Projecting Return Thresholds for Energy Efficiency Retrofits

At what point will building owners invest in specific energy conservation measures (ECMs)? Researchers Kontokosta, Fuerst, Pivo, and Sagi analyzed data from building permits and over 4,000 building energy audits of commercial and multifamily properties in New York City in an attempt to answer that question. By matching recommended ECMs with permit data, the team was able to determine which recommended measures were implemented and used that information to project the rate of return building owners would require to trigger investment in a certain energy efficiency project.

Most Common ECM Recommendations (%)

ECM adoption rates were higher in office properties than multifamily properties, and in both cases buildings that invested in ECMs tended to be larger, higher value, and have higher potential energy savings than the average building in the dataset. Unsurprisingly, lighting upgrades were the most commonly recommended and implemented ECM for both property types, followed by domestic hot water upgrades for multifamily and cooling system upgrades in the office sector. The research team used energy audit report data to calculate the median internal rate of return (IRR) for adopted ECMs in both types of properties. In order to spur investment in multifamily and office properties, the research team projected that energy retrofits required a return of 20% and 24% respectively.

PAYBACK PERIOD VS. RATE OF ADOPTION FOR ECM CATEGORIES

 

This analysis helps develop a profile of the potential returns that building owners can expect to achieve when conducting retrofits on office or multifamily properties in New York City. The results are helpful for generating an understanding of the perceived risk of investment and can inform regulatory mechanisms, incentive programs, and other activities that can help overcome the financial and informational barriers that often prevent building owners from adopting ECMs.

To read more about the methodology and full results behind this research, click here.

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