In last week’s article, we explored the economic value of Internet of Things (IoT) data in commercial real estate. The premise is that by collecting and analyzing data on everything happening in a building – when equipment requires maintenance, when energy is being wasted, and when the indoor environment is uncomfortable or unhealthy – investments in IoT-based solutions can drive bottom line value. Still, many real estate firms tend to wait for a well-proven ROI before making tech investments. Even those that recognize the economic value of the IoT may forego investments because they are unable or unwilling to bear the upfront costs.
Recognizing this, government entities and non-profit organizations have created a web of incentives for landlords to implement IoT and other “Smart Building” technologies. Understanding and applying incentives intelligently can ensure more IoT investments meet companies’ required rate of return.
Because incentives come in all shapes and sizes, we have put together a guide on what is available, and how they apply to both existing buildings and new construction.
The LEED certification system has grown into a household name, with an expected $224.4 billion in construction spending on LEED projects in 2018. The USGBC, which created the LEED standard, has spent 25 years creating a market incentive around obtaining LEED certification. It appears to have worked; studies show that LEED certified properties command a market premium of up to 25%, more than offsetting the higher construction and development costs.
For owners with LEED projects for either new construction or existing buildings, metering and IoT solution solutions can be an easy way to add LEED points for a low cost.
The Advanced Energy Metering credit provides two points (one in new construction) for projects that install energy-based IoT devices that meet certain standards. Below is the language for the LEED O+M: Existing Buildings rating system, but it is relatively standard across the different types of LEED certification.
Install advanced energy metering for the following:
The advanced energy metering must have the following characteristics:
For modern IoT devices, such as the EnertivTwo meter, these requirements are child’s play.
Achieving LEED Gold or Platinum status will inevitably come down to deciding how to maximize points for the lowest cost possible. Owners and developers would be unwise to miss these two easy points.
The WELL Building Standard, which focuses on occupant health and comfort, has also seen some traction in the market. With a focus on factors such as indoor air contaminants, water quality, and temperature comfort, it’s likely that the IoT will be critical to verify performance. As the standard continues to gain traction, the exact application of the IoT will become more clear.
There are also more direct incentives to installing IoT-based solutions. In New York, the New York State Energy Research and Development Authority (NYSERDA) offers a 30% cost-share incentive for landlords to deploy real time energy management (RTEM) solutions from approved vendors*.
Specifically, the NYSERDA RTEM program helps support implementation and subscription costs for a period of 5 years, following the chart below.
When originally launched in 2016, the program had $30 million in funding. In 2017, Governor Cuomo announced an additional $12 million in funding. This included $5.7 million in direct incentives for RTEM projects in the industrial sector, $830,000 for multifamily RTEM projects, and $6 million for commercial RTEM projects that include cloud-based controls.
Reducing the cost of installation can be thought of as speeding up the payback period by the same margin. A project with an estimated payback period of one year will be cut down to eight and a half months with a 30% reduction to the installation costs. As of the publication date of this article, there are still over 3 months to submit a project for the maximum 30% cost-share.
*Fun fact: Enertiv was the very first RTEM approved vendor.
As much as real estate owners would prefer carrots to sticks, the government has also implemented mandatory regulations to “incentivize” the deployment of more granular data collection in buildings.
One prominent example is Local Law 88 in New York City, which requires large non-residential buildings to install electrical submeters and provide monthly bills to tenants based on the data by 2025.
The law also stipulates that buildings must upgrade their lighting system to meet the energy conservation code. As most owners and operators already know, energy codes have become consistently more stringent over the years.
Looking ahead, we can use ASHRAE 90.1 to predict what is coming for energy codes in commercial buildings. Energy codes are usually one version behind ASHRAE, so current New York City code references the previous version of ASHRAE. This means that the current version of ASHRAE can give a glimpse to the likely future of energy codes.
In relation to mandating that data is collected at a granular level within buildings, the newest version of ASHRAE outlines several building systems to be measured individually. This includes the HVAC systems, lighting, and receptacle circuits. California Energy Code Title 24 has already adopted many of these rules.
A few years ago, this may have looked like an insurmountable obstacle. However, thanks to decreasing costs and complexity of IoT deployments, collecting data around building systems can be achieved in a one or two days installation. Thinking about regulations ahead of time can also reduce the friction and costs associated with compliance.
Nobody can predict the future, but it’s a safe bet to say that IoT-based solutions will be a driving force in the commercial real estate industry. Whether direct incentives such as New York’s RTEM program are expanded or phased out over time remains to be seen.
The same question arises in the world of building certifications. Perhaps LEED and WELL will adapt to put more of an emphasis on operating buildings based on real-time data. Ed Sullivan from FacilitiesNet pointed out that the European Union is looking into the idea of a Smart Readiness Indicator for Buildings. The stated hope is to provide “an incentive for the integration of cutting edge information and communications technology-based solutions which can assist in creating more healthy and comfortable buildings with lower energy use.” It’s possible that a new, Smart Building, certification will arise to define what a Smart Building is and incentivize owners and operators to prove it.
As far as regulations, it is safe to expect that the trend of energy codes becoming more rigorous will continue. There is some talk that this will translate into equipment-level benchmarking. Local Law 84 in New York, which requires building-level energy benchmarking has been widely considered a successful endeavor. Comparing one building to an aggregate of similar buildings can tell owners and operators if there is a problem. But comparing the performance of specific building systems – boilers, chillers, elevators, etc. – may help uncover what those problems are.
As discussed in last week’s article, it is much easier to measure the value of building operations data in terms of energy savings, and so it isn’t surprising that most incentives focus on the energy monitoring aspect of IoT data.
While that might seem less strategic and interesting, it’s important to note that a modern building monitoring system can be also be used to streamline maintenance, delay equipment replacements, and ensure tenant comfort.
Hopefully, this guide was useful. If you are aware of any incentives that were not mentioned here, please mention them in the comments.
Interested to see what incentives are applicable to your project or building? Get a free consultation today.