The Eternal Real Estate Challenge
Roland Li March 2, 2010, 11:05 a.m.
The city just finished one of its most wintry Februaries, highlighting once again the inescapable conundrum for landlords: how to keep the power and heat on sufficiently at the best possible cost. It is a seemingly ceaseless challenge-New York already pays the second-highest electricity prices in the nation, behind only Hawaii-one met by energy firms and their clients every day with varying degrees of success.
And, with the Bloomberg administration intent on lowering the city’s carbon footprint, it’s a challenge now compounded by the voguish need for energy efficiency. Let’s be green, people! Or greener.
Buildings account for a disproportionately high percentage of the city’s emissions because of the widespread use of public transportation. Much of the day-to-day costs of operating a building come from energy, and it’s in an owner’s best interest to keep them down. But how?
New York’s energy system changed significantly in 1996, when the New York State Public Service Commission, a bipartisan state agency, deregulated the state’s electricity and gas industries. Consumers were no longer forced to choose energy from local utility companies, and could choose to receive energy from energy service companies, or ESCOs. The goal was to lower costs and encourage innovation and new technology, according to the agency’s Web site, and massive companies like Con Edison, Central Hudson and Niagara Mohawk would offer alternative sources of power to consumers in subsequent years.
That was also the year that the federal government further developed the Energy Star label, which would become a benchmark of energy efficiency and a precursor to the widespread Leadership in Energy and Environmental Design (LEED) certification developed by the U.S. Green Building Council in 1998. The New York State Energy Research and Development Authority began funding electricity research and development in the same year, as the state moved toward a deregulated market.
FRUSTRATINGLY SO SIMPLE to begin with, isn’t it? Energy costs are divided among supply and delivery in New York City, as elsewhere. Supply is based on the actual generation of power, whether it is by steam, natural gas or more-for now-exotic forms, like wind or solar. It is tied to the global marketplace. Delivery, on the other hand, comes from the cost of transporting the power through pipes and power lines to the user. Deregulation gave consumers the freedom to choose the source, or supply, component of energy costs, while still locking them into their immediate infrastructure, or delivery costs.
Significant savings can come from managing some of the less glamorous parts of a building, such as the boiler. Decidedly mundane but financially astute technology like EnTech Digital Controls’ flagship control system, the Virtual Remote-500, and U.S. Energy Group’s USE Manager measure the efficiency of a building’s boiler system, aiming for uniform interior temperatures.
U.S. Energy Group’s USE Manager is aimed at Class B and C commercial buildings as well as apartment buildings. Traditional boiler controls only look at outside temperatures when determining heating; the USE Manager looks at outdoor and indoor measurements, resulting in about a 30 percent reduction in oil, gas and city steam consumption, according to Tom Scali, vice president of sales at U.S. Energy Group. The system, which is Internet-based, also emails users regarding inefficiencies and cuts down on water loss in the heating process, he said. The cost of the system is around $20,000.
U.S. Energy Group has installed the system in about 3,000 buildings, a number that Mr. Scali isn’t satisfied with. “The retrofitting of commercial buildings in older spaces has been neglected,” he said. “These old buildings … are the worst consumers of oil.”
For Class A buildings, energy systems can be controlled by state-of-the-art energy management systems-but the prices are higher.
The 140,000-square-foot tower at 545 Madison Avenue, in the Plaza district, was gut-renovated in 2006 by LCOR, a real estate investment company, and certified LEED Gold. This process included installing a central building management system, which cost about $1 million, allowing tenants to manage heating and cooling systems in each individual office. This allows for more control, compared to a building-wide or floor-wide system. The exterior of the building is insulated with a glass skin, reducing heat fluctuations in the winter and summer.
The entire renovation cost $90 million, but building to LEED standards added only a 5 percent premium, said David Sigman, senior vice president of LCOR. The energy savings of the building are theoretically 15 percent, as determined by a computer model of 545 Madison, which is what the LEED certification is based on. The U.S. Green Building Council, developer of LEED, was criticized for initially limiting energy efficiency measurements to computer models, but have required the submission of power bills in the latest version of LEED.
LCOR developed 2.5 million square feet for the federal government’s General Services Administration in Alexandria, Va., the largest-leased Energy Star building, but following landlords’ adoption of the LEED system, those Energy Star regulations have become less prominent. “LEED has basically supplanted them, because LEED is so specific, and so marketable,” said Mr. Sigman.
The tower at 545 Madison also receives 15 percent of its power from ConEdison Solutions, a branch of the power company that specializes in energy savings, which can come from relatively basic practices. “Certain things are called the low end-the payback time on them is relatively quick,” said Anthony Spera, director of sales for energy services for ConEdison Solutions. These include installing proper light fixtures and switching off appliances, such as computer monitors, when they aren’t in use. “Depending on how ambitious you want to get, you can go through the entire spectrum,” he said, including solar and wind power.
BUT SOLAR PANELS DON’T make for ideal Manhattan residents. They clutter what are already tightly spaced city roofs and require regular sunlight, which makes them less effective in the depths of winter. Furthermore, even with some government subsidies, they are extremely expensive and do not recoup their own costs for years. Another way of investing in renewable energy is paying a premium for it, as Chelsea Piers and New York University have done with wind energy. This is another example of choosing energy supply-in this case, energy derived from wind energy-while maintaining the same local delivery systems.
“They made a conscious decision to pay a little more to support new renewables coming online in the country,” said Michael Forese, a commodity account executive at ConEdison Solutions, referring to Chelsea Piers, the deal with which he was involved in.
Determining the actual energy savings in a building can be a complicated process. Actual power bills are better compared by kilowatt hour rather than dollar amount, since prices change. This usage should also be compared from one month to the same month in the year before, said Mr. Spera of ConEdison Solutions, because seasonal changes make adjacent months different. Measurement and verification devices that run for a full calendar year can also aid in determining actual savings.
But an efficient system is only as good as its daily operations, and there’s much evidence that they aren’t performing at peak standard. If, for example, one gazes across midtown on a Saturday night, there’s usually an abundance of lights in empty office buildings, probably because someone forgot to turn them off-or just didn’t care to. For shame, New Yorkers!
“It only works as well as you use it,” Mr. Spera said.
A multifaceted approach is an effective way of lowering energy costs, but those in the industry say that a change in attitude is also an essential part of initiating real energy savings. This includes not merely accepting the marketed merits of “green” buildings, but also strenuously measuring hard data. And ultimately, it means bringing a conscientious attitude toward building operations, as well as embracing new technology.
“Most buildings,” Mr. Spera said, “buildings in general, should be looking at both sides of the equation. They should be looking at the supply of the energy, such as purchasing plans, and they should be looking at the usage side.”