Is There A Strong Business Case To Pursue Leasing Zero Energy Buildings?

Carmichael, Cara, and Alisa Petersen. Best Practices for Leased Net-Zero Energy Buildings: An actionable guide explaining the business case and process for developers and landlords to pursue net-zero energy leased buildings. Rocky Mountain Institute, 2018.

Commercial buildings in the U.S.  account for over a third of the energy consumption and nearly twenty percent of carbon emissions and over half of non government owned commercial building are leased.   Energy usage can be systematically reduced in leased commercial buildings in order to make great progress towards meeting our carbon reduction goals.  These efforts can make good business sense for developers and landlords who are considering leasing Net-Zero buildings.    In this SolarEconomist blog post I recommend The Rocky Mountain Institute’s recently published actionable guide explaining the business case and process for developers and landlords to pursue Net-Zero Energy leased buildings.


 1.  NZE buildings can provide strong returns to developers and landlords 3 to 5 percent higher occupancy rates , 3.5 percent higher rental rates and 13 percent higher sales prices.

  • Assuming an investment of 10 percent additional construction costs, (not including solar costs), an developer or landlord could have an 8 year payback through higher operating income.
  • If a building is owned for 10 years and then sold, the owner could receive  19 percent higher profits than a comparable non-NZE building.
  • A developer that immediately sells the building upon project completion could receive 17 percent higher profits than a non-NZE building.

2.  To achieve NZE, four critical components must be included in the lease process and structure:

  • Energy budget: is the amount of energy allocated to each occupant based on using less than the renewable energy generation capacity of the building.  Maintaining the energy budget requires landlord tracking and occupant agreement as well as appropriate incentives.
  • Submetering and disclosure: participants can only manage what is measured, so there needs to be a basic level of sub metering between occupants and common areas.  The energy use data needs to be made visible and shared with the occupants on an ongoing basis.
  • Recommissioning: include a requirement for recommissioning in the lease as an operating expense ensuring the building continues to operate as efficiently as possible.
  • Cost recovery: leases should have language that allows the costs and benefits for solar PV and efficiency upgrades to flow back to the proper party or parties.

3.  NZE leases are possible and profitable for both new construction and existing buildings.  Since existing buildings typically have existing tenants and leases, the landlord and tenant need to work together to get the pathway to NZE through the following steps:

  • Step 1: Gather past energy data on the building and share it with the tenants.
  • Step 2: Set aggressive yet achievable energy goals with tenants.
  • Step 3: Recommission the building so it is operating as efficiently as possible.
  • Step 4: Implement energy efficiency and solar PV upgrades using financing mechanisms that can be passed through to the tenant such as a solar power purchase agreement (PPA) or commercial property assessed clean energy (PACE) financing.

4.   Landlords and tenants alike can take action today with ready-to-deploy resources and the model lease provisions provided along with RMI’s guide.


The answer is…yes, as the RMI guide states:

Solar can be viewed as a separate income-generating investment or could be third-party financed via PACE or PPAs, effectively removing the upfront premium.  Other barriers preventing market penetration of NZE buildings are perceived technical barriers, lack of awareness, fear of trying something new, and increased attention from the developer and design team. An increasing number of examples show the market is learning how to build NZE buildings effectively, leaving leasing and other business model components as the next frontier to tackle to scale this market.  This guide covers the multiple benefits that provide an attractive return on investment to a developer:


-Warren Evans, @theSolarEconomist

ABOUT THE ROCKY MOUNTAIN INSTITUTE – Since 1982, The Rocky Mountain Institute (RMI) has been engaged with businesses, communities, institutions, and entrepreneurs to accelerate the adoption of market-based solutions that cost effectively shift from fossil fuels to efficiency and renewables.

Getting ReWired – Building Below Zero: The Net Zero Plus Transformation, Part 1

Video Summary – PART 1

In this important PBS video, Building Below Zero: The Net Zero Plus Transformation, actor and environmentalist Ted Danson narrates this examination of the Net Zero Plus Transformation: buildings that produce and store more energy than they consume, lowering greenhouse gas emissions and potentially impacting global climate change.

As we know buildings account for a significant portion of our nations energy use and are responsible for vast amounts of greenhouse gas emissions.  In the United States CO2 emissions from buildings are estimated to be increasing faster than any other sector with emissions for commercial buildings projected to grow the fastest.  According to leading Scientists that could mean unprecedented and possible irreversible climate change.  As Richard Somerville, Climate Scientist, Distinguished Professor Emeritus, Scripps Institute of Oceanography says;

 The world is warming rapidly, all kinds of evidence exists for this; the oceans are rising, the heat content of the very water is increasing, glaciers are retreating, there’s no doubt that it’s real.  In order to overcome these factors we need to rapidly decrease the amount of heat trapping gases that we’re putting into the environment.  That’s the right thing to do, it has to happen fast, there’s an urgency here that most people don’t appreciate.

Across the country Net Zero Energy buildings, that is buildings that produce as much energy as they consume, are beginning to address the need to use energy wisely.  One initiative Net Zero Energy Plus employs strategies for buildings to produce and store even more energy than they consume and help set the stage for the clean energy economy of the future.  With Net Zero Plus, Owners, Contractors and Skilled Workers are building Below Zero.  As showcased by the ETI building in Greater LA, the NZP initiative is especially important to our nations new clean energy economy.  Climate Action plan, 17% redux in green house gases 2020. ramp up, double to 27% in 2025.  According to Ernest Moniz, PhD former Secretary of Energy;

These rules will help the nation avoid 3 billion tons of CO2, reduce consumer cost by ~1/2 a trillion by 2030.  Buildings are absolutely central, Buildings take up ~2/3 of our energy, 35 -40% total energy use.  Can’t satisfy our climate objectives without a very strong demand side effort, efficiency/conservation, if we don’t decarbonize our electricity sector, we’re going to have a hard time meeting our goals.  getting net zero buildings is core to our whole strategy.

States are seeking ways to reduce their carbon footprint.  Bill Ritter, JR. Former Governor of Colorado, Director – Center for the New Energy Economy, Powerhouse Campus in Fort Collins is coordinating some of those state efforts.

We’re going to change the energy dynamics both the way we consume and produce, Pay attention to economics.  How we produce energy domestically, environment concerns try to reduce impacts, economic development opportunities and pay attention to equity for rate payers. Why is this a new approach?  The answer is that it’s different than it was in the 20th century because now we’re paying attention to policy makers and what matters to the ratepayers.

California and other states already have specific policies in place to reduce green house gases and use energy more efficiently.  State law requires reduction to 40% below 1990 levels by 2030, and 80% below 1990 levels by 2050.   That means we need to get to over 50% renewable power before 2030.  How will California implement to get to these goals?  The answer is through laws and policies, they’re targeting for Zero Net energy homes and buildings,  50% of existing buildings need to be zero net energy by 2030, all new buildings need to be zero net energy by 2030.  According to Carla Peterman, Commissioner, California Public Utilities Commission;

 The ability to get to those goals depends on lower cost technologies,  particularly renewable energy.  What I like is that they combine all these different technologies that work best together, the ability to have highly efficient building and then taking whatever energy needs you have you meet with clean renewable supply, this is a win win for the economy and then for the climate.  In California both legislative and regulatory efforts set the stage for an advancing opportunity.  Stability and creation of need define the future for both economic and environmental advantage, set the stage for the market to see how this can occur.

To be continued in Part 2.

– Warren N Evans

I’m both concerned and excited about the future, I’m hopeful that technology will step in again and show us a way forward, let’s go help make the world a better place.