Although decarbonizing buildings is critical to achieving a net-zero future, building owners have limited their investment volumes due to a lack of concrete evidence that “green” projects are financially viable. Over the years, organizations have come to regard sustainability and decarbonization as a necessary cost of doing business. The common mindset is that green investments serve primarily to either:
- Circumvent regulatory penalties.
- Support of the general public’s “save the planet” sentiment.
However, such attitudes are shifting as modern technologies that support decarbonization (e.g., heat pumps, building management systems (BMS), rooftop photovoltaic systems (PV), and stationary energy storage batteries) make it more cost-effective to convert to renewables. The attitude is no longer “prove you’re a good citizen by launching a few sustainability projects.” Instead, priorities have evolved to “we need to lower cost and reduce energy consumption to remain competitive.”
Even in the US, where the political climate towards global warming has dramatically changed, organizations and building owners embrace decarbonization not because regulators force them to, but because they understand it’s good for business.
Detailed research now clarifies building decarbonization investment payback
At Schneider Electric, we take the question of decarbonization of buildings very seriously. Fresh research conducted by our Sustainability Research Institute (SRI), across nine illustrative geographic regions (California, Florida, Ontario, Massachusetts, eastern China, France, Denmark, Italy, and Spain), seven building segments and 126 unique scenarios reveals the degree to which decarbonization investment impacts profitability and payback (to learn more, download our new detailed research report “Towards Net Zero Buildings: The Investment Case.”
The study explores energy system sizing optimization strategies for achieving specific Investment targets while maintaining decarbonization and cost reduction benefits. Those specific targets include profitability, energy bill reduction, CO2 emission reduction, and maximum peak load in particular.
The research primarily concentrates on two key aspects:
- Development of an effective analytical tool for visualizing the range of viable investment options.
- The determination of appropriate profitability targets tailored to different project types and investor profiles, considering the respective hurdle rates.
Dispelling sustainability investment myths
Let’s consider how the research findings address the common myths that surround the topic of sustainability investment:
- Myth 1: Investing in sustainability is not profitable – In fact, the SRI research reveals the opposite: Investments are valid in most of the 126 use cases, reduce energy bills and CO2 emissions by 50% on average, and within reasonable payback periods.
- Myth 2: When it comes to decarbonizing our buildings, we’ve already achieved most of what we are capable of – Strategic renewable energy system sizing improves project profitability and payback while limiting any negative impact on CO2 emissions and/or energy bill reduction. Research evidence shows that the majority of our study participants decreased payback to an average of 5 years for retrofit and new construction projects.
- Myth 3: My sustainability investments don’t really reduce my building’s energy bill – Our research indicates that increasing the photovoltaic (PV) plant size contributes to an IRR that increases or remains stable in most of the cases, in addition to reducing energy bills. Also, energy storage batteries represent an attractive investment in about 40% of all use cases, yielding solid IRR driven by notable bill reductions (this is primarily due to specific grid tariffs schemes that make battery energy storage particularly relevant).
Deploying viable metrics tools
To facilitate research work, we selected and deployed a simple graphical tool that combined three project key performance indicators (KPIs): profitability of the investment, energy bill variation, and CO2 emissions variation. This allowed us to visualize the viability of decarbonization investments and the impact of system sizing changes on the economics of chosen use cases.
When looking at the entire PV and battery sizing space, the tool reveals whether a solution provides adequate values for all the variables of interest and, if not, enables the investor to quantify the concessions.
Learn more about the benefits of net zero buildings
To learn more, download the recent Sustainability Research Institute report “Towards Net Zero Buildings: The Investment Case” or visit our website for additional SRI research for more information.
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