Energy efficiency in commercial buildings: capturing added-value of retrofit
| Published date | 01 July 2014 |
| DOI | https://doi.org/10.1108/JPIF-01-2014-0008 |
| Pages | 396-414 |
| Date | 01 July 2014 |
| Author | John Morrissey,Niall Dunphy,Rosemarie MacSweeney |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
Energy efficiency in commercial
buildings: capturing added-value
of retrofit
John Morrissey, Niall Dunphy and Rosemarie MacSweeney
Cleaner Production Promotion Unit,
G.02A Civil and Environmental Engineering, School of Engineering,
University College Cork, Cork, Ireland
Abstract
Purpose – The purpose of this paper is to investigate, the functioning of value creating configurations
and stakeholder interactions in networks of organisations of the retrofit industry for commercial buildings.
Design/methodology/approach – A value approach was applied to develop a model of retrofit
activities. A Europe wide stakeholder engagement, consisting of over 50 face-to-face interviews with
key informants with energy efficiency retrofit (EER) knowledge and expertise, informed analyses on
flows of both tangible and intangible value for commercial EER projects.
Findings – Given the need to expand the EER marketplace, the sustainability of EER processes is as
important as the sustainability of EER project outcomes.Unders tandingvalue cre ationin retrofit processes
is crucial to successfully harnessing the available energy savings potential from the built environment.
Practical implications – The increasing importance of externalities, such as carbon, means that
previously unaccounted for costs are now being considered in business models. For EER projects, the
challenge is to respond to this new business environment, while maintaining adequate value for
stakeholders. For commercial property developers, this means a growing impetus to understand the
value propositions of other EER stakeholders.
Originality/value – The evaluation of value creation across business relationships such as those of
the construction industry has not been conducted in a systematic manner to date. This paper provides
a novel application of value analysis. Interrogating materials and monetary flows, value interactions
between stakeholders and stakeholder perception of value are vital infostering the long-ter m capacity
of the EER sector.
Keywords Value, Supply chain, Stakeholders, Energy efficiency, Commercial buildings, Retrofit
Paper type Research paper
Introduction
As the built environment accounts for 30-40 per cent of worldwide energy
consumption, together with resultant gre enhouse gas (GHG) emissions, (Cheng et al.,
2008), the construction and real estate sectors represent important focal points fo r
environmental sustainability initiatives (Eichholtz et al., 2010). In this context, energy
efficiency in the construction sector has become a key target to lower societal energy
use (Kneifel, 2010). The retrofit of existing buildings represents an important and
growing proportion of construction activitie s (Dunphy et al., 2013b) and a “low
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Received January 2014
Accepted March 2014
Journal of Property Investment &
Finance
Vol. 32 No. 4, 2014
pp. 396-414
rEmeraldGroup PublishingLimited
1463-578X
DOI 10.1108/JPIF-01-2014-0008
This work is conducted as part of the UMBRELLA (Business Model Innovation for High
Performance Buildings Supported by Whole Life Optimisation) project, a 7th Framework
Programme fundedSME targeted collaborativeproject (Grant Agreement No. 314343),which was
developed to address Work Programme EeB.NMP.2012-3, Development and validation of new
“processes and business models” for the next generation of performance based energy-efficient
buildingsintegrating new services. Theviews expressed herein arethose of the authors and do not
necessarily reflect those of the European Commission or of the UMBRELLA project partners.
396
JPIF
32,4
hanging fruit” of energy and emissions reductions in cost and implementation terms
(Kneifel, 2010).
However, despite this recognition, building energy efficiency activity is still a
fraction of the wider construction industry. Many barriers exist to the expansion of the
sector, including: perceptions of risk; information gaps; effects of lock-in; the inertia of
current practices and attitudes; split incentives; and market capacity. In general, the
real estate market considers energyefficiency upg rade as a pure expense item, without
considering the achievable advantages, including monetary benefits (Aste and Pero,
2012). For market-based solutions to be successful, pricing structures need to better
reflect environmental costs and benefits (Fuerst and McAllister, 2011a), including those
than accrue to other stakeholders. However, environmental attributes of the built
environment are often invisible to investors and at the building level, may only become
recognised at the operational stage, if ever (Bartlett and Howard, 2000). The true costs
and benefits of energy efficiency measures may therefore not be immediately obvious
to building stakeholders. Currently, monetary approaches do not capture fully the
added value of energy efficiency retrofit (EER) projects. Increases-in-value are difficult
to comprehensively and precisely quantify and there remains considerable risk and
uncertainty in the assessment of costs and payback (Shen and Wang, 2013). Retrofit
projects also demonstrate wide variability in both aims and execution, even for
buildings of the same design, age and construction. For any given retrofit project, the
optimal solution is likely to be a trade-off across a range of factors, including energy,
economic, technical, environmental, social and comfort factors (Ma et al., 2012).
Many of the benefits of retrofit are “intangibles”, which remain outside of conventional
assessments.
The importance of “intangibles” has been gaining increasing attention in the
literature. Allee (2000) highlights the business and economic impact of intangibles in
areas of social and environmental performance, for instance. Eichholtz et al. (2010)
forward examples of intangible value forthcoming from retrofit projects, including :
improved indoor environmental quality resulting in higher employee productivity;
improved corporate image of tenants and communication of social and environmental
awareness and responsibility. In this paper, “intangibles” are defined as any value
generation currently considered outside of conventional monetar y assessment.
Intangibles may be further distinguished between value generation aspects which can
readily be monetised, but which are not currently accounted for in EER and value
generation aspects for which there are no direct monetary benefits. Potential future
reduction in risk premiums and higher valuations of the property provide examples of
the former (Eichholtzet al., 2010) and better thermal comfort ofthe latter (Ma et al., 2012).
In some energy retrofit projects such intangible values may be a significant project
objective and therefore key success indicator(s). The consideration of intangible values
offers a pathway for reconciling business and economic models with consideration of their
impact on the health and wellbeing of society and the environment (Allee, 2000).
At present,informational obstacles are clearlyevident as observable market failures that
inhibit energy saving investments (Bardhan et al., 2013). In this context, understanding
the material and monetary flows and the value interactions between stakeholders is vital
in optimising long-term capacity of the sector (Dahlstro
¨m and Ekins, 2006). There is a
clear need for methods and assessments, which can adequately capture value intangibles,
in conjunction with more tangible monetary flows.
This paper applies a value approach to model retrofit activities, providing an
analysis of typical processes in commercial EER projects. Through this analysis, this
397
Energy efficiency
in commercial
buildings
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