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Plan Ahead for the Commercial Sector in 2030

Planning ahead for urban, commercial sector energy use and conservation requires broad knowledge of compliance regulations, technologies and economic factors.

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The first step in the 2007 strategic planning process for California's energy future was to create a common vision of what the commercial building sector California could be like in the year 2030 and then to identify necessary actions to be taken and outstanding issues to be addressed to achieve this vision. Here is a summary of the broad public workshop input that was solicited to create the vision for 2030.

Putting the Commercial Sector into context: In 2005, total electricity use in California was 272,385 million kilowatt-hours. Electricity consumption for California by sector included commercial buildings as the largest sector (38%) followed by residential (32%), industrial (16%),agriculture (7%), transportation, communication and utility (5%) and mining (2%).

The total floor area of commercial buildings in California represented by the CEUS survey was 4.9 billion square feet in 2005.

In 2005, total natural gas consumption in California was 5,721 million cubic feet per day.

The largest commercial sector for gas use in 2006 was restaurants (24%), followed by health (14%), and large office (11%).

California commercial building stock is a diverse collection of building types, including offices, retail, warehouse, schools, hospitals, and a variety of other types.

End usage for the electricity in California commercial buildings is interior lighting (29%), followed by cooling (15%), refrigeration (13%) and ventilation (12%).

The largest end use for natural gas is heating (36%), followed by water heating (33%), and cooking (23%).

Vision Elements for the Commercial Sector for 2030

1. 100% of new construction building starts are net zero energy by 2030. An example of a net zero energy target would be 80% of the energy reduction occurring from energy efficiency and demand response, with the remaining 20% from renewable energy generated at or near the site.

2. 50% of existing commercial buildings are net zero energy by 2030

3. State, National and other carbon targets are achieved

4. Markets provide both demand pull and supply push for net zero energy buildings

5. Utility programs are streamlined and provide price signals and other incentives (could be in form of financing mechanisms) that incentivize and reward owners/managers and builders/producers of zero-energy buildings

6. California design and construction industries are national leaders in sustainable design.

7. The CPUC, IOUs, CEC and other key players use the vision statement as the basis for long-term strategic planning, assuring other players and partners of their goals and intents through 2030.

New Construction and Retrofit Rates grow at 2.3% per year, there is a 20% improvement in energy use in new buildings, and a 12.5% improvement in existing efficiency by 2025. The black dots are the AB-32 goals for 2020 and 2050. (Source: Borgeson and Coffey, 2007.)

Aggressive Improvements to Both New and Existing Buildings

A scenario for what it would take to reach the AB-32 goals for the commercial sector would require that new commercial buildings start at 60% energy savings and get to 99% by 2030, the retrofit rate is 5% of the stock floor area per year, with retrofits starting at 50% energy savings and getting to 80% savings by 2030. Under this aggressive scenario, the Big Bold initiative targets are met, and the AB-32 goals are nearly met. Source: Borgeson and Coffey, 2007.

C-Suite Impact on Energy Use

The 2007 report by CoreNet and RMI, IThe Energy Challenge: A New Agenda for Corporate Real Estate," identifies two sets of actors who have an impact on energy use in the design, construction and operation of commercial buildings. The first group, shown in Figure 9, are the “Corporate players,” including the CEO and CFO suite, corporate real estate, facility managers, business units, finance and accounting, marketing and human resources, and others.

The CoreNet report notes that the “tasks in the Corporate Agenda are filtered by their strategic nature as well as by their immediacy. It is assumed that C-suite personnel, corporate real estate executives, and sustainability directors will champion the more strategic tasks, while finance/accounting, human resources, and/or facility managers will collaborate to execute the more logistical, day-to-day tasks.”

Service Providers Impact on Energy Use

The Commercial Sector Service Providers are the group that delivers the building, including the real estate, lending and appraising, developers, landlord/owner, and architecture and engineering. The CoreNet report notes that the “tasks provided by the Service Provider Agenda are filtered by the service provider as well as by their immediacy.

For all providers, the first action item is to adopt and promote the 2010 threshold (60% energy reduction over average) of the [AIA’s] 2030 ° Challenge to all clients as well as to other service providers. The 2030 °Challenge is a clear, concise statement for any real estate professional to adopt and promote. The second action item for all providers is to track and communicate energy savings, strategies, and investments to clients and peers.

Capital Proviers

Capital providers set the limits on a project by placing a value on the features and amenities in a building. The key decision point with respect to a commercial building is establishing the budget and the financing. If energy efficiency or other features are not part of the plan at this point, it becomes very difficult to incorporate them into a project.


Developers are another important set of decision makers. Often they are part of multi-line businesses that bring together the investors, the designers, the contractors, and the users. Developers, as represented by the investment managers, are interested mostly in return on investment. Large developers/owners have staff to whom they delegate the details such as calculating return on investments for such things as energy efficiency projects. Managers pick and choose among the alternatives.

Energy Users

Users are a third important category of decision makers. It is important to think in terms of users rather than owners because users may be either lessees or owners. As we shall see, the majority of buildings are small and owner occupied. As we shall also see, users who lease space often have significant control over the amenities in the space, including energy efficiency. Decisions regarding how space can be used and modified in leased buildings are subject to negotiation between the lessee and the owner or the owner’s representative. The lease is important in terms of energy efficiency and energy costs. In many instances, leases are structured so that the costs and benefits of energy efficiency are not split. The notion that the commercial sector is difficult to deal with because of split incentives may only be true for a very small percentage of commercial properties, perhaps 15 percent or less.

One of the key issues with respect to the role of building professionals is the degree to which they are able to integrate their efforts.

The benefits of the design/build model are that design time is at a minimum, costs are kept low, and the timeline for the building is streamlined. The problem with buildings completed using the design build model is that they can and frequently do have poorly integrated systems that do not work well and therefore the building performs poorly. The collaborative model is an attempt to produce better buildings by focusing resources on building a team that has in place organizational, management, computer design knowledge, and quality control systems to overcome the deficiencies of the design/build model. Rather than leaving integration to chance, the team attempts to create understandings and systems so that members have expectations about what they will do.

Community regulators

Community regulatory interests set codes and standards that represent a performance threshold that all builders and developers must meet. The standards are typically a compromise between high levels of energy performance and cost considerations. Codes lag technical performance potential but represent a way to incrementally improve the performance of the building stock.

Barriers, Risks, Uncertainties

The classic work on barriers to the adoption of energy-efficient practices in the commercial sector remains the 1992 report by Amory Lovins. The 2006 report by CoreNet Global and RMI finds that: “On the whole, Lovins’ 1992 assessment of the building industry is not much different from how one might describe it today. On average, design is still fragmented, rules-of-thumb are still common, and buildings still cost more to build, are less comfortable, and use more energy than they should. A closer look reveals that substantial changes have taken place and progress has been made, albeit with limited impact. Progressive architects, engineers, developers, government agencies, lenders, appraisers, landlords, facility managers, and corporate real estate groups all approach building performance differently than they did fifteen years ago.”

A summary of these findings was included in the companion report, 2006 Rocky Mountain Institute and CoreNet Global report, Energy Efficiency Research in Corporate Real Estate - Charette Meeting Report.

Lovins argues that “Buildings are rarely built to use energy efficiently, despite the costs that inefficient designs impose on building owners, occupants, and the utility companies that serve them.” The rationale behind this “market failure” originates within and amongst the fragmented sectors of the building supply chain.

Developers are more concerned with minimizing capital cost per square foot of net marketable floorspace, than with maximizing the building’s long-term financial performance.

Brokers, mortgage bankers, and investment advisors are rewarded based on the original project value, not on the building’s long-term financial performance.

The additional value of energy-efficient commercial buildings is rarely reflected in the appraisal process, security ratings, or market value. Emphasis is often solely placed on market conditions, aesthetics, and location – low operating costs or innovative technologies are rarely highlighted.

Many commercial leases, too, are still written on a ‘gross’ basis (i.e., they include energy and other operating costs in a total rent figure), giving the tenant no incentive to save even though the landlord could in principle keep the saving.

Design-related barriers

To avoid liability, designers often roundup equipment sizes or rely on advice from manufacturers creating ridiculous safety margins (as great as tenfold) – often without performing models to verify performance

Furthermore, percentage-of-cost contracts reward over-sizing of equipment. "Designers who do extra work to design and size innovative HVAC systems exactly right, thereby cutting their clients’ capital and operating costs, are directly penalized by lower fees and profits as a result, in two different ways: they are getting the same percentage of a smaller cost, and they are doing more work for that smaller fee, hence incurring higher costs and retaining less profit."

A single entity rarely takes responsibility for ensuring designers communicate to create an integrated design – different fee structures, perspectives, and technical languages further inhibit interaction.

Most architects lack the time and knowledge to check the engineers’ work for maximum energy efficiency.

Mechanical designers are brought on too late in the project, when the most critical decisions have already been made.

Time-pressed superiors, as well as code officials, would rather approve safe and familiar designs. “The U.S. Office of Technology Assessment summarizes: It is usually easier for the designer to follow accepted, standard practice, especially if the designer’s fee is the same in either case. As one interviewee said, ‘The path of least resistance does not include energy innovative design.’”

Price competition between engineers encourages fast and easy “catalog engineering,” which is hardly engineering, but “only the application of crude and outmoded rules-of-thumb to selecting common listings from major vendors’ catalogs. This procedure is at the root of today’s appallingly low mechanicalsystem efficiencies.”

Construction-related barriers

Equipment availability sometimes dictates selection – whatever “equivalent” (usually in terms of capacity, not energy efficiency) pump or duct is handy may be installed.

Suppliers can be reluctant to sell new products – for example, “people who use imaging specular reflectors buy only half as many fluorescent lamps to go under them, so vendors may discourage competing products that save customers’ dollars and energy at the expense of their own sales.”

The commissioning team is rarely rewarded for the initial building performance or for how well the building operators understand the building systems. O&M-related barriers:

Building operators are usually poorly trained and tend to disable equipment or features they don’t understand. Also, monitoring equipment is rarely installed, thus creating a barrier to measuring actual building performance against intended building performance or warranty-related specifications. Furthermore, confusing building interfaces make it difficult for operators to understand, let alone optimize building performance.

Building operators may never even see meter readings or utility bills

Tenants are seldom given instructions as to how they can positively influence building performance

Commercial building operators are mostly concerned with occupant comfort and minimizing complaints.

There is little feedback to real-estate developers regarding occupant satisfaction – “The building industry is in this sense quite primitive: we would not dream of running a manufacturing business with so little and oblique contact with our customers, and if we tried to, we’d soon be out of business. But that is what the building industry tries to do with its complete disjunction of design, manufacturing, marketing, sales, delivery, repair, and renovation or demolition.”

Tenant-related barriers

Few commercial tenants are familiar with energy efficiency. “Notable exceptions exist: in Sydney, Australia, it has become fashionable to compete on how efficient and ‘smart’ one’s office building is, and many tenants ask penetrating questions about details of design and efficiency down to the component level.”

There are many misunderstandings regarding energy efficiency; retail managers treat energy bills as “immutable as death and taxes.” Furthermore, “A survey of small businesses found that energy efficiency was thought to require turning down heat or turning off lights.”

The top 50 property managers manage about five billion square feet. This is roughly half of U.S. commercial office lease space. This means that there is a significant level of concentration of ownership and management in the lease space office segment and that one can deal with a relatively few players and address energy efficiency for large amounts of space.

Outreach to the Construction and Developer Niche

The construction of office space is cyclical and tends to lag the economy. There is currently a large inventory of space available. If history repeats itself, construction will slow until there is need for additional space, a period that may extend from five to seven years. During this period, developers and property owners will be anticipating their next steps. Because of this “hiatus” it may be possible to get the attention of owners and building professionals.

A high percentage of the quality office space is now located in suburban areas. In the short-term, it appears that there is a movement to downtown office space.

Lighting accounts for 30 percent of the energy use in offices, space heating 25 percent, and office equipment 16 percent. Cooling and ventilation account for nine and five percent respectively. Commercial building efficiency programs tend to target electric air conditioning systems while space heating, especially gas and oil space heating, tends to receive scant attention.

Efficiency in Place

Electronic ballasts are present in 408,000 buildings in this market indicating the presence of at least some efficient lighting in 58 percent of structures.

Package units are the most common heating source being present in just under 50 percent of the buildings. Furnaces, individual space heaters, and boilers collectively have a larger share of the market. Many gas utilities have complained that there has been inadequate attention to developing new energy efficient gas technologies including space heating technologies. This may be an area that needs attention both because of short-term supply constraints for natural gas and the long-term outlook.

Much of the current approach to developers of buildings is based on the life cycle cost of buildings. There is ample evidence that owners want good buildings and that there are significant non-energy benefits from energy efficiency technologies that could be used to sell efficiency. This is an area that is little explored.

Owner Occupied Buildings

Owner occupied buildings are 62 percent of the overall office market. As many as half may have fewer than 5,000 square feet and as a result they typically have different characteristics than many of the buildings in the lease segment.

Large Commercial Lease Operators

Large commercial lease operators have more than 100 million square feet of office space under development annually. A relatively small number of owners influence a large amount of new space making this group an important target. These owners are best addressed at the national and regional levels. Local entities and utilities are likely to have less influence with this group. This argues for a national level strategy to address this group. The Energy Star and green buildings programs are currently partially addressing this part of the office market.


Financing is the key limiting factor. Whichever model a developer or owner uses, professionals are limited in what they can do by the constraints of finance. Quality buildings and energy efficiency are intertwined.

The goal: High commercial and residential density encourages more intensive use of space, resulting in less conditioned square footage required to accomplish the same function. For example, high density areas yield high sales per square foot figures for retail functions, which in turn requires less lit and conditioned square footage per unit of economic activity.

The California Energy Efficiency Strategic Plan was developed and shared in full by the California Energy Efficiency (, and the California Public Utilities Commission site, (

Full information on this vision report is available at PDF DOWNLOAD of Commercial Convener Report

Energy Efficiency, Innovation and Job Creation in California Executive Summary october 2008 by David Roland-Holst, UC berkeley

Edited by Carolyn Allen, owner/editor of California Green Solutions
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