Due to the Energy Treaty, owners and tenants of office buildings are now faced with an obligation to bring about enormous reductions in energy consumption. The split incentive problem is a persistent obstacle that can be avoided in retail real estate through dual-label assessments, as SGS Search proved a while ago. A tri-label assessment can now be added, too.
In the Netherlands, 35 in 81 million square metres’ worth of office space holds a Grade-G or Grade-F Energy Label at best, even though Grade C will be mandatory starting from 2023, and Grade A starting from 2030.
Knowing this, SGS Search and e-nolis (which is part of ENGIE) embarked on an EPK pilot study last year. ‘We started from the premise that an energy label may say something about the theoretical energy performance of the building envelope and the equipment, but does not say anything about a building’s energy efficiency, based on its actual level of energy consumption,’ says Jeroen Kanselaar, a senior sustainability consultant at SGS Search. ‘Whether or not a building is energy-efficient also depends on the tenants’ behaviour and on the right configuration, tuning and administration of the equipment.’
Jeroen Kanselaar & Marcel Smulders
Much real estate is not used by the party that actually owns it. Split incentive is the idea that lessors and lessees have different reasons to take energy-conserving measures. These different interests often make it hard to decide on what energy-conserving measures to take.
In the pilot study SGS Search carried out with e-nolis, the theoretical situation of fourteen highly diverse offices, as recorded in their energy labels, was compared against the buildings’ actual energy performance. ‘In so doing, we first looked at annual energy consumption,’ says Kanselaar. ‘Using smart electricity meters, we then focused on the hourly levels of both energy consumption and climatological data such as outside temperature and humidity. And guess what? The office buildings that had good labels on paper actually got mediocre scores in practice, as a result of their equipment not being properly configured or tuned and/or not properly communicating with other pieces of equipment.’
‘One can be amazed or get mad about such findings, but that is just wasted energy,’ Marcel Smulders, a manager at SGS Search’s Construction Consultancy department, says in response. ‘We have put a positive spin on it. You see, there is a great deal of “low-hanging fruit”. Many offices can be made a lot more energy-efficient using the right operational measures. The money saved in that way can be invested in raising one’s Grade-G or Grade–F building to Grade C – for instance, by means of actual investments in things such as new high-efficiency boilers or double glazing.’
‘The tri-label assessment makes energy conservation an obligation shared by owners, tenants and administrators.’
The pilot study resulted in the development of a product designed especially for the office market: a tri-label Energy Performance Assessment. ‘Entirely in line with BREEAM-NL In-Use, which in its monitoring also takes into account the building, its management and the way in which it is used, it is crucial that you call to account the administrator of a building as well as its owner and tenant,’ Kanselaar explains. ‘The Energy Performance Assessment is some kind of baseline measurement that shows clearly how an office performs in terms of energy consumption, and how the office currently rates, energy-label-wise. It has given rise to the tri-label assessment, a report that provides all three parties with an insight into what they can do to save energy.’
However, a report alone will not suffice. ‘People actually have to take action because they have shared interests.
By entering into a performance agreement in which both the owner, the tenant and the installer and/or maintenance company can benefit from energy conservation, we can neutralise the persistent split incentive issue in office real estate. Operational energy-conserving measures and small investments can help one earn money. All parties involved will benefit from the agreement, even though no party will have to make a significant outlay,’ says Smulders.
Smulders also argues in favour of revisions to the annual ‘maintenance and availability agreement’ generally signed by the administrator of the building and the installer. ‘By turning it into a performance agreement, you give an installer a financial incentive to ensure that the equipment performs to the best of its capability.
In practice, installers are very busy administering the equipment, but such an added incentive may cause them to start looking into optimisation of the equipment, as well.’
Kanselaar is convinced that the tri-label Energy Performance Assessment will be able to break the deadlock in the office building market. ‘We have the momentum, especially now that a few major banks have come up with an arrangement whereby office block owners must draw up a plan for obtaining the Grade-C Energy Label in order to be eligible for refinancing.’ For his part, Smulders adds, ‘The tri-label assessment makes energy conservation an obligation shared by owners, tenants and administrators. And the great thing is that it will relegate the seemingly unsolvable split incentive issue to the past in one fell swoop.’