LA Better Buildings Challenge: Far Exceeding Its Original Project Goals

The Los Angeles Better Buildings Challenge (LABBC) has been overwhelmingly successful over its first 2 years and is set to easily surpass its original long term goal: to achieve 20% energy savings across 30 million square feet of existing commercial buildings in Los Angeles by 2020. So now the LABBC is stepping it up a notch and is looking to surpass the program goal before the end of 2013.

The Better Buildings Challenge

The LABCC was launched by Mayor Antonio Villaraigosa and the City of Los Angeles in 2011, and consists of an extensive range of programs that aim to reduce energy consumption in existing buildings - from retrofitting City-owned facilities and affordable housing stock, to working with the private sector to support financing of energy and water efficiency upgrades in commercial buildings. The programs bring together partners from the business, utility, government, real estate, finance, and not-for-profit sectors to promote, simplify, and finance energy efficiency retrofits in commercial properties.

This network of partners helps building owners and operators with a wide range of services, from originally benchmarking the building, to performing assessments, finding utility rebates, to financing or managing the implementation process.

“The City of LA is committed to reducing City-wide GHG emissions and to helping our businesses and residents reduce their electricity and water consumption” explains Varun Sivaram, Senior Energy Efficiency Advisor to Mayor Villaraigosa. “Technology has a big role to play in that, and it's important to keep abreast of the latest developments.”

The LABCC is part of a broader, national initiative: The Better Buildings Challenge that is sponsored by the White House and the US Department of Energy. The initiative calls on public and private sector building owners to accelerate the modernization of existing buildings and to share the performance data, thus attracting more capital to the energy efficiency space while significantly reducing operating costs for participating buildings.

LABBC in Action

Since 2011, the City of Los Angeles has initiated over 50 projects totaling over 1M square feet with an investment of $16M, and the City's Housing Department has extended loans to fund efficiency retrofits of 10 affordable housing projects totaling over 650,000 square feet with over $4.5M in investment.

During this time, the LA Commercial Building Performance Partnership also initiated energy audits encompassing over 35 million square feet of commercial space - from small neighborhood retailers to car dealerships, hospitals and downtown skyscrapers - and has developed a directory of capital providers to facilitate access to project funding options, with the goal of driving at least $25 million in total investment during their partnership in the Better Buildings Challenge. From these energy audits, over 75 buildings representing over 11 million square feet have become part of the LABBC, and property owners and partners are continuing to join every week.

Some of the notable property owners and managers include the City of Los Angeles, Kilroy Realty, CBRE, Children's Hospital of LA, and Morlin Management. To date, the audits have resulted in over $12.5 million in construction retrofits corresponding to over $2.5 million in annual energy cost savings.

The value of energy reduction

Partner Energy recently had the opportunity to sit down with David Hodgins, Executive Director of the LABBC. Mr. Hodgins spoke of the success of the program and the opportunity for the energy efficiency of commercial buildings to help drive economic growth and greenhouse-gas reduction in the United States. But, he also discussed the challenges of the program and detailed the barriers that are hindering the widespread implementation of energy efficiency retrofit projects.

Mr. Hodgins suggested that LA has broken the ice on beginning investments in the energy efficiency arena. ”We really have only just dipped our toes into the vast economic opportunity that energy efficiency represents” he said.

A recent study by McKinsey shows that with $520 billion upfront investment, the US economy could reduce non-transportation energy consumption by 23 percent by 2020, which would eliminate more than $1.2 trillion in waste. Such a reduction in energy consumption would not only reduce greenhouse-gas emissions by 1.1 gigatons – the equivalent of taking all US passenger vehicles and light trucks off the road! – but would also help the US reduce its dependency on foreign oil.

Another study, performed by Deutsche Bank and The Rockefeller Foundation concluded that $279 billion could be invested in energy efficiency retrofits for the residential, commercial, and institutional sectors that would result in $1 trillion in energy savings over 10 years – representing over 30 percent of the annual electricity used in the US. It also determined that this would result in the creation of over 3.3 million jobs. Additional studies have also shown that green buildings see a 7 percent increase in building value, a greater than 9 percent increase in return on investment (ROI), a jump in productivity and tenants reporting fewer sick days.

Putting the theory into practice

So why isn't this being implemented faster and more widespread? Mr. Hodgins explained that “There are a number of persistent market barriers that have impeded a faster market transition towards higher energy efficiency.” He felt that initially, some owners were skeptical because there is no publicly available data on verifiable project performance, and only recently has there been a clear industry standard for how to collect, analyze, or present data on energy efficiency opportunities, or how to track the resulting savings.

Owners and their financial decision makers rely on third-party standard reports to make investment decisions, and without industry standards implementing energy efficiency projects was seen as “risky”- even if in most cases the technologies and savings were proven.

Energy efficiency retrofits are in competition for a limited supply of capital with other real estate investment opportunities, many of which don't actually have a higher return but are more “familiar” and deemed less risky. Often, this results in owners waiting until an emergency occurs to replace aging, inefficient equipment - missing opportunities to bundle projects together to maximize efficiency and ROI. It also leads to higher building maintenance and energy costs.

Mr Hodgins discussed another challenge: bridging the language gap between property managers, buildings engineers and those that sign off on energy efficiency projects – asset managers and CFOs. The building engineer may have a great energy efficiency project that will save money and is a great investment, but lack the aptitude in financial analysis to build a case and present it to management. This can often be the case even with outside third party consultants. Real estate language and engineering language are quite different – and the engineering solution might not be the right real estate solution.

Often the energy efficiency firms with backgrounds in both real estate and engineering are the most successful ones because they are able to bridge the gap, and speak both “engineering” and “real estate.”

Moving forward – the next phase of LABBC

Today “green” is slowly moving from “risky” to “mainstream”. There have been advancements in industry standards to allow for predictable, trustable underwriting for energy efficiency projects, as well as past implementation projects that show success and verifiable results. Also, financing vehicles that solely invest in energy efficiency projects are beginning to appear.

As head of the LA Better Building Challenge, Mr Hodgins is working with the City of Los Angeles to help bridge any market gaps with education and information to continue to successfully push and implement its energy efficiency strategy. Last week, the LABBC held its first Building Technology Showcase which drew over 200 attendees to see fast-pitch presentations from over 40 leading technology companies – many of whom have agreed to offer discounted pricing to LABBC Partners.

David Jacot, Director of Energy Efficiency for the LADWP praised LABBC's efforts to educate building owners, operators and developers. “Technology is advancing so rapidly, it can be difficult to keep up. The Building Technology showcase was a great way for customers to quickly get up to speed on the latest developments in efficient building technologies.”

Reaching the original LABBC program goal of a 20 % energy reduction across 30 million sf – which Mr. Hodgins expects will occur even before the end of the year - equates to averting the emissions of over 18,000 cars in addition to creating over 7000 high quality local jobs.

With its overwhelming success, the LABCC is now targeting much bigger numbers. As the program is being rolled out for 2014-2015, it will consider not only funding additional energy audits, but funding to help additional soft costs such as specification development, bid development and review, construction oversight, quality assurance and verification of installed measures.

Progressing the innovation of energy efficiency technologies and retrofits not only produces ongoing economic productivity gains, but will also help transform LA into one of the greenest, most economically-competitive big cities in America. LA is leading the pack as a number of other cities are keeping a close eye on this model, and have plans to create similar programs in the future.

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LA Better Buildings Challenge - Far Exceeding Its Original Project Goals

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