Value Beyond Cost Savings - Green Building Finance Consortium

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Appendix FSustainable Property Financial Analysis AlternativesAnalysis/Model Description/Commentary Key Links/ExamplesMarket ValueThe FVC may be an appropriate tool for the owner/user whochooses to evaluate the investment decision on an enterpriselevel as opposed to the property level.10. Risk Analysis andPresentation (RAP)• Energy CostVolatility• Litigation Risk (mold,SBS, contracts, etc.)• Regulatory Risk• Reduced sub-leasingrisk• Cash flow risks• Development-Construction riskanalysis• Exit-risk analysisRisk Analysis and Presentation (RAP) becomes particularlyimportant in sustainable property investment. Sustainableproperties generate powerful positive and negative risks thatneed to be specifically analyzed in the context of the property.Some of these key risks include energy cost volatility, litigationrisk due to mold or sick building syndrome, regulatory risk,sub-leasing risk, exit risk, and development and constructionrisk. More sophisticated and property-specific analyses needto be conducted and clearly and independently communicatedto aid decision-makers.Risks are addressed throughout Value Beyond Cost Savings:How to Underwrite Sustainable Properties. They are presentedin detail in the GBFC Sustainable Property Cost-BenefitChecklist, and in the discussion of process and fetureperformance in Chapter IV, Sections C and D. The RAPprocess is presented fully in Section H of Chapter V.Climate Change Economics has an interesting section clarifying thedistinction between risk and uncertainty. While focused on publicbenefits issues, this section, and other parts of the website provideimportant points in thinking through the economics of sustainability.http://www.climatechangeecon.net/index.php?option=com_content&task=view&id=8&Itemid=22The American Association of Architects Chapter 12 of their BestPractices publication contains over a dozen different publicationsaddressing risk management issues.http://www.aia.org/practicing/bestpractices/AIAS077005Energy Budgets at Risk is a book that presents a financial managementtool for assessing energy related risk at a company level:http://www.jjacksonconsulting.com/eriskm.htmD. Public Benefits Analyses1. ReducedInfrastructureCosts• Water collection,storage, treatmentand distribution• Energy productionand distributionInfrastructure cost benefit analyses seek to quantify costsavings that accrue to the public from buildings thatincorporate various “green” features, which reduce or eliminatethe need for public infrastructure investment. By quantifyingthese benefits, the public sector can more accurately assessthe appropriate level of expenditure to make or incentives toprovide in order to achieve the desired outcome.Buildings that use less water and/or incorporate features thatminimize storm runoff can help reduce infrastructure costsrelated to water collection, storage, treatment and distribution.Towards a Green Building & Infrastructure Investment Fund is a reportcommissioned by The City of Vancouver, the Vancouver OrganizingCommittee for the 2010 Olympic and Paralympic Winter Games(VANOC), Vancity, BC Hydro and Tides Foundation who wereinterested in the possibility of using the 2010 Olympic and ParalympicWinter Games in Vancouver to launcha Green Building & Infrastructure Investment Fund as a legacy of theGames. The overall structure for the analysis and specific sub-analysisprovide a perspective on assessing the financial impacts of sustainableinvestment.248
Appendix FSustainable Property Financial Analysis AlternativesAnalysis/Model Description/Commentary Key Links/Examples• Road & bridgeconstruction/maintenance• More efficient use ofexistinginfrastructureBuildings that are more energy efficient or generate a portionof their energy needs on-site can help reduce the need foradditional energy generation plants and expansion of thedistribution system. Buildings that promote the use of publictransportation by workers or that have locations that can relyon existing transportation infrastructure can reduce oreliminate costs associated with additional construction andmaintenance of these improvements.Another cost consideration has to do with the duplication orunder-utilization of infrastructure improvements as a result ofurban sprawl. When new communities are developed outsideexisting urban areas the effect on infrastructure is twofold: 1)There must be a duplication of existing infrastructure alreadyin the urban area; and 2) Out-migration to the suburbs canleave the existing infrastructure under-utilized and reduce thenumber of taxpayers available to support these improvements.Several of the infrastructure cost benefit analyses use apresent value calculation to estimate the value of these publicbenefits. We believe this is a logical approach since buildingsthat incorporate these features will produce the benefits overmany years. Given the small impact of any particular building,presenting the total public benefits, and the relativecontribution of the subject building to costs is a good idea.Since infrastructure costs are not typically incremental, butrequire substantial expenditures to ensure excess capacity,often to meet peak demand, the marginal benefits to reducingpeak demand, a goal of many sustainable systems, can besignificantly higher than average costs.http://www.greenbuildingfc.com/Home/DocumentDetails.aspx?id=386Climate Change Economics has an interesting section laying out theBasic Economics of evaluating sustainability. This section, and theother key sections on issues in applying economic analysis areimportant for infrastructure and all public, and many private benefits ofsustainability.http://www.climatechangeecon.net/index.php?option=com_content&task=category&sectionid=4&id=10&Itemid=22Water Collection, Storage, Treatment and Distribution: Cost-benefitstudy of 30 green schools in ten states calculates an average water-usereduction of 32%. The author translates this reduction in water-use andwastewater treatment into a net present value estimate (over 20 years)of $0.84/SF. [“Greening America’s Schools – Costs and Benefits,”Gregory Kats, October 2006, pg. 7]http://www.cap-e.com/ewebeditpro/items/O59F12807.pdfWater Supply & Wastewater Treatment: This report presents a netpresent value analysis (over 20 years) of avoided marginal water supplycosts and delayed expenditures from the construction of newwastewater facilities by the public sector. The study calculates anaverage “avoided” marginal water supply cost savings of $5,075 peracre foot, a wastewater facilities “avoided” cost savings of $953 peracre foot and a wastewater O&M “avoided” cost savings of $201 peracre foot. See, “The Costs and Benefits of Green Buildings,” GregoryKats, October 2003, pp 42-43:http://www.cap-e.com/ewebeditpro/items/O59F3259.pdf2. Environmental andResourceConservationBenefits• Conservation ofnatural environment• Landfill reductionEnvironmental & natural resource conservation benefitsanalyses seek to quantify public benefits associated with thosegreen building features that minimize the detrimental effects ofwater treatment and use, promote landfill reduction, cleanerair, cleaner water, and reduce drought risk.Resources from Waste: Integrated Resource Management is a verydetailed analytic study, which presents many creative quantitativetechniques to assess the costs and benefits of an integrated wastemanagement system. The study is an independent report on integratedresource management that examines approaches for localgovernments across British Columbia to use solid and liquid waste tocreate energy, reduce greenhouse gas emissions, conserve water, andrecover nutrients. Benefits cited include:Reduce greenhouse gas emissions by 25%249
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