The end of Energy Star grade inflation?

Photo courtesy of the Tyler Callahan

50% of existing certified buildings are at risk of losing their ENERGY STAR qualified scores from the long-overdue update to Portfolio Manager's benchmarking data.

Well, that’s the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.

We’ve always been a little surprised at the magnitude of energy management opportunities in office buildings. Even in a building with an Energy Star score in the 90’s–theoretically the best of the best from an efficiency perspective–we find opportunities to lower energy use and costs.

As we’ve discussed before, there has long been widespread evidence of inflated Energy Star scores, which have tended to rise in the market as building efficiencies improve compared to the 2003 benchmark that powered the scores. Extensive critiques of Energy Star have also been lobbied by academics, including a 300 page tome that highlights serious statistical and methodological problems with Energy Star based on extensive FOIA requests.

The EPA has responded with an Aug 27, 2018 update that improves methodologies and finally compares today’s building stock to 2012 CBECS survey data.

The impact is substantial, and one killer chart from the EPA shows the absolute bomb this update will be in the commercial office market:

New Energy Star Benchmark Data Impacts

Prior to the August revision, over 30% of buildings had Energy Star scores over 90. The revised methodology returns to a true percentile model, where only about 10% of buildings get a score of 90 or greater.

Prior to the August revision, well over half the scored building stock had Energy Star scores of 75 and were, therefore, granted “Energy Star Certification.” Now, that number will return to the as-designed top 25% of buildings.

Put more concretely, if your portfolio of buildings was all Energy Star Certified on August 26th, it’s likely that the next day up to 50% of your buildings no longer qualify.

Beyond the window plaque

Energy Star started as a voluntary signal for top energy efficiency performers. Today, Energy Star scores are baked into public disclosure laws and green labeling schemes like LEED. If the score for your building drops, in many cities and states, its going to be public. If you’ve made commitments to LEED EBOM, your building may no longer qualify for the certification.

More problematically for commercial real estate, some tenants include Energy Star ratings as explicit leasing criteria. This includes major tech tenants as well as the largest tenant in the US, the federal government.

It’s one thing to suffer high energy expenses and reduced income from poor energy efficiency, it’s another thing to completely lose the opportunity to compete for major leases!

If I study hard, can I retake the test?

If all of this has you concerned, there is some good news.

First, we hope you took everyone’s advice and recertified prior to the August deadline. This will buy you a full year or more to hold a score, finish LEED certifications, and implement any changes.

Second, it is simple and easy to update your data and see the impact on your Energy Star score. While EPA guided for an average reduction of 12 points, the median change for most Gridium buildings is closer to 7 points. But some buildings suffered. About 18% of our buildings experienced a drop of over 12 points. There are winners too. 35% of buildings experienced a change of no more than five points.

To understand the change, focus your attention on the one number that drives your score: kBtu per square foot.

Energy Star works by comparing the energy use intensity (EUI) , measured in kBtu per square foot, among different buildings with other factors that calculate a median basis of comparison to your building. The update is mainly about the set of comparison buildings getting more efficient due to lighting and general efficiency trends. Put differently, your energy use didn’t change when Energy Star changed, the basis of comparison did.

And how far your score dropped is a very clear function of the change in what Energy Star now considers the median for your building. Across our data set, here are simple rules of thumb:

Change in Median Source EUI    Energy Star Score Impact
     Less than 30% decrease        Less than 5 point drop
     30% to 45% decrease        5 to 10 point drop
     50% and higher decrease        12 points and above drop

The good news is there is nothing fancy here. The scores are ratios of performance against that median, so if your score dropped dramatically, you have to match that drop on your own EUI by a similar level to return to your prior score. Gridium users can turn to performance metrics to see the latest and compare trends.

Any kind of energy efficiency driven drop in energy use is going to improve the score. Remember that what counts is all sources of energy. In particular, don’t forget gas improvements. Gas doesn’t cost very much but it can easily be 30-40% of the source EUI for your building and can be cut dramatically with controls improvements. Similarly, baseload in the building represents so many hours of your total load that small reductions in off hours use can really reduce your building’s EUI.

Boiler reset failure data in heatmap Snapmeter

Drift on a gas meter heatmap is easy to spot–the boiler setback for July had failed.

Professor, can we meet about my grade?

We all had the professor in college that tried to valiantly restore the “C is Average!” of his youth. The consequences were as predictable and exhausting as the resultant office hours.

The same may be playing out with this set of Energy Star updates. Many industry participants were surprised at the impacts and the disruption to their business. In addition, some of the changes don’t seem to be fair or uniform; for example, buildings in cold weather climates seem to be disproportionately affected, and buildings with solar had smaller changes to their score. EPA has opened an additional review period and suspended certifications until the period is closed:

Now that the updated models are live in Portfolio Manager for all users, EPA is implementing a review period, during which we will specifically solicit feedback on the application of those models to various commercial building sectors and the resulting scores. The review period will help us ensure that the models are working as intended to deliver energy performance metrics that empower you to make the business case for owning and operating energy-efficient buildings. EPA will work in conjunction with stakeholders and technical experts to conduct this analysis and adjust the scoring models, if needed. (emphasis added)

While there may be some changes for methodology, neither the extent of any update nor the degree of modification to changes in scores are clear to us at this point. What is clear is that when the mean Energy Star score of all buildings in Chicago is 76, you know you have a grade inflation problem.

Our counsel is to recognize that energy efficiency has, on average, improved since 2003. If you want to be top of the class, it’s time to get to work.

About Tom Arnold

Tom Arnold is co-founder and CEO of Gridium. Prior to Gridium, Tom Arnold was the Vice President of Energy Efficiency at EnerNOC, and cofounder at TerraPass. Tom has an MBA from the Wharton School of Business at the University of Pennsylvania and a BA in Economics from Dartmouth College. When he isn't thinking about the future of buildings, he enjoys riding his bike and chasing after his two daughters.

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