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For many years, though, the catch seems to have been the perceived expense of green features. Does going green cost more? If so, how much more and what are the long term cost savings and payback periods?
To shed some light on this cost premium question, the Cascadia Green Building Council released the "Living Building Financial Study" at its annual event, the Living Future Conference, held May 6 to 8, 2009 in Portland, Ore. The study analyzed the economics of 36 different buildings across four distinct climate zones, based on the anticipated cost premiums of the Living Building Challenge.
Self-sustaining "living buildings"
"Some people have thought this idea was 'pie in the sky' and unachievable," said Jason F. McLennan, CEO of Cascadia and the author of the Living Building Challenge. "But the study clearly demonstrates that we can increase green jobs, greatly enhance our energy security, and most effectively utilize federal stimulus money by constructing 'living buildings,' especially for those in the public sector where taxpayers are going to own and operate a building for the long-term."
Knowing your client's time horizon
McLennan's special mention of client type cannot be emphasized enough. One of the key findings of the study shows that building owner type has a significant impact on green appetites. That's because project goals and spending priorities can vary dramatically between public buildings (like schools and government facilities) and speculative construction projects such as residential communities.
The underlying question is, "how long are you planning to stay?" After you make your bed, are you going to be sleeping there or moving on? If the project client is also planning to occupy the building, they will generally consider a 50-year or greater lifecycle. On the other hand, a project where the builder doesn't plan to occupy the building at all will result in a shorter time horizon.
Pay now or pay later
One of the largest hurdles of green building finance is to recognize the interplay of a building's construction cost versus operational cost. In this context, the very definition of a cost-effective building design comes into play. As my dad once said, "When somebody calls something 'cost effective,' you always need to ask the questions, 'Cost to whom?' and 'Effective for who?'"
Green features cost a little more money up front, but then pay back over time. For example, investing in solar panels has a higher initial cost. However, the savings from lower energy bills are realized every month for the life of the panels (generally 20 years or more).
Water has a similar consideration. The cost of devices to collect and treat rain water, along with systems to recycle restroom water for landscaping and non-potable uses (sometimes called "showers to flowers") can be significant. However, the savings on water bills help cover the cost over time.
The cost of electricity and water
To estimate how much time it will take to cover the cost of the additional green features (i.e. the "payback period"), it is necessary to estimate the cost of electricity and water for future years. In the Living Building Financial Study, the following estimates were used:
Electricity
Portland = $.08 per kWh
Atlanta = $.10 per kWh
Phoenix = $.10 per kWh
Boston = $.17 per kWh
Figure 1: Cost per kilowatt hour in each of 4 cities.
Water
Phoenix = $6.63 per CCF
Portland = $8.32 per CCF
Boston = $10.27 per CCF
Atlanta = $10.99 per CCF
Figure 2: Combined water and sewer rates per one hundred cubic feet of water (CCF) in each of 4 cities.
Naturally, since the initial costs are fixed, the payback period will be affected by the estimated future cost of electricity and water. If these commodities increase in price, the payback period will be shorter. Conversely, if the prices were to decrease, the payback period would go up.
With the looming carbon market and expected increases in energy costs, investing in an energy-efficient building can act as a hedge against pending cap and trade legislation. Depending on where you live, if your city's energy production mix is dependent on coal or other fossil fuels, any new carbon laws (such as AB32 in California) will affect the price of electricity. In addition, legislation currently being considered at a national level (such as the Waxman-Markey bill), will have broad reaching effects.
And the winner is?
The results of the study indicate that going green has a cost, but that cost appears to be significantly smaller then originally anticipated.
According to Dennis Wilde, a principal at real estate development firm Gerding Edlen, "We can actually afford to do this," pausing to add "with some re-education of our tenants and clients."
Factors such as building type and location provided a wide variance in upfront building costs from 4 percent to 49 percent. However, of the 36 buildings reviewed, 20 had average payback periods under 15 years. Among the most affordable were university classrooms, K-8 schools, mixed use renovation, hospitals and mixed-use high rises.
McLennan said: "This study goes a long way in proving the financial viability of Living buildings. Given that it involved some of the heavy hitters in our industry and the shift in values in our nation, we can see clearly that the opportunity is ripe for Living buildings to emerge in many building types of the US and Canada right now. Other building types that are not currently prime targets for being a Living Building will likely follow suit in a few years. It's time we rethink how we build - and this study should open eyes about what is possible."
Full study details can be downloaded here:
http://ilbi.org/resources/research/financial-study
