A 3-5 Year Payback On Energy Efficiency For Commercial Real Estate Is Dead Wrong. Here’s Why.

A 3-5 Year Payback On Energy Efficiency For Commercial Real Estate Is Dead Wrong. Here’s Why.
September 20, 2019 Jeff Klein

Real estate investors hope for 8-16% returns depending on where they fall on the risk spectrum — but when it comes to energy efficiency upgrades, they subscribe to the gospel that a 3-5 year payback is required, for a 20-33% return.

Why the discrepancy?

Energy efficiency in commercial buildings can be hard to navigate, but Carbon Lighthouse has removed the barriers — financing, technical expertise, tenant leases, disposition and payback — with an Efficiency Production service that actually turns energy waste into tangible NOI growth.

We’re not consultants. We don’t sell equipment, software or dashboards.

Using deep data, machine learning and ongoing optimization, we engineer a sophisticated mix of patented software and energy efficiency technology to unlock hidden returns in your existing equipment.

Carbon Lighthouse makes it easy and profitable for commercial building owners to eliminate carbon emissions caused by wasted energy.

Energy efficiency investments have long been constrained by financial and non-financial barriers — which is why the 3-5 year payback threshold exists.

 

Industry research shows that, in just 3 years, over 75% of your savings will disappear — which is why so many firms demand a 1-to-3-year payback for efficiency, even though they’d be thrilled to return 12% to shareholders.

The expected savings can erode quickly for reasons familiar to CRE investors, due to the simple fact that buildings change:

  • Renovations and Tenant Improvements (TIs)
  • Leasing Activity and Re-Tenanting 
  • Staff Turnover and Property Management Changes

 

The Inefficiencies of the Efficiency Industry: A Question of Accountability

Buildings are highly complex and dynamic ecosystems, and while it is difficult to understand every variable, we’ve seen a lot of overestimating and underdelivering on savings estimates.

Typical energy retrofit firms get in and out of a building with a one-time efficiency project, but it’s what happens after that makes all the difference from an investment standpoint.

Energy service companies come in all flavors, and most are only set up to cover one part of the efficiency equation, like replacing equipment, selling software, dashboards, or consulting audits and reports.


It makes perfect sense to discount these promises and only invest in 3-5 year paybacks — but you should be asking Energy Service Companies (ESCOs) two simple questions: 

What are your actual dollar savings?
Will you guarantee the savings?


Ask your energy service provider why they are unwilling to take the financial risk on what they recommend — their answer will likely differ from from what we offer:

  • Our contract deliverable is a guaranteed, ongoing dollar amount of savings for the life of our contract
  • The ongoing service is enabled by our CLUES technology that guarantees your savings persist
  • It’s very different from a shared savings agreement because you have a floor on the risk (90% of predicted savings) but no ceiling to your potential savings
    • You keep the upside, and if costs are greater than expected, or there are change orders, we eat those costs
    • If savings are less than expected, we write you a check
  • That check — and our guarantee — are backstopped by Munich Re

We’ve partnered with Hartford Steam Boiler, a global leader in equipment insurance and part of Munich Re, to integrate its Energy Efficiency Insurance into all Carbon Lighthouse service agreements. 

This provides a secondary level of insurance beyond our existing energy savings guarantee, making it even more enticing for building owners to tap the financial value of energy waste.

Why Don’t Energy Service Companies Guarantee Payback? Because They Can’t.

Most ESCOs use generic models or rough estimates that can’t capture a building’s unique, ever-changing dynamics. But our proprietary energy optimization technology gives our engineers deep insights into the complexities of real-time building energy use so we can guarantee results.

The patented Carbon Lighthouse Unified Engineering System, or CLUES®, is the cloud-based software platform that uses AI to crunch new sources of building data from sensors, meters, and weather with statistical and financial models. 

This data is how we fine-tune the operation of a building’s energy systems, identify energy efficiency measures, and predict the results of our Efficiency Production measures with incredible accuracy — to deliver maximum ongoing savings to building owners.

Our patented CLUES technology is the only proptech powerful enough to handle the vast amount of data needed to solve the complexities of energy use.

CLUES is approved for New York’s NYSERDA program for Real-Time Energy Management (RTEM) and in 2019, Fast Company selected CLUES from a pool of over 2,000 entries in the AI + Data category of its World Changing Ideas Awards.

 

We’ve Built Our Company Around Making Efficiency Work For Business.

Beyond the complexities of building energy systems, our team also understands the intricacies of real estate life cycles and the many demands facing building owners, investors, property managers, and tenants.

While other ESCOs may look like Carbon Lighthouse, they’re not built to deliver 10-30% guaranteed, persistent savings — and eliminate risk — without the disruption and out-of-pocket costs. 

It’s time to lose the perception that energy-efficiency projects don’t pay off, and put energy efficiency to work in your portfolio.

With buildings contributing almost 40% of U.S. carbon emissions, we are committed to our mission of delivering profitable environmental impact.

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