RMI Investor Guide Helps Assess the True Value of Deep Energy Retrofits

Historically, investment in deep energy retrofits has been limited in large part by an insufficiently compelling business case. Investments made in energy efficiency today typically have to provide a 30 percent return on investment based on energy cost savings alone. Some deep energy retrofits approach or clear this hurdle, but many do not.

Real estate investors generally neglect the value beyond energy cost savings when they prepare and present capital requests for deep retrofits. The result: undervaluation of deep retrofit opportunities that leads to (unintended) underinvestment in efficient buildings, leaving millions on the table—and increasing carbon emissions in the atmosphere.

Incorporating the additional—albeit less tangible—value beyond energy cost savings into decision making is therefore critical to improving investor due diligence, enabling better assessments of the value proposition for deep retrofits, and, in turn, unlocking needed capital.

In April, Rocky Mountain Institute (RMI) released a new practice guide for real estate investors to capture all value beyond energy cost savings resulting from the execution of a deep retrofit project, and address the failure of the market to fully recognize this value. How to Calculate and Present Deep Retrofit Value: A Guide For Investors provides a comprehensive deep retrofit value methodology and complements the 2014 report RMI produced for owner-occupants.

Calculating and presenting five key sources of value beyond energy cost savings—including retrofit capital costs, non-energy operating costs, tenant revenues, sales revenues, and retrofit risk analysis—will help unveil the often overlooked benefits of investing in deep energy retrofits and promote increased investment.

The full report and executive summary are available at www.rmi.org/deep_retrofit_value_guide_for_investors

You can also learn more by enrolling in upcoming courses from the Institute of Real Estate Management (IREM). IREM, in partnership with RMI, has developed three deep retrofit value online courses and an accompanying tool based on the new practice guide.

Please contact RMI if you have already taken these values into account, are interested in demonstrating the methodology, or would like to hear more about RMI–IREM courses.

Note: Mike Bendewald contributed to this article.