What is the Cost of Green?
When you start researching high performance or “green” construction, you will encounter a wide range of opinions on the cost of building green, ranging from no cost premium to as much as 30% more. The first question often asked when considering a high performance building is: “How much more will it cost?” The answer to this is another question: “Compared to what?”
If you are comparing your potential high performance building with one constructed from the minimum standards allowed by the building code, then high performance will obviously cost more. However, when compared to a facility built to “investment grade” standards (a facility that takes into account the health, comfort and productivity of it’s occupants, and costs less to operate while retaining more of its value), you will see only a slight premium, if at all, for going green.
You will need to decide if green is right for your project at the onset. This is where Fulcrum’s conceptual estimating skills are invaluable. Once design gets underway, it gets very costly to make changes in the program. In order to accurately evaluate the true cost of a green facility, you will need to analyze two main cost categories: first dollar (capital expenses) and operating expenses.
What is the First Dollar Cost?
First dollar cost, also known as first cost, is the capital employed when designing and constructing a building. First cost is usually the most significant constraint on any project; everyone has limitations to their budget. What isn’t widely understood, however, is that operating cost is ultimately the largest expense realized during the life of a building. Unfortunately, most accounting methods tend to treat capital and operating costs separately, leading to a bias favoring lower first cost. In reality, first cost represents less than 10% of the life cycle cost of a building; the remaining 90% is spent on energy, maintenance, and other building related costs.
So what is the Benefit of Green?
When evaluating a potential building project, don’t lose sight of the relative operating costs for a typical commercial business. On average, annualized costs for personnel amount to $200 per square foot – compared with $20 per square foot for bricks and mortar and $2 per square foot for energy. A modest investment in soft features such as access to views, increased daylight, fresh air, and a more comfortable and controllable environment will result in improved productivity and quality. A modest 1% increase in employee productivity will equate to your energy being free!
In our experience, we have found that many high performance features can be added for little or no cost. Design aspects such as site orientation, window, and overhang placement have little or no first cost. The cost of adding insulation and high performance air barriers to the building shell can often be offset by the reduced cost of a smaller heating and ventilating system, which is a concept known as “right sizing.” This smaller system has the added benefit of costing less to operate for the life of the building. Labor and material costs can be reduced by “dimensional planning”, a strategy to design based on modular sizes. By way of example, a room that is 12′-1″ wide will require disproportionately more material and labor than one that is 11′-11 due to the modular sizes of the finish materials used. When you consider that carpet comes in 12′ rolls, while ceiling products are sold in 2′ modules, it’s easy to see the waste created from failing to follow a dimensional planning strategy.
High-efficiency lighting and HVAC (Heating, Ventilating & Air Conditioning) systems add to first cost, but these costs are quickly returned through reduced operating costs. Payback periods can vary widely depending on the cost effectiveness of technology employed, with 5-7 years the range most often targeted.
Adding more comprehensive high performance features will typically add to first cost, but these features bring benefits that need to be evaluated on a system-by-system basis. Through the use of Life Cycle Analysis, we can determine the payback period for system upgrades, allowing the owner to make an informed decision on the best use of capital. Just like in investing, “patient capital” has its benefits when it comes to constructing high performance buildings. The longer an owner can wait to realize the payback on his performance investment, the more performance we can design into a building.
There are numerous financial incentives available to offset some of the cost of performance upgrades, but it takes an experienced Construction Manager to seek out the sources and navigate the bureaucracies that distribute the funds. Utility companies offer rebates for specifying and installing energy saving systems for lighting, heating and cooling and manufacturing processes. They do not do this out of largesse; it is less expensive for them to pay you to consume less, than it is to create additional generating capacity.
On the tax front, the Energy Policy Act of 2005 (EPACT) allows for a onetime tax deduction of up to $1.80/sf for efficiency improvements, and the Emergency Economic Stabilization Act of 2008 offers tax credits of 30% for qualified wind, solar, and geothermal installations. These incentives, combined with utility rebate programs, can greatly reduce the first cost of high performance features resulting in shorter payback durations.