STAR labeled buildings are not
necessarily the result of specific investments in energy
efficiency. For example, some buildings that received
the ENERGY STAR label may have already been
performing above the benchmark rating of 75 and
required no additional investment. However, these
buildings may have been designed originally to be
superior energy performers.
Figure 3, buildings that earned the ENERGY STAR
label in six consecutive years used 20 percent less
energy per square foot in the sixth year than in the first
year of labeling, compared to average buildings.
Although the sample size is small, this is an
important finding because in the past, lack of
persistence in energy savings was a disincentive to
making energy efficiency upgrades. Previous
analyses of the ENERGY STAR program have
estimated benefits based on the energy performance
calculated for one label year and, therefore, have not
recognized the improvement in building performance
over time.11 As a consequence, some of the benefits of
ENERGY STAR applied over multiple years are greater
than previous estimates and should be recognized.
Persistence of Energy Performance
Buildings that receive the ENERGY STAR label in
multiple years consistently outperform comparable
non-labeled buildings, and the performance margin
increases over several years of re-labeling. As shown in
Table 1. Energy Performance Differentials and Cost Savings for ENERGY STAR Labeled Buildings
by Region
Region
Energy Performance (kBTU/ft2/yr)
ENERGY STAR10 CBECS Subset Differential
Avg. Cost per
kBTU
(2003/2004)9
Cost Differential
Per Square Foot
per Year
United States
1- New England
2- Middle Atlantic
3- East North Central
4- West North Central
5- South Atlantic
6- East South Central
7- West South Central
8- Mountain
9- Pacific
61.6
65.2
68.2
55.9
63.2
64.0
59.4
61.4
61.9
60.9
103.2
106.7
101.2
111.5
134.0
103.2
101.9
89.0
100.9
94.2
41.6
41.5
33.0
55.6
70.8
39.2
42.5
27.6
39.0
33.3
$0.015
$0.018
$0.017
$0.014
$0.013
$0.014
$0.013
$0.014
$0.013
$0.018
$0.62
$0.75
$0.57
$0.76
$0.90
$0.55
$0.57
$0.38
$0.52
$0.60
Source: Capital E Analysis of EPA and EIA Data
Summary of the Financial Benefits of ENERGY STAR® Labeled Office Buildings
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Figure 3. Energy Performance vs. Label Year for
Buildings Labeled in All SixYears(10 buildings)
7n n
600 -
-a, en n
S -^ /in n
09 -as
= — ?n n -
inn -
nn -
66.0
59.3
5JL3
52.7
49.3
52.2
1999 2000 2001 2002 2003 2004
Year
Source: Capital E Analysis of EPA data
Higher Occupancy Trend
Changes in occupancy have a potentially large
financial impact for building owners and managers.
For example, a one percent increase in occupancy in a
100,000 ft building renting at $30 per square foot
would be worth $0.30 per square foot, or $30,000 per
year. To achieve such savings through energy efficiency
in a building with annual energy costs of $1.50/ft
would require as much as a 20 percent reduction in
energy use.
Several factors lead us to expect ENERGY STAR
labeled buildings to be associated with higher levels of
occupancy. First, these buildings are more likely to
have energy-efficient lighting and ventilation systems,
and advanced energy management and control
systems (EMCS), compared to non-labeled buildings.
These technologies have been demonstrated to
improve occupant comfort and attitude toward
occupied space.12 Increased tenant satisfaction can
lead to higher occupancy and greater profitability. As
shown in Figure 4, ENERGY STAR labeled buildings
with the highest occupancy also have higher reported
use of EMCS.
Discussions with senior REIT managers with large
portfolios of ENERGY STAR labeled buildings also
confirm that labeling is positively correlated with
higher occupancy.
Increased Asset Value Trend
Interviews with REIT managers explored the link
between increased energy performance, specifically
ENERGY STAR labeling, and asset value. According
to Bob Accomando at Arden Realty Inc., the savvy
marketplace is starting to recognize the added value of
ENERGY STAR.15 Hines Interest Ltd. claims that its
ENERGY STAR labeled buildings are more
competitive, more valuable, and more profitable.
Figure 4. Reported Occupancy and Relationship
to Energy Management and Control Systems
nno/
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"Energy efficiency and ENERGY STAH help us to lower overall operating costs for our tenants.
Furthermore, by being more efficient, we're better able to control building temperatures and thus keep
tenants more comfortable."
—Brenna Walraven, Executive Director of National Property Management at USAA Realty Company.13
"ENERGY STAH helps attract tenants and increase occupancy. An ENERGY STAH label has psychological
ana marketing value, ana it is becoming more important to tenants.
—Gail Sturm, Senior Vice President of Transwestern Commercial Services14
Lower energy consumption yields higher net operating
income (NOI). The persistence of energy performance
in ENERGY STAR labeled buildings documented in
this study helps ensure future energy savings and a
higher NOI, which can contribute to increased asset
value. If the market recognizes an increased NOI from
persistent energy cost savings at a capitalization rate of
8.5, a $0.50 per square foot annual reduction in
energy costs would result in asset valuation increase of
$5-90 per square foot. Currently lower capitalization
rates imply even larger increases in building value
from persistent energy efficiency savings.
The ENERGY STAR Web site profiles provide
insights about how ENERGY STAR has directly
impacted valuation in some buildings. For example,
following an energy efficiency upgrade the First
National Bank Center in San Diego cut annual
operating costs by more than $0.50 per rentable
square foot. The building operator reports that this
upgrade increased the building's value by almost
$4 million.18
As Brenna Walraven of USAA Realty Company notes,
"Increasingly, more sophisticated tenants understand
and renew leases at higher rates with landlords that
work to control expenses without sacrificing tenant
comfort. Energy efficiency and our partnership with
ENERGY STAR help execute on these mutually
beneficial goals."1'
Additional Benefits
Analysis of data on ENERGY STAR labeled buildings
identified several other benefits. These include:
• Better operations and maintenance. Better
performing buildings—such as ENERGY STAR
labeled buildings—tend to be more actively
managed and feature better operations and
maintenance procedures.
• Peak load, demand charges, and tiered rate
Structure savings. New utility pricing schemes
that better reflect delivered (peak) electricity costs
can be more easily mitigated with a properly
configured EMCS. ENERGY STAR labeled
buildings that feature EMCS can realize
additional savings under such schemes.
• Emissions reduction benefits. The public health,
property, and other benefits associated with
reduced energy use are driving the expansion of
cap-and-trade and other emissions trading
programs. These programs are creating financial
returns for building owners who cut energy use.
• Hedge against price fluctuations. Consuming
less energy reduces exposure to volatile energy
prices, a significant source of financial risk.
While the financial value of these additional benefits
is not quantified, they nonetheless lend additional
weight to the argument that achieving the ENERGY
STAR label is a smart building management strategy
both from a fiscal and a risk reduction perspective.
Summary of the Financial Benefits of ENERGY STAR® Labeled Office Buildings
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Case Study: Arden Realty
Arden Realty has been named ENERGY STAR Partner of the Year twice, and in 2003 was recognized
with the ENERGY STAR Award for Sustained Excellence in Energy Management. This company has a
strong history of re-labeling ENERGY STAR buildings: While only 8 percent of all ENERGY STAR
labeled office buildings received the label four or more times, 56 percent of Arden's ENERGY STAR
buildings have been re-labeled four or more times.
Arden Realty's First Vice President for Asset Management, Bob Accomando, reports that the first step
towards better energy performance is to fine-tune the existing systems—increasing the life
roughly 8 to 10 percent. Mr. Accomando notes that energy efficiency has improved its property NOI
and enhanced the value of Arden Realty's buildings.20
Arden reports an average financial payback of 3.5 years from energy savings alone on energy
efficiency retrofits performed on ENERGY STAR labeled buildings, even before the recent surge in
energy prices.
The strong Arden Realty building values are reflected in the December 2005 sale of Arden Realty to
GEReal Estate for $3.2 billion.
For More Information
For more information about the benefits of ENERGY STAR, or to
learn about how to join the ENERGY STAR partnership, please visit
.
Summary of the Financial Benefits of ENERGY STAR® Labeled Office Buildings
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About the authors
Greg Kats is founding Principal of Capital E , a national clean
technology deployment and strategy firm. He is the Principal Advisor in developing $550
million of green affordable housing, involving Enterprise, JPMorgan Chase, Fannie Mae,
the American Institute of Architects, and others. Mr. Kats served from 1996 to 2001 as
the Director of Financing for the $1.1 billion Office of Energy Efficiency and Renewable
Energy at the U.S. Department of Energy. He is Chair of the Energy and Atmosphere
Technical Advisory Group for LEED and serves on the LEED Steering Committee. Mr.
Kats co-founded and chaired, from 1995 to 2001, the International Performance
Measurement & Verification Protocol .
JeffPerlman is a consultant with Capital E and the president of Bright Power in New York
City, where he helps design, install, and obtain financing for solar and energy efficiency
projects for commercial and residential buildings.
Endnotes
1 EIA Web site, . Most recent
available data is $694 billion in 2001. Accessed 10/21/05.
EIA Web site, and
. Accessed 10/21/05.
2005 Buildings Energy Data Book, U.S. Department of Energy, Energy
Efficiency and Renewable Energy. August 2005. Available at:
.
4 Greg Kats and Jeff Perlman, "Financial Benefits of ENERGY STAR Labeled
Office Buildings," U.S. EPA, February 2006. Available at .
6 The data set used for baseline "average" office buildings is a subset of
the Department of Energy's Commercial Buildings Energy Consumption
Survey (CBECS) Public Use Data from 1999. EPA selected these buildings
for comparison because they are most similar to the ENERGY STAR
labeled office buildings in size and use.
^ An important problem related to energy efficiency investments, especially
before the mid-1990s, is that energy savings commonly did not persist.
That is, energy efficiency gains eroded over time, reducing energy
savings and making energy efficiency a less attractive investment. Thus,
the persistence of performance in ENERGY STAR labeled buildings is an
important finding.
Note that the incidence of EMCS decreases slightly, from 72 percent to 70
percent, when comparing buildings with ratings in the 90+ range to those
in the 80-90 range.
Average cost per kBTU for electricity, natural gas and oil. See references
for Table 2-3 in the report for sources of these data.
10 The average for ENERGY STAR labeled buildings is based upon the most
recent year in which the building was rated and labeled.
See, for example: Von Neida, Bill and Thomas W. Hicks. 2002. Building
Performance Defined: The ENERGY STAR National Energy Performance
Rating System. Association of Energy Services Professionals.
12 Kats, Greg et al. 2003. The Costs and Financial Benefits of Green
Buildings: A Report to California's Sustainable Building Task Force.
October, (available at ).
Also see: Sensharma et al. 1998. Relationships Between the Indoor
Environment and Productivity: A Literature Review. Published in ASHRAE
Transactions. Vol. 104. See: .
Brenna S. Walraven, RPA, CPM, Executive Director, National Property
Management, USAA Realty Company, personal communication with
author, October 7,2005.
14 Gail Sturm, Vice President, Transwestern Commercial Services, personal
communication with author, February, 2005.
- Bob Accomando, First V.P. Asset Management, Arden Realty,
conversation with author, February 15, 2005.
Andrew Kitchens, Senior Manager, Engineering Services, Hines, email
communication with author, December 23,2004.
Transwestern Commercial Services manages more than 150 million ft2
nationwide. Transwestern began rating its properties through ENERGY
STAR in 2000, and received an ENERGY STAR Partner of the Year award
in 2003. Out of 161 rated buildings, 45 have earned the ENERGY STAR
label. (Conversation with David Downey, February 2005.)
18 ENERGY STAR Labeled Building Profile: First National Bank Center, San
Diego, California.
Accessed October 8,2004.
Brenna S. Walraven, RPA, CPM, Executive Director, National Property
Management, USAA Realty Company, conversation with author, October
7, 2005.
-» Bob Accomando, First V.P. Asset Management, Arden Realty,
conversations with author, February and December 2005.
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Environmental Protection
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