Benchmarking and Beyond: The Spotlight on Efficiency in Existing Buildings

Introduction: The Evolution of Energy Efficiency in Commercial Real Estate

Over the past half-century, managing energy use in buildings has transitioned from an afterthought to a dynamic and widespread discipline within real estate. Reflecting shifting economic pressures and technological advancements over the years, the ideal approach to energy management in buildings has gone through several transformations. Today, with concerns ranging from cost savings to human health and climate change, energy efficiency is a key component of effective building design, operations and maintenance.

Efficiency emerged as a serious priority for commercial and residential buildings in the 1970s, when national oil shortages and price spikes shook the economy. This era also saw a heightened awareness of ozone-depleting emissions, prompting regulation and widespread adoption of alternative refrigerants. Environmental awareness spurred technological innovation and creativity, laying the groundwork for ongoing developments in renewable energy, building performance benchmarking and efficiency retrofits.

As the ozone layer recovered and energy costs receded, novel sustainable technologies were edged out. Throughout the 1990s, newly competitive retail energy markets made it possible to select an energy plan with a lower rate. This meant that, in deregulated areas, buildings could cut energy costs without necessarily reducing total energy consumption or demand. In comparison, unrolling an energy conservation system could be technically unwieldy and financially prohibitive.

The mid-2000s, however, marked a pivot back toward efficiency enhancements, with the passage of the Energy Policy Act of 2005 (EPAct), which intended to strengthen national security and economic prosperity through energy independence. The energy conservation mandates in the EPAct supported a blossoming industry of energy metering systems, propping up demand for leak sensors, smart meters and submeters. The resulting availability of granular energy data unlocked new opportunities for buildings to recover costs, enhance efficiency and earn recognition for high performance.

Subsequently, the recession beginning in 2008 prompted businesses to cut needling costs and utilize incentives for energy efficiency retrofits. Adoption of efficiency-boosting technologies, such as Light-Emitting Diodes (LEDs), and weatherization escalated in the late 2000s and 2010s. Opportunities to reduce costs with renewables, including the obligation placed on public utilities by the EPAct to offer net metering, encouraged the budding development of wind and solar energy.

Starting in the late 2010s and early 2020s, the rising concept of corporate responsibility on climate change made carbon footprints a factor in real estate decision-making. Corporate tenants, now beholden to investor expectations, regulations on carbon pollution and their own public commitments, need ways to quantify and reduce their greenhouse gas (GHG) emissions. This put pressure on building managers and utility service providers to reliably exchange data, an undertaking that is occasionally stymied by incompatibilities in information systems and privacy rules.

Along with developments in corporate transparency, many recent policies have introduced incentives and targets for energy efficiency and building decarbonization. Today, mandatory reporting is a significant component of energy management for large commercial and multifamily properties, with multiple states and cities adding requirements for benchmarking and efficiency in existing buildings. The widespread and rapid enactment of new policies has led to an uptick in utility data exchanges through systems such as the US Environmental Protection Agency’s ENERGY STAR® Portfolio Manager®.

Where does this leave the field of building energy management? Keeping up with evolving standards requires an organized, proactive and data-driven approach. Whether or not these systems are currently in place, new regulations are forcing the issue to the forefront.

What Are the New Regulations for Existing Buildings, and How Are They Different from Energy Codes?

Applying to new construction and major renovations, energy codes and green building standards have become established across the US since they first emerged, in part, as a response to the energy crises of the 1970s. Based on model codes like ASHRAE Standard 90.1 and the International Energy Conservation Code, state energy codes have contributed to significant efficiency advancements in new construction.

By comparison, legislation targeting existing buildings has been limited—until recently. Energy benchmarking laws are now in force in dozens of locations around the US, requiring building owners to collect and report annually on energy and water usage metrics. Expanding upon required benchmarking, building performance standards (BPS) have introduced enforceable targets for efficiency and sustainability in existing buildings. Both types of policies apply to large multifamily, commercial and public buildings, although coverage varies by jurisdiction.

Why Are Existing Buildings Being Targeted?

While newly constructed and renovated buildings have been held to increasingly strict energy standards, many older structures suffer from poor inefficient heating and ventilation, leaky envelopes and aging equipment. They can be expensive to operate, uncomfortable for occupants and strain local energy grids, but high upfront costs and the case-by-case approach required to effectively retrofit each structure have prevented many aging buildings from adopting twenty-first century technology.

Benchmarking and building performance laws address existing building performance by encouraging a data-based approach to efficiency improvements. First, benchmarking laws require annual reporting on key metrics about a building’s energy performance. This makes it possible to compare buildings across a city, county or state and highlights local underperformers.

Although benchmarking laws encourage—but don’t require—efficiency upgrades, they have been closely followed by a wave of building performance standards. As BPS laws are enacted, policymakers are shifting from an incentivized, voluntary approach to efficiency toward one that relies on mandates and penalties. In many locations across the US, owners and operators of low-performing buildings will soon face fines unless they make demonstrable improvements over time.

What Does This Policy Trend Mean for the CRE Industry as a Whole?

Benchmarking and building performance laws contribute to the growing spotlight on sustainability in commercial real estate, one that brightens as institutional investors, governments and corporations around the world set decarbonization goals. The expectation for building owners and operators to disclose information about energy and water efficiency to tenants, financers and regulators is quickly progressing from a rarity to the industry standard. Beyond benchmarking and BPS laws, building performance assessments and certifications like BOMA BEST, ENERGY STAR and WELL have gained recognition as indices of well-managed properties.

With access to accurate and complete data being a prerequisite for mandatory and voluntary reporting, many building operators have found that existing information systems are inadequate. For many properties, especially those with multiple tenants, achieving whole-building utility data coverage is an ongoing challenge. Building owners and managers may find themselves grappling with challenges around historical data, tenant privacy and data validation across multiple utility service providers and jurisdictions.

What Is an Effective Approach for Building Owners to Track And Comply with Utility Data Requests?

It is increasingly common for managers of large portfolios to contend with several reporting programs and deadlines throughout the year. Since 2008, benchmarking laws have been adopted by more than 50 city, county and state governments. Meanwhile, billions of dollars have been earmarked for sustainable investments across the globe. While policy details and investor expectations vary by location, there are common strategies that can be applied across a portfolio.

The primary data sharing platform for North American building managers seeking to comply with these requirements is ENERGY STAR Portfolio Manager, an online tool designed for tracking energy, water, waste and greenhouse gas emissions. Buildings benchmarked in Portfolio Manager may be scrutinized by their overall score, on a scale of 1 to 100, or other indices of energy usage intensity (EUI), water usage intensity (WUI) or GHG emissions intensity.

As BPS laws take effect, there are potential penalties for failing to achieve a certain score or meet a threshold for efficiency. These laws set targets into the future, allowing building owners to avoid penalties by leveraging current consumption data. Buildings that sit well within the defined performance standards can continue to report and monitor data, while underperformers and those near the cutoff demand a more proactive approach to energy management, including audits and investments in performance improvements.

To stay ahead, building managers must employ effective systems for processing utility data and ensuring accurate meter readings. To that end, technological advancements are facilitating compliance with new reporting requirements. Automated utility invoice processing has paved the way for improved consumption data, not just by eliminating errors associated with manual data entry, but also by detecting exceptions. By tracking and resolving billing errors, property managers can save on unnecessary costs while improving the accuracy of their building’s consumption data.

Regardless of whether a building operator benchmarks voluntarily or for regulatory compliance, quality data can be leveraged to yield cost savings. Data insights can provide useful waypoints for improving operational efficiency, highlighting problem areas and measuring the effectiveness of interventions. Improved accuracy in consumption data ensures that energy-saving initiatives are based on reliable information.

Performance optimization can be achieved with the type of granular information that submetering, sensors and interval data systems provide, with detailed consumption data across specific areas and timeframes. Building management systems (BMS), energy management systems (EMS) and automation applications thrive on high-quality data to control resource consumption. Technology assists by automating alerts, continuously monitoring incoming data and fine-tuning complex systems in real time.

How Can the Whole-Building Data Challenge Be Solved?

Whole-building energy and water usage data is essential to gaining an accurate view of how well a building performs. Obtaining whole-building data is relatively straightforward in the case of a building with a single meter for each utility. The complexity of assembling reliable whole-building consumption data is heightened, however, for multifamily and multi-tenant commercial buildings where occupants are separately metered.

Many utility privacy policies and information systems make it difficult for building operators to gain insight into tenants’ energy consumption. As a result, utility companies have been pressed upon to expand data access, with the EPA collaborating with organizations such as the Institute for Market Transformation (IMT) to apply standard practices across service providers.

In the meantime, a patchwork set of procedures are functioning to supply data for voluntary reporting and regulatory compliance. In many cases, modifying leases to include data-sharing agreements has allowed for more streamlined access to tenant usage data. Automated submissions in the form of an application programming interface (API) between Portfolio Manager and utility service providers have also relieved delays associated with manual data-sharing processes.

Coming Full Circle: Navigating the Path to Data-Driven Energy Management

In the evolving landscape of building management, the issue of efficiency in existing structures is more visible and important than ever. The spotlight on utility consumption compels real estate stakeholders to disclose information that was once hidden—even to the buildings’ own management. For the industry, this represents a seismic shift in favor of transparency and sustainability.

However, the road to data-driven efficiency is not without obstacles. With the growing complexity of benchmarking, reporting and efficiency improvements, many building operators rely on outside services and expertise. In addition, governments and NGOs have devoted considerable resources to paving the way for smoother data exchanges. Through collaboration, innovation and adaptability, the real estate industry is overcoming hurdles to effectively measuring and sustainably managing utility consumption in existing buildings. As transparency becomes the norm, a new era of energy management is being unveiled, with efficiency being the gold standard.