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Tuesday, September 25,2012

Doing the splits

For local businesses, ‘split incentive’ sometimes halts energy efficiency

By Steve Weishampel

As the temperature drops, the renters among us crank the heat and curse the landlord who won’t replace those old, leaky windows. But then, why would he? He doesn’t see a penny of savings off his bill, does he?

That same conflict plays out for businesses, too, especially in energy-efficiency and eco-friendly matters.

It’s called the split incentive, a logical conflict inherent in green upgrades: Neither property owners nor tenants see a financial incentive for making expensive energy-efficient changes.

It’s a clash that Bill Hayes, business sustainability team lead at Boulder County’s EnergySmart energy efficiency service, is all too familiar with.

“The majority of their properties, they don’t pay utilities, the tenant does,” Hayes says of commercial property owners.

“So their first question to us is, ‘Well, I don’t pay the utility bill so why should I pay to make the equipment more efficient?’ Then you talk to the tenant and they say, ‘Well, I don’t own the building, why should I put the money into it?’” Hayes says. “They’re both pointing the other way.”

Hayes’ hope is that long-term tenants will see the potential benefits in paying for energy efficiency upgrades.

“We can look at their lighting systems and say, ‘Look, you might not own this lighting system, but if you pay to upgrade it, you’ll get a payback in less than two years, and the next three years of your lease you’ll be saving money,’” he says. “And saving money is making money.”

But it’s not easy. “It’s a tough sell on both sides,” Hayes says, “when neither one really feels the responsibility for upgrading the systems.”

A tough sell, but not an impossible one. EnergySmart team members did successfully convince commercial real estate owner W.W. Reynolds, which, along with Tebo Development, is one of Boulder County’s largest property owners, to upgrade lighting in a majority of its properties. Hayes says he’s been working to convince both property owners to improve energy efficiency.

“There are some properties in our portfolio that didn’t get upgraded because they’re just too small,” Aaron Schlegel says of W.W. Reynolds’ 2.5 million square feet of commercial property portfolio, noting that recently constructed buildings didn’t need upgrades. Hayes says Reynolds primarily replaced T12 lighting in its properties across the county.

At Neptune Mountaineering, which rents a property from Reynolds, Manager Dan Vardamis says the new lights are an improvement.

“We’re using more energy-efficient bulbs,” he says. “They’ve been in here quite frequently [to replace the lights] and as far as we can tell the store looks just as good, and we’re saving money on the electric bill.”

But, as Vardamis notes, Neptune’s been in its South Boulder home for more than a decade, so the shop does its own upgrades as well.

“We have a swamp cooler on the roof” in place of a traditional air conditioner, Vardamis says. “I’d say we’ve certainly had it for at least a decade now. And we use overhead fans, which keeps the place cool.”

Schlegel says the push from EnergySmart got his company moving.

“The EnergySmart Program is what facilitated us being able to do it,” he says. “They helped us process a lot of the paperwork, helped us understand the public-private partnership and how that would work.”

But he acknowledges that the competitive element is always present.

“We’re always concerned with how our buildings compete in the marketplace, and any time we can reduce the triple net expenses, it helps us compete with the other properties in town.” (Triple net expenses, which include utilities, represent costs the tenant must pay.)

“Tebo and Reynolds, they’re the big two,” Hayes says. “We knew that we needed to crack that nut to be successful. So Reynolds basically went through all of their almost 100 properties and took out every T-12 fixture and upgraded it.

“We had very little success getting Tebo’s attention,” he says, “but when he hears that Reynolds is doing this and the assistance they got and the results and savings that they’re seeing, he’s going to listen to that, not me.”

Representatives of Tebo Development did not respond to requests for comment before press time.

At least there are options, if businesses can move beyond the split incentive. Hayes says there are a variety of rebates and loans available, although it isn’t easy to navigate them all.

“It’s something that changes pretty much on a week-to-week basis,” he says. “It’s difficult for us to stay on top of the different loans and programs out there.”

Aside from the services EnergySmart offers, which focus on reducing energy use, there’s the 10 for Change program, where businesses aim to reduce energy use by 10 percent a year; Boulder’s water conservation program; PACE, which also focuses on energy efficiency; a zero waste program; and a flexible rebate program that offsets taxes and fees for businesses that meet energy goals.

EnergySmart’s newest program gives businesses a lower loan rate for energy efficiency projects.

The most common projects for the loans, which he says can range from $1,000 to $150,000, are replacements of heating and air conditioning units.

“Unfortunately with HVAC how it typically happens [is] people keep that equipment going as long as they possibly can with duct tape and baling wire,” he says. “Actually, they’re doing themselves a disservice because once a piece of equipment gets to be 20plus years old, it’s no longer running at anywhere near the efficiency it was when it was new, so it’s costing them huge amounts of energy and dollars to keep it running.”

Hayes also says Xcel Energy in Boulder and Platte River Power Authority in Longmont are offering rebates for business owners who replace T12 lights with newer, more efficient lighting. A federal law prohibits the sale of new T12 bulbs, Hayes says, so business owners will have to upgrade at some point anyway.

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