Energy Efficient Buildings – Expensive Operations?

Do commercial offices certified being energy efficient really have higher operating expenses? In studies of Energy Star labelled offices in the US, some of the research has found that operating expenses are higher – and the more energy efficient the building is, the higher are the operating costs.  Of course, energy costs are not the only operating expense and typically account for around a third of operating expenses.

In a paper published in 2014, Reichardt found that

For a sample of 4,217 buildings derived from the CoStar data bank the results of the propensity-weighted regressions show that LEED certified buildings have 5.4 % lower operating expenses than comparable non-certified buildings. However, the operating costs of Energy Star rated buildings are 3.9 % higher.

Reichardt acknowledges a whole range of other work that finds the energy costs are less in Energy Star rated buildings

…studies find lower energy costs for these buildings. Kats and Perlman (2006) find that Energy Star labeled buildings use 40 % less energy than an analogous subset from the national building stock, which result in lower energy costs of $0.50 per square foot. In a similar vein, Miller et al. (2010) find that electricity expenses in Energy Star buildings are lower by $0.35 per square foot. Pivo and Fischer (Sic) (2010) find that utility expenses in Energy Star buildings are 12.9 % lower per square foot per year.

 It’s worth noting that Pivo and Fisher (2010) and Miller et al. (2010) found no lower operating expenses for Energy Star buildings, despite lower energy costs. In a recent paper, Devine and Kok (2015) also found that Energy Star buildings consumed more energy per square foot that average buildings. My former colleague at Reading, Franz Fuerst (with a colleague Niko Szumilo) has found a similar operating expense puzzle.

A potentially really important result in Reichardt’s work is that operating expenses are 10.4 % to 10.7 % lower in buildings with net leases. When tenants pay the bills, it seems that they tend to operate buildings more efficiently.   If robust, this suggests that changing the lease structures could have major effects on emissions.

Anyway – can it be true that there is a positive causal link between energy efficiency and operating expenses? LEED certified buildings have not been found to have higher operating expenses. Or is there some factor that the research papers haven’t accounted for? I’d tend to go with the latter. Perhaps, Energy Star certified buildings attract tenants who are high consumers of energy. After all, such tenants would make the most savings from energy efficient buildings. Alternatively, Energy Star ratings may signal a bundle of high building quality attributes. Operating expenses may be higher in high quality buildings because such buildings also provide high quality (and more expensive) services e.g. reception, concierge etc. However, if it is robust, the effect of lease structure is being underplayed.




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