Breaking Down Financial Barriers Towards a More Sustainable Commercial Real Estate Market
Abstract
Approximately 40% of the US energy [1] and nearly 16% of the
world energy [2] is consumed within the existing building stock. It is
estimated that over 2 quadrillion Btus of site energy could be avoided
by simply engaging in an energy efficiency project [3]. These energy
savings projects could carry with them an average internal rate of return
(IRR) of 17% and save up to $900 billion in estimated energy costs by
the year 2020 [4]. Why, then, are private building owners not investing
in their buildings? Why are investors and banks unwilling to engage
building owners to provide capital for these projects? The simple an-
swer is they can’t. Current lease and accounting structures give rise to
issues such as the split incentive and leverage barrier, which frequently
make these investments financially irrational for commercial building
owners.
Many financial structures have been developed to successfully
fund energy projects in our public buildings. Unfortunately, most of
these structures fail to address the needs of private building owners.
This article (and a subsequent WEEC presentation titled Breaking Down
Financial Barriers towards a more Sustainable Commercial Real Estate Mar-
ket) looks at the current obstacles holding back energy retrofit projects
in the private building market today. We will explain the main barriers
to investment in private building energy projects, examine the currently
available funding options, and review the pros and cons of each.
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References
US Department of Energy, “2009 Buildings Energy Data Book.” (2009) Washing-
ton, D.C.; http://buildingsdatabook.eren.doe.gov/docs/DataBooks/2009_BEDB_
Updated.pdf
U.S. Energy Information Administration, “International Energy Outlook 2010,”
(2010) www.eia.gov/oiaf/ieo/index.html
McKinsey & Company, “Unlocking Energy Efficiency in the U.S. Economy,”
(2009); http://www.mckinsey.com/clientservice/electricpowernaturalgas/us_en-
ergy_efficiency
McKinsey Global Initiative, “The Case for Investing in Energy Productivity,”
(2008); http://www.mckinsey.com/mgi/reports/pdfs/Investing_Energy_Produc-
tivity/Investing_Energy_Productivity.pdf
Institute for Building Efficiency, “2011 Energy Efficiency Indicator: Global Re-
sults,” (2011); http://www.institutebe.com/InstituteBE/media/Library/Re-
sources/Energy%20Efficiency%20Indicator/2011-EEI-Global-Results-Executive-
Summary.pdf
Ernest Orlando Lawrence Berkeley National Laboratory, “A Survey of the U.S.
ESCO Industry: Market Growth and Development from 2008 to 2011,” (2010);
http://eetd.lbl.gov/ea/ems/reports/lbnl-3479e.pdf
Department of Energy Presentation, “Innovative Energy Efficiency Financing
Approaches,” Speakers: Mark Bailey and Claire Broido Johnson, (June 1, 2009);
http://www1.eere.energy.gov/wip/solutioncenter/pdfs/EECBG_Innovative_
EE_Financing_Approaches_Webcast_060109.pdf
Federal Housing Finance Agency, “FHFA Statement on Certain Energy Ret-
rofit Loan Programs,” (July 6, 2010); http://pacenow.org/blog/wp-content/
uploads/2010-07-06-FHAF-Statement.pdf
https://aeeeuropeenergy.com/