Opinion - 16/January/2020

Finding the investment “wow” factor in green buildings

Massive investment opportunities exist for those deciding to use their cash to help renovate buildings, says Jennifer Layke, Global Director of Energy at the World Resources Institute

Reducing energy losses and integrating renewables into buildings from the design phase are key to maximising energy savings and investments


Somehow the investment community does not see green buildings as the next hot pick. Even though the costs of solar and wind power are now comparable with fossil fuels, and energy efficiency is making buildings more comfortable, economical and valuable than ever, there has not been much of a “wow” factor to building green and efficient.

Perhaps a number can provide the “wow”: $24.7 trillion.

That is trillion with a T – the investment opportunity by 2030 in emerging markets alone for coordinating energy efficiency with renewable power in construction, according to a new report by the World Bank Group’s International Finance Corporation. In Asia and the Pacific, where half of the world’s urban population will live by 2030, the figure is $17.8 trillion, primarily in residential buildings.

The green building market offers clear financial benefits for investors, banks, developers and owners, including governments, the report indicates. Green buildings command sale premiums of up to 31% more than conventional buildings, and sell faster. They maintain higher occupancy rates and draw higher rental income. Because they consume less water and electricity, they cost up to 37% less to operate. And when green features such as efficient insulation and intelligent siting that maximises natural light without overheating are built in from the design stage, green construction can save as much as 12% in additional costs.



There is especially good news for banks and other mortgage lenders. A study by the University of North Carolina–Center for Community Capital, funded by the Institute for Market Transformation, showed that default risks are on average 32% lower in energy efficient homes.

In the United States, the time is ripe for this transition. About half of the US’ existing thermal generator fleet of coal, nuclear and gas-fired power plants is likely to retire by 2030, a Rocky Mountain Institute (RMI) analysis found. Satisfying the need for new capacity when these conventional power plants go offline can be accomplished more cost-effectively by deploying renewable energy in a coordinated way with energy efficient features.

RMI’s concept of clean energy portfolios that combine renewables and energy efficiency can yield greater benefits and lower costs than renewables alone, while beating conventional fossil-fuelled energy on a timetable that has a fighting chance of limiting the greenhouse gas emissions before the impact of climate change hits a dangerous tipping point.

The benefits of combining renewables and energy efficiency throughout the building value chain, from design to construction to use, go beyond the cost of individual structures, though these are considerable. Energy efficiency measures can be used to reduce demand in a home, offsetting some of the cost of a rooftop solar system. Knowing in advance how much power the home is likely to need means getting a system that is the right size. One that generates 3.5 kilowatts instead of 5 kilowatts could reduce investment by $2500 a home, even after including the cost of efficiency improvements, says the American Council for an Energy Efficient Economy.

If efficiency is used to curb total load for utility systems, the overall cost of a grid with lots of homes that use renewable generation can be substantially reduced.

So why has this opportunity not captured the attention of the financial community? One possibility is that building a system based on efficiency and renewable energy has often been viewed as a series of unconnected decisions, rather than one where the whole has a greater value than the sum of its parts. If every isolated choice by builders, engineers, policy makers and investors aims at the least-cost option, the end result will be a building with lower overall value than if decision making was coordinated throughout the process. From design to building to use, integration is key.

This is likely to take a series of steps toward energy smart building systems that make the most of energy efficiency and renewable energy to benefit investors as well as the people who use the buildings. The Building Performance Institute of Europe (BPIE) quantified how much value is added to the lives of millions of people who use schools, offices and hospitals in Europe. One study showed that by addressing the same issues that can be resolved through energy efficiency measures — including indoor air quality, temperature, noise and the use of electric versus natural light — there can be a 12% increase in productivity, and up to €500 billion in added gross value, just in offices. There were comparable advantages for European schools and hospitals.

As pension funds invest millions in clean energy, they are missing an opportunity to use such funding to invest in renewables and efficiency in buildings — a laudable action with even greater impact. The benefits are clear. Investors who see the potential for added value over the long term can tap this coordinated solution to satisfy the needs for cleaner energy and more liveable, workable buildings that are also environmentally sustainable. That is the real “wow” factor.

PHOTO: World Resources Institute

The views expressed in this opinion are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy

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