Green Buildings and the Impact of Power Factor on Utility Cost
In the recent months, a substantial buzz has whirled around "Green Buildings" and "LEED Designation". LEED Designation, or Leadership in Energy and Environmental Design, serves as a benchmark for Green building design, construction, and operation. Green building and LEED Designation work hand-in-hand, and as of late, seem to serve as the future design benchmark of commercial real estate. In a recent national conference held by an institutional advisor, one of the primary topics discussed was the status of the green revolution in the world of real estate in the United States, Western Europe and Asia. In many countries, strict mandates have been rooted for the use of green materials and energy saving equipment. This is also a fact in some areas of the United States. Here at home, the Austin City Council recently attempted to mandate energy efficiency standards for both residential and commercial properties prior to sale. Through a concerted effort by the real estate community, the proposed mandate was defeated due to the heavy burden that would have been potentially placed on owners during a time when many are already suffering from lower occupancies and difficult financing.
The demand for the product has yet to be matched by the fervor for the development of LEEDS designated buildings. The group attending the national conference was unanimous in their opinion that very few tenants are currently using this as a criterion in their selection process and even fewer are interested in paying the premium associated with higher development costs. It has certainly been a surprise that there is not more interest in Green building here in Austin. Austin is one of the most environmentally conscious areas in the State of Texas. The Green projects that are currently being developed or renovated to be more energy efficient are simply the result of pure economics. In other words, the owners that are investing in green / energy efficient buildings are doing so because they want to improve the Net Operating Income (NOI) of their assets. Owners may not be able to impact the market rate, but they can undoubtedly look for ways to reduce operating expenses and improve the bottom line.
One of the newest issues to face the Austin market is the revised rate structure that Austin Energy will be imposing in October of 2009. They will be adding a surcharge based on the "power factor" of your property. Austin Energy is currently in the process of installing new meters capable of measuring this component. Most major markets in the country implemented this practice 30 plus years ago. HPI is advising our clients to have an engineering study completed for projects for which the owner is responsible for the primary electrical bill. The study determines the payback of adding capacitors to the electrical system in turn correcting a low power factor. In general, this has the greatest impact on office buildings. While an overly simplified description of the issue, this is a subject that warrants every owner’s attention due to the potential of a significant increase in the cost of electricity.
