Do You Want The Problem or Would You Rather Have The Solution?

The other night I attended a presentation on the new 2010 NYC Energy Code for buildings, and of course it is all wonderful progress, and woven into the presentations were plenty of interesting examples of buildings making quantum breakthroughs, though the emphasis remains on new construction, such as the NY Times building, which seems to be wonderful, and whereas the electrical code requires a capacity of 3 Watts/SqFt, the new energy code will stipulate a design spec of 1 Watt/SqFt, but the Times building accomplishes .36 Watt SqFt. So some people do get it.

Of course, since we have more old buildings than new, as buildings have a nasty habit of lasting a century or so, what will be really interesting will be to see how many retrofits will really achieve these kinds of quantum breakthroughs, helped along no doubt by various incentives, in a time when building new is going to be less frequent. For the occasion of this presentation a couple of fresh cans of energy consultants were of course opened up and paraded around to add their wisdom to the mix, while owners reps were quietly figuring out the lowest cost route to meeting the new mandates, which will ensure further capital destruction by incrementalism. Meeting the standards at the lowest cost will doom building owners to failure. More than likely most owners will follow that route for the first twenty years or so, and some are going to see their portfolio values plummet. And there is an army of consultants ready to help them achieve this. The money is in creating the quantum breakthroughs.

Standards, and codes like this one, are minimum design specs, which raise the threshold, but thankfully leave us free to exceed them, and that will hopefully become the real competition. Particularly because the new rules force all the energy data into the open, a feature that may be more important than any of the specific requirements. The energy profile of buildings now becomes a significant feature, and will be quickly reflected in the value of buildings. Which would you rather have, the building with 200 apartments using $500/unit/year in fossil fuels for the owners account, or the building of 200 apartments using $2,000/unit/year that's next to it? Or a million SqFt at .36 Watts or at 3.0 Watts/SqFt? Come and see the new slums, they'll be determined by energy intensity more so than location.

The secret will lie in creating quantum breakthroughs, by focusing on the solution not the problem. And the solution means building level production of energy as the primary mindset, so that the grid, (electric, gas), or oil are relegated to a complimentary and/or backup role, not a primary role. The technology to do it is increasingly available. Energy is becoming a technology business, and a capital asset of buildings. Energy efficiency may make sense for standards like these, but the real focus will be energy as a capital asset, energy as a value proposition and even a profit center. Assuming that owning and operating a building is driven by a profit motive, the question is not the lowest cost to meet the standard, but how much value can I add to a building with an optimally value-enhancing energy infrastructure, which should easily exceed the mandated standards.

The real breakthroughs however will come in the outer boroughs, and the suburbs, not in Manhattan, because there are fewer limitations of all kinds, which typically plague built-up areas, from lack of space, to shade from a neigboring building, and other physical restrictions. Therefore watch the values of real estate start to shift towards the outer boroughs in the next 10-20 years. Very few new LEED Platinum buildings will be commissioned in this period, and retrofits will be where the action is.

In short, if energy efficiency is mistaken for a design goal, not a minimum standard, we are reinforcing the problem. Energy efficiency is a second order parameter. If we focus on energy independence and creating value from energy, the optimal level of energy efficiency that will follow from those design goals will inevitably exceed those design standards (please do check to make sure), because there is money in it. The focus on efficiency as a primary goal reinforces the problem, and maintains our co-dependent relationship with the subscription model of energy. Because of diminishing returns, energy efficiency becomes a capital sink, and creates a metastatic cancer which blocks energy independence. Shifting radically to energy as a value proposition and an important intra-marginal investment in my building is a quantum shift, truly a paradigm shift, and this is where the money is. Energy now becomes a positive value, and whatever we can achieve now means we are focusing on the glass being half full, instead of being half empty, never mind the consolation that we may be draining it more slowly. It is not about a beautiful certificate from your local utility attesting to the energy efficiency, actual building values will be the only real parameter that counts.