SMALL BUILDINGS: BIG FINANCING CHALLENGES
Bigger may be better but smaller buildings offer an enormous opportunity for energy efficiency. However, they also pose special challenges for financing and implementation.
Buildings under 50,000 square feet consume 47% of all energy in non-mall commercial buildings. Collectively these small buildings are clearly significant energy users, but individually they lack the economy of scale that can help facilitate energy efficiency in large buildings.
Glenn Schatz, small buildings project manager for the DOE’s Building Technology Office, says that small buildings and small businesses do not attract the big banks because, in the eyes of lenders, smaller businesses are not as creditworthy. They are also less likely to attract energy services contractors. Energy projects for small buildings do not receive the energy modeling and simulation of projects for larger buildings. As a result, energy savings are less certain for small buildings and less appealing to lenders.
DOE is promoting programs aimed at building networks in smaller communities that can work together on efficiency – small business owners, small lenders or lenders who lend to small business, and efficiency suppliers. “There are people who know about efficiency, but sometimes it’s difficult to get them all together,” Schatz says.
Despite the hindrance of scale, small buildings have some characteristics that help them to focus energy projects, according to Realizing the Energy Efficiency of Small Buildings, a report from the National Trust for Historic Preservation and the New Buildings Institute. The majority of consumption in small buildings occurs in only seven building types: food service, “Main Street” or attached multiple-use buildings, strip mall, lodging, retail, office and schools.
Among small building types, food sales/service facilities have the greatest savings potential for energy retrofits, according to the DEEP (Deep Energy Efficiency Potential) index. The index creates a single score from four variables: energy density, EUI, market factor and scale factor.
Grocery stores, restaurants, and other tight-margin businesses with high energy costs can profit the most. For example, small fast-food restaurants have the potential to save 45% of their energy cost and receive a simple rate of return between 28% and 66%. Grocery stores that reduce their energy costs by 10% can increase their profit by 16% and their sales per square foot by $50. Finally, small commercial buildings in business districts are consist of similar building types. That similarity facilitates district-scale solutions that take advantage of shared physical characteristics.
Turnkey Solutions to Match the Needs
While upfront cost is usually considered the greatest obstacle to energy retrofits, that statement can be misleading when applied to small businesses that, regardless of available funding, may not have the human resources to carry through a project. For small owners who must focus on their core business, it is critical to have a turnkey package that includes services to assess the property, facilitate a contractor and arrange financing.
“You can give them 100% of the money yet they put it off and put it off,” says vice president Mahlon Aldridge of Ecology Action, a nonprofit that delivers energy retrofits to small building owners for three California utilities. “They can’t be bothered with all the details. But if you hand large businesses the capital or a way to get cheap financing, they will find ways to do it because they have people dedicated to cost reduction and facility management.”
Aldridge’s advice for small owners: Ask the utility if it has a direct-install, turnkey program.