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Climate, COVID-19 and the economics of decarbonizing buildings

COVID-19 has upended society worldwide. As a result of the global health crisis, much of the economy is at a standstill. For those that can, working from home is a near-universal mandate. The result is a dramatic reduction in traffic and a shift in energy, telecom and goods consumption from commercial to residential buildings.

As a result, there is increasing data (including a recent study from the World Economic Forum) on dramatic nitrogen dioxide emissions reductions and even coal consumption, signifying a possible silver lining for climate change. The question is, can society take these short-term signals and translate them into policy and regulatory guideposts to transform redevelopment during COVID-19 recovery?

Let’s take a look at the opportunities for buildings.

A planning process for uptime

Around the world, governments are reacting to the COVID-19 threat by mandating closure of schools and businesses within short timelines, often 24 hours or less. As a result, facilities managers and staff are scrambling to adjust their buildings for vacancy indefinitely. As we look toward recovery, there will be wide-ranging impacts on the fundamental systems that enable learning, work and commerce. Staff and service providers will need to recommission, repair and (in some cases) replace major systems that have suffered from missteps in emergency shutdown and long-term vacancy.

Inevitably, some building owners may be challenged to allocate budgets for the kind of high-efficiency, digital and integrated systems replacements that come with an upfront cost premium. Energy, technology service providers and manufacturers should harness the opportunity to engage these customers with new business models and partnership frameworks. Such a strategy can help drive investment while alleviating some or all upfront capital burden.

Staff and service providers will need to recommission, repair and (in some cases) replace major systems that have suffered from missteps in emergency shutdown and long-term vacancy.

Energy as a service, performance contracts, utility rebate programs and commercial PACE programs are all viable pathways to overcome short-term tradeoffs between lower-cost equipment replacement and high-performance alternatives. Customers can benefit from partnerships that allow outsourcing some technical, management and performance risks, and even ownership of these new systems if suppliers embrace innovative partnership models.

As an example, a K-12 school system may return to a host of major system outages compounding a backlog of deferred maintenance due to legacy economic shortfalls. An energy service company (ESCO), energy provider or service provider could become an invaluable partner positioned to replace these capital assets; at the same time, it could bundle energy efficiency upgrades for lighting, digital technology additions for greater insight into operations and preventive maintenance capabilities for future-proofing, and onsite solar PV and storage to strengthen the school’s resilience in future scenarios.

All of these investments can be made with pay-for-performance, shared or guaranteed savings models. These models can leverage a host of traditional incentives as well as the mounting stimulus funds prompted by COVID-19. It is critical to get our facilities ready for uptime and to completely rethink the impact of our building operations from health, safety and climate perspectives. There are technologies that we can deploy today to achieve all of these goals, if customers and vendors embrace innovative new ways of collaborating to get the buildings and systems optimized.

Electric and efficient priorities for retrofits and new construction

The coronavirus outbreak likely will force government and business leaders to rethink their strategic planning for real estate assets. New construction planning should incorporate lessons from the market shutdown of COVID-19. The economics of investing in all-electric, digital, integrated systems can be much stronger in new construction than retrofit scenario planning, but decision-makers will have to shift from the status-quo, design-to-code approach. There are significant net zero, electrification and decarbonization policies globally that can help direct innovative best practices in new construction in the post-COVID-19 era.

Technologies such as heat pumps (air source heat pumps for cool climates and ground source heat pumps for heating), variable refrigerant flow, energy management systems and EV charging infrastructure represent viable electric building options.

Skyscrapers in an urban landscape

Furthermore, in a new construction scenario, building owners and technology/service partners can specify the digital infrastructure to future-proof the buildings as connectivity becomes ubiquitous with the internet of things.

Occupants expect seamless connectivity between their personal phones, wearables and the equipment they use in commercial buildings to customize their experience, enhance comfort and even promote productivity. These occupant expectations have become top of mind for building owners across businesses as they work to retain and attract students, employees and customers while also appeasing shifting shareholder demands around sustainability.

The focus on electric, digital buildings will require a shift across the value chain for new construction. The benefits of these technologies can be realized into the long term; therefore, they offer benefits to the owner/occupants after handover.

A collective effort is required to redefine specifications at the design and build stage of projects. Industry associations, advocacy groups, real estate developers and building owners have an opportunity to convene and define new best practices that focus on designing for high efficiency, electric and digital building infrastructure.

Rethinking commercial buildings as integrated business, energy and community assets

The business side of the COVID-19 crisis can force positive climate change impacts. This is particularly the case if building owners and their partners accomplish the following:

  • Shift their priorities to retrofit to get facilities up and running
  • Shift their focus from longer-term new construction to decarbonization through electrification or sustainable district heating

Planning for a post-COVID-19 building strategy is an opportunity to make individual buildings cleaner and more efficient. It also sets the stage for greater grid integration, energy flexibility and resiliency, faster controllability and community assets in aggregate (across city blocks, portfolios, and communities).

New synergies can emerge between utilities, technology and service providers, and building owners as traditional market roles give way to a more fluid competitive ecosystem.
Guidehouse has outlined a vision for building-to-grid (B2G) that characterizes the benefits and opportunities of this new approach to real estate.

The relationship between building energy supply and demand is evolving. The global pause forced by COVID-19 should force government leaders to assess the costs and benefits of a more distributed infrastructure and back investment to accelerate this transition.

New synergies can emerge between utilities, technology and service providers, and building owners as traditional market roles give way to a more fluid competitive ecosystem. Significant value creation opportunities will emerge as an increasingly dynamic, flexible and intelligent building stock achieves seamless interaction with an evolving grid infrastructure that prioritizes clean, distributed, mobile and intelligent market systems.

The journey to B2G requires incremental investment and significant change management to transform the business of operating buildings and supplying energy and technologies. This evolution is made possible by technologies that enable integration and interoperability to optimize system performance and B2G use cases.

The extension of building systems from standalone applications focused on the operation of a single building to hubs within a wider network of energy and environmental monitoring systems represents one of the most dramatic opportunities for decarbonization in the built environment. Energy, technology and service providers will be incentivized to support this journey because of the magnified revenue potential.

In the end, we have an unprecedented opportunity to rethink the entire approach to designing, constructing and managing commercial buildings. If the collective of government, business, real estate and shareholders can agree on the importance and benefits of decarbonization priorities, the COVID-19 recovery era can be positive for climate change.

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