Multiple Benefits of Energy Efficiency

Asset Values

Energy efficiency can increase asset values for homeowners, businesses and utilities. Building owners can see increased property value from energy efficiency measures that lower energy consumption and reduce operating costs. Furthermore, studies have shown highly rated energy efficiency properties sell at a premium.

Energy efficiency increases building property values and ease of selling

Evidence suggests that individuals and businesses are willing to pay a higher rent and/or sales premium for property with improved energy performance (Eichholtz et al, 2011). A report conducted by the Australian Property Institute summarising the key findings of six studies on US green office buildings and concluded that, although there was variation among studies, overall property values were higher in green certified buildings (the Australian Property Institute, 2011). The possibility of higher property values and other benefits such as improved productivity of commercial building occupants is therefore a key motivation for investors to undertake deep energy retrofits, something supported by research conducted for the IEA Demand Side Management TCP. 

Table. 1 Summary of US green office space value (the Australian Property Institute, 2011; Watson, 2011)

Study

Rental premium

Sale price premium

Miller et al

4% - 5%

25-26%

Eichholtz et al (a)

3.3-5.2%

11-19%

Eichholtz et al (b)

2.1-5.8%

11-13%

Pivo & Fisher

2.7%

8.5%

Wiley et al

7-17%

16-18%

Miller et al

9%

NA

 

In Massachusetts studies have found that property value increases from energy efficiency improvements were as high as USD 2 000 per utility programme participant, while on average in the United States the property value benefit is estimated at 10% of the value of the energy savings (NEEP, 2017). The National Australian Built Environment Rating System (NABERS) found that in addition to high energy rated NABERS buildings outperforming lower rated projects, demand by government tenants was stronger for these properties.

Mandatory energy performance ratings influencing sale and rental prices in Denmark

Denmark introduced energy performance ratings for buildings in 1997 – one of the first countries to introduce ratings. However, a study conducted by Jensen et al in 2016 concluded that these ratings did not make an impression on the real estate market until 2011 (Jensen et al, 2016). In 2011 real estate agents in Denmark started to report that highly rated energy efficient homes were easier to sell. One key factor leading to this increased value in highly rated homes was the introduction of Article 13 in the EU Directive on mandatory advertisement of energy performance on buildings during building sales.

A study conducted in Ireland also in response to the EU Directive’s Energy Performance of Buildings implementation locally showed similar results, that ultimately a higher energy efficiency rating had a positive effect in both rental prices and sale price of properties (Hyland et al, 2013).

While these are positive impacts for building owners, it is important to consider the affect energy efficiency improvements have on building occupants or renters. While renters may benefit from lower energy bills and prefer a highly efficient building, occupants may not be able to afford an increase in rent in their current property.

Energy efficiency reduces vacancy and tenant turnover

Increasing the quality of a rented space through energy efficiency can achieve increased thermal, noise and light comfort, improved health, safety and security, and reduced energy bills and operational costs. These benefits to the tenant can result in improved tenant satisfaction and improved ability to rent the space. In the United States, property value increases from energy efficiency measures resulting in reduced vacancy and tenant turnover have been found to equal the value of the utility bill savings achieved from the energy efficiency improvements (ACEEE, 2015). 

A landlord may be hesitant to invest in new energy efficiency equipment, as they are responsible for the capital cost, while the tenant is the one benefiting from lower energy bills. This is often known as a “split incentive.” Evidence proving reduced vacancy and tenant turnover in energy efficient properties addresses this issue and provides an incentive for landlords to invest in energy efficiency measures in their buildings.

Energy efficiency increases commercial and industrial asset values

Manufacturing businesses can achieve increased asset values for equipment and facilities through energy efficiency that improve productivity and capacity utilisation. Increased asset values can also be achieved through measures that extend the useful life of the assets, with new technologies that reduce wear on energy consuming mechanical assets and that delay capital expenditures to replace equipment (ACEEE, 2015).

Energy efficiency increases utility asset values

Utilities can increase the value of their existing assets through strategic energy efficiency improvements that reduce the demand and increase the life of the utility assets. Utility investment in energy efficiency to reduce energy demand can also increase the value of current assets by reducing the need for future investment in increased energy capacity or backup generation (ACEEE).