Preliminary Financial Analysis of WA State Building Energy Performance Standard (December 14, 2023)
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- 2023 Preliminary Financial Impact Of Cbps Memo Final 80Ad26B8 D3C7 46Fd 85D
Summary
A memorandum dated December 14, 2023 from the SBW Consulting team to the Washington State Department of Commerce, titled Preliminary Financial Analysis of WA State Building Energy Performance Standard. It responds to a 2023 legislative proviso directing Commerce to analyze the investments owners of Tier 1 covered buildings, commercial buildings greater than 50,000 square feet, need to comply with the Clean Building Performance Standard. The memo reports that 67% of benchmarked Tier 1 buildings in Seattle already have energy use below their targets and that average lifetime benefits of efficiency measures exceed costs. It describes the standard's compliance paths, exemptions and reporting schedule, and lists additional cost considerations such as sub-metering, inflation and access to capital. It notes a final report with recommendations is due by September 1, 2024.
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“Preliminary Financial Analysis of WA State Building Energy Performance Standard (December 14, 2023).”
Original at app.leg.wa.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2023-preliminary-financial-impact-of-cbps-memo-final-80ad26b8-d3c7-46fd-85d/
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Memorandum
FROM: Faith DeBolt and the rest of the SBW team
TO: Anneka McDonald
DATE: December 14, 2023
RE: Preliminary Financial Analysis of WA State Building Energy
Performance Standard
CC: Emily Salzberg, Liz Reichart
Executive Summary
In 2023, the Washington State Legislature passed a proviso 1 directing the Washington State
Department of Commerce (Commerce) to convene a workgroup to analyze the financial
investments required for owners of Tier 1 covered buildings—commercial buildings greater than
50,000 square feet—to comply with the state’s Clean Building Performance Standard (CBPS)
and to make recommendations to the legislature to assist building owners in attaining
compliance.
The CBPS is designed to secure energy efficiency and reduce greenhouse gas emissions from
Washington state’s existing large building stock. It is a key policy to meet the state’s statutory
emissions limits established in 2020 2 and to implement the Washington 2021 State Energy
Strategy 3.
The 2023 proviso (excerpted below) requires Commerce to submit two deliverables to the
legislature, including an analysis of financial investments must be submitted by December 15,
2023, and a final report with recommendations must be submitted by September 1, 2024.
(i) Analyze the financial investments required for owners of tier 1 covered buildings to
comply with the state energy performance standard under RCW 19.27A.210; and
(ii) Make recommendations to the legislature to assist building owners in attaining
compliance, which must include, but are not limited to
(A) Identifying energy efficiency investments or other strategies and related timelines
for increasing energy efficiency in the buildings sector;
1
https://lawfilesext.leg.wa.gov/biennium/2023-24/Pdf/Bills/Senate%20Passed%20Legislature/5200-
S.PL.pdf?q=20230516094055
2
https://apps.leg.wa.gov/rcw/default.aspx?cite=70A.45.020
3
https://www.commerce.wa.gov/growing-the-economy/energy/2021-state-energy-strategy/
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(B) Providing a cost-benefit analysis of options, including energy efficiency, to meet
the goal of reducing greenhouse gas emissions from the buildings sector; and
(C) Recommendations to balance financial investments while maximizing clean
energy benefits for the state, including statutory changes that may be necessary for
this purpose.
Commerce contracted with SBW Consulting in partnership with Unrooz Solutions and 2050
Institute (“SBW team”) in September 2023 to facilitate the Clean Buildings workgroup and
conduct associated analyses. This memo addresses the requirements for the December 15, 2023
deliverable.
Preliminary analysis of financial investments was conducted to better understand costs and
other barriers to compliance with the CBPS. It provides insight into the landscape of Tier 1
building types in Washington state, the percentage of buildings that likely already comply with
the CBPS energy use intensity targets (EUIt), and the financial investments required by non-
complying buildings to meet their EUIts.
The financial analysis conducted for this memo is limited to the costs and benefits of efficiency
measures which occur throughout the measure’s lifetime. For example, costs include first-costs,
operations and maintenance, interest expense, and other related costs for each energy efficiency
measure. The analysis results provide a baseline estimate of the financial investments required to
comply with the CBPS EUI targets. They show the impact of the measures themselves before
analyzing the effect of additional cost considerations that may increase the costs for some
building types.
Highlights from the quantitative analysis:
A majority of buildings already meet the target. 67% of benchmarked Tier 1 buildings in
Seattle already have EUIs below their CBPS targets and do not need to apply any measures
to further reduce their EUI. Further work next year will explore how representative the
Seattle Tier 1 building stock is of all Tier 1 buildings in the state.
Lifetime benefits exceed costs. On average, for the buildings that can achieve compliance
by meeting the EUIt (not by using the investment criteria pathway), we estimate an initial
investment of $2 per square foot of floor area. The average lifetime costs for these measures
(20 years) are approximately $2.75 per square foot; however, the average lifetime benefits
are almost $4 per square foot. This yields an average net present value of the investment at
approximately $1 per square foot, which indicates that on average benefits exceed costs.
Benefits found across size cohorts. Benefit-cost (B/C) ratios greater than 1 mean benefits
exceed costs. The higher the B/C ratio, the more economically attractive a measure is from
the building owner’s perspective. The benefits exceed costs for the 2026 and 2027 cohorts
with average B/C ratios greater than 1, but the 2028 cohort on average has benefits slightly
less than costs with a B/C ratio of 0.9.
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Public buildings. Public buildings have higher first costs than private buildings and lower
B/C ratios, though the average is still greater than 1.
The memo also explores other potential costs and barriers that building owners may face when
trying to bring their buildings into CBPS compliance and to meet other requirements such as the
energy management plan and the operations and maintenance program.
Additional costs and considerations include:
Sub-metering, audits, and data gathering and management.
Near-term inflation spikes if supply chains and labor markets are tightened due to the CBPS.
Limited internal capacity and human resource costs associated with compliance.
Coordination with other policies and initiatives and potential synergies or conflicts.
Access to capital, high lending interest rates, and occupancy rates affecting real estate
values.
By estimating the baseline financial investments for efficiency measures and identifying an
initial list of important additional cost considerations, this memo lays the groundwork to better
account for real-world cost barriers. The 2024 analysis will build on the estimates in this memo
to help identify how to target support for building owners.
High-impact opportunities for support could include changes to CBPS administrative
requirements and the Early Adopter Incentive program, more coordination across related
policies and codes, additional technical assistance, guidance on retrofit best practices and high-
performance solution sets, and investment in market capacity building and training to
streamline compliance and reduce costs. We will explore these topics with the workgroup in the
next phase of work. The 2024 report will include the results of the expanded analysis and a set
of prioritized recommendations for how the legislature can support building owners while
maximizing the effectiveness of the Clean Buildings Law to reduce energy use and emissions in
Tier 1 buildings.
Disclaimer: This memo reflects the work of SBW, not the opinions of the workgroup. Timeline
constraints prevented the SBW team from getting comprehensive feedback from workgroup
members on this first deliverable, but this will be the primary focus of the 2024 deliverable.
Introduction
This memo presents preliminary analysis of financial investments conducted to better
understand barriers to compliance with the Washington Clean Buildings Performance Standard
(CBPS) and to inform more in-depth analysis and workshop discussions with the stakeholder
workgroup in 2024.
The CBPS for existing buildings is designed to secure energy efficiency and reduce greenhouse
gas emissions from the Washington state’s existing large building stock. The standard was one
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of several pillars of Governor Jay Inslee’s 2019 climate package and is the first of its kind in the
nation.
In 2023, the Washington State Legislature passed a proviso directing the Washington State
Department of Commerce (Commerce) to convene a workgroup to analyze the financial
investments required for owners of Tier 1 covered buildings—commercial buildings greater than
50,000 square feet—to comply with the CBPS and to make recommendations to the legislature
to assist building owners in attaining compliance.
The proviso requires Commerce must submit to the appropriate committees of the legislature:
Analysis of financial investments as required by this section by December 15, 2023; and
A final report with recommendations by September 1, 2024.
The 2024 final report with recommendations to the legislature to assist building owners in
attaining compliance must include, but are not limited to:
1. Identifying energy efficiency investments or other strategies and related timelines for
increasing energy efficiency in the buildings sector;
2. Providing a cost-benefit analysis of options, including energy efficiency, to meet the goal of
reducing greenhouse gas emissions from the buildings sector; and
3. Recommendations to balance financial investments while maximizing clean energy benefits
for the state, including statutory changes that may be necessary for this purpose.
In September 2023, Commerce contracted with SBW Consulting in partnership with Unrooz
Solutions and 2050 Institute (collectively, “SBW team” or “team”) to facilitate the Clean
Buildings workgroup and conduct associated analyses. This memo addresses the requirements
for the December 15, 2023 deliverable directed by the proviso. It includes an overview of the
CBPS, the methodology the project team used to analyze financial investments, and the data
analysis and key findings. It also discusses the limitations of the analysis and how the project
team plans to expand it with the workgroup in 2024.
The findings in the memo provide preliminary insight into the landscape of Tier 1 building types
in Washington state, the percentage of buildings that likely already comply with the CBPS
energy use intensity targets (EUIt), and the financial investments required by non-complying
buildings to meet their EUIts. The memo also explores the fuller picture of potential costs and
other barriers that building owners may face when trying to bring their buildings into CBPS
compliance and to meet other requirements such as the energy management plan and the
operations and maintenance program.
In October 2023, Commerce convened the workgroup directed by the proviso to analyze
financial investments. The workgroup reviewed the draft analysis methodology and participated
in a workshop to discuss findings. Workgroup members provided input on the draft
methodology and findings. They expressed some concerns about the limitations of the
methodology used for this 2023 deliverable to the legislature and provided suggestions for how
to address their concerns. They also provided input on the additional barriers that may increase
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costs for some building types and owners. This discussion will help guide the work of the
workgroup in 2024.
The Other Cost Considerations section in this memo summarizes key themes from the
workgroup input. The project team used workgroup input to make several adjustments to the
methodology, which are reflected in the findings presented in the memo. The financial
investments quantified here, along with the additional cost considerations, provide a baseline
perspective on potential CBPS compliance costs for Tier 1 buildings. The memo summarizes
how the baseline costs may be influenced by a number of other factors, and how these factors
will inform additional changes to the methodology in 2024 as well as the funding or statutory
changes the workgroup considers for the 2024 report and recommendations to the legislature.
Overview of WA State Clean Buildings Performance Standard
Buildings are the most rapidly growing source of greenhouse gas emissions in Washington state.
The buildings sector is the state’s second-biggest carbon polluter behind transportation,
accounting for 27% of statewide emissions.
The Washington State Legislature passed the Clean Buildings Law in 2019 (SHB 1257; Chapter
285, Laws of 2019) to create an energy performance standard for existing large buildings in
Washington State. The purpose of the law is to improve energy efficiency in new and existing
buildings and to maximize reductions of greenhouse gas emissions from the building sector. The
Clean Buildings Law is a key policy to meet Washington state’s statutory emissions limits
established in 2020 and to achieve the building energy and emissions reductions required to
implement the Washington 2021 State Energy Strategy.
Commerce was charged with establishing the standard through rulemaking and developing the
administrative framework for building owners to document compliance with the law.
Commerce established the Clean Building Performance Standard (CBPS) energy use intensity
targets (EUIt) in 2020. The initial CBPS applied to commercial buildings greater than 50,000
square feet. These buildings are now referred to as Tier 1 buildings. Subsequent expansions to
the Clean Buildings Law extended it to include Tier 2 buildings, which includes multifamily
buildings and smaller commercial buildings. The analysis and findings in this memo only apply
to Tier 1 buildings.
Tier 1 compliance dates are based on Tier 1 building size cohorts and begin in 2026 and
continue through 2028. Energy use intensity used for compliance must be measured in a 12-
month period not to exceed two years prior to the compliance deadline. Compliance is a
building owner’s responsibility and must be documented on a five-year compliance cycle.
Commerce is required to update the CBPS targets every five years. According to this schedule,
the second cycle of CBPS targets will be updated in 2029 with compliance dates between 2031
and 2033.
Tier 1 buildings reporting schedule for the first CBPS cycle is:
June 1, 2026: More than 220,000 sq. ft.
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June 1, 2027: More than 90,000 sq. ft. but less than 220,001 sq. ft
June 1, 2028: More than 50,000 sq. ft. but less than 90,001 sq. ft
The CBPS includes exemptions under certain circumstances. Building owners seeking an
exemption must submit an application for exemption one hundred eighty days prior to the
compliance date to receive exemption approval prior to the compliance date.
Exemptions include:
No certificate of occupancy
At least 50% of conditioned floor area is unoccupied
Less than 50,000 square feet of conditioned space
More than 50% of floor area designated as Factory Group F or High Hazard Group H by
the Washington state edition of the International Building Code (WA IBC)
Agricultural structures
Building is pending demolition
Buildings meeting certain conditions of financial hardship
Tier 1 buildings must complete energy benchmarking, develop and implement an energy
management plan and an operations and maintenance program, and comply with one of four
compliance paths:
1. Compliance through exemption
2. Compliance by meeting the EUIt
3. Compliance through investment criteria
4. Conditional compliance granted by the compliance date
When the energy use intensity target (EUIt) for a Tier 1 building is not met, or the energy use
intensity (EUI) or EUIt cannot be calculated, compliance with the CBPS must be demonstrated
through the investment criteria pathway. Buildings complying under the investment criteria
must complete a life-cycle cost analysis and implement an optimized bundle of energy efficiency
measures that provide maximum energy savings without resulting in a savings-to-investment
ratio of less than one.
Conditional compliance is a temporary compliance method that demonstrates the
implementation of energy use reduction strategies required by the CBPS, but full compliance
with the CBPS has not been verified. Conditional compliance allows applicants additional time
to verify and document compliance with the CBPS, either through meeting the EUIt or through
the investment criteria. An ASHRAE Level 2 energy audit is required for compliance through
conditional compliance. Conditional compliance through the investment criteria allows for the
delay of energy efficiency measures (EEM) through phased implementation for any EEM
deemed to be cost effective but has not reached the end of its useful life.
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Commerce has made some adjustments to the CBPS requirements to support efficient, lower
cost compliance. For example, buildings now have an option to comply at the connected
building level and may not need to submeter individual buildings. Further options will be
codified in 2024 for district energy systems as a result of the passage of House Bill 1390, 2023.
The CBPS has an Early Adopter Incentive program which began July 1, 2021 and applies to
non-residential, hotel, motel and dormitory buildings greater than 50,000 sq. ft and multi-family
buildings over 50,000 square feet. An eligible building owner that demonstrates early
compliance with the Clean Buildings Standard may receive a one-time base incentive payment
of $0.85 per gross square foot of floor area, excluding parking, unconditioned, or semi-
conditioned spaces. Incentive funds are limited to $75 million. Half of this funding, $37.5
million is available via reservation system for buildings meeting certain equity criteria, such as
the highest energy using buildings, buildings in rural communities, affordable multifamily
buildings and buildings located in census tracts with a risk score of 9 or 10 on Department of
Health’s Environmental Health Disparities Map.
Quantitative Analysis
We have completed this analysis of CBPS financial impact using the best available data on Tier
1 buildings and the costs and benefits of efficiency investments available to those buildings.
More than three-quarters of these buildings either meet the CBPS target in their current
condition or can meet the target by implementing improvements that have larger benefits than
their costs. Our analysis assumes the balance of the Tier 1 buildings will comply via the
investment criteria path. There is no reliable information yet on the costs and benefits of that
path, thus, our analysis and results do not include them.
Our methodology for this analysis and more detailed results follows.
Methodology
The goal of this analysis is to estimate the financial impacts of CBPS compliance for Tier 1
building owners. Based on the way targets were established, it is expected that at least half of
Tier 1 buildings in the state already have EUIs below their EUIt. Their owners will still incur
the cost of reporting building energy use and floor area, but this cost is not included in our
analysis. Owners of all other buildings must implement changes in operations or improvements
to their buildings or the systems and equipment contained in those buildings, which reduce the
building’s energy use (efficiency measures). The best possible estimate of financial impact would
be based on the results of an energy audit for each building. These would detail the costs and
benefits for the most economical package of changes that would comply with CBPS.
Unfortunately, this data does not exist. We adopted the following methodology as the best
available alternative for estimating costs and benefits, which could be carried out in the period
allowed for this analysis.
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Data Sources
Our methodology uses data from the following sources:
1. City of Seattle Energy Benchmarking. 2019 data was provided by the Seattle Office of
Sustainability and Environment (OSE). This data covered benchmarked buildings with floor
area greater than 50,000 square feet of floor area. These buildings are defined as Tier 1 in the
CBPS. Data for each of 752 buildings, included floor area by type of use, energy use by fuel,
and the applicable EUIt assigned by OSE staff. We used data for 2019 as it was prior to
building changes caused by Seattle’s Building Tune-ups Ordinance, before the COVID
pandemic modified building operations, and consistent with the period for other data used
in our methodology.
2. 2021 Northwest Power Plan (Council Plan). The Council Plan was prepared by the
Northwest Power and Conservation Council (Power Council). Data from this source
included: costs and benefits for electric energy efficiency measures and the applicability of
each measure to relevant types of use, e.g., office or hospital. In addition, we relied on
Council Plan estimates of regional and WA state electric energy savings potential for these
measures and corresponding estimates of floor area. The plan also included total estimated
fuel consumption by fuel type which helped us convert PSE’s local measures to regional
measures.
3. Puget Sound Energy - 2023 Integrated Resource Plan (PSE IRP). Puget Sound Energy
published this plan including detailed supporting documentation. Data from this source
included: costs and benefits for gas energy efficiency measures and the applicability of each
measure to relevant types of use, e.g., office or hospital. In addition, we relied on estimates
from this plan of regional gas energy savings potential for these measures.
4. Wall Street Journal (WSJ). We used the trailing twelve-month (TTM) average estimated by
WSJ for our private financing rate. Publicly owned buildings had an assumed 4.14% interest
rate on financed first costs which is the default in the 2021 power plan analysis. Privately
owned buildings had an 8.5% interest rate on first costs.
5. ProCost. The Power Council developed and maintains this software which estimates
lifetime costs and benefits for efficiency measures. We used it to estimate costs and benefits
for electric measures provided by the Council Plan and gas measures provided by the PSE
IRP. Inputs to the model were adjusted to reflect the economic perspective of building
owners.
Identification of Tier 1 Buildings not Compliant with BPS
We processed the Seattle Benchmarking data to identify Tier 1 Buildings and further identify
those whose EUIs exceed their assigned CBPS EUIt. Figure 1 shows the number of Tier 1
Buildings that do and do not meet the EUIt and the total floor area associated with each of these
groups of buildings. A substantial majority of buildings comply with CBPS. This result is for
buildings located in Seattle. We investigated available data for buildings throughout WA but
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could not find a reliable source that had floor area by type of building use, building energy use,
and EUIt. Until such data becomes available, the data from Seattle is the best representation of
Tier 1 buildings in WA.
Figure 1: Buildings that Currently Meet BPS EUI Target (EUIt)
Efficiency Supply Curve
If we had energy audits for each Tier 1 building that does not comply with CBPS, we could list
for each building the efficiency measures that could be implemented to reduce energy use. The
audits would provide estimates of lifetime costs and benefits and we could sort the measure by
the ratio of benefits to costs (B/C ratio). The higher the B/C ratio, the more economically
attractive a measure is from the building owner’s perspective. We refer to a list of measures
applicable to a building, which is sorted by B/C ratio, as the building’s efficiency supply curve.
Costs and benefits are estimated so they are additive, and the building owner can plan to
implement the portion of the curve that is needed to comply with CBPS. For projecting lifetime
costs and benefits, we made the simplifying assumption that all buildings comply in 2026
regardless of size.
As noted earlier, we do not have building-specific audit data. Instead, the best data available
data comes from the Council Plan and PSE IRP. The Council Plan provides costs and benefits
for electric measures while gas measures come from the PSE IRP. Both sources estimate
average costs and benefits for applicable types of building use, e.g., office or hospital. Some
measures only apply to certain types of building use, while some measures apply to all types of
building use. The same measure can have different costs and benefits for different types of use.
The Power Council supply curve includes some elements that are applicable to the regional
power planning analysis but not this financial analysis from the building owner perspective such
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as grid losses, Transmission and Distribution (T&D) benefits, carbon benefits, and a 10%
Regional Act credit for conservation. We zeroed those out in our version of the supply curves.
In addition, we used retail consumer rates for energy prices instead of mid-market bulk rates.
We only used “retrofit” measures provided by the Council Plan and PSE IRP. These measures
assume an existing condition baseline in estimating savings, i.e., the measures replace the
existing inefficient conditions found in a building. These measures also apply the full cost of the
measure. These measures are not applicable to new construction or any renovations that trigger
the Seattle or Washington State Energy Codes. For new construction, the baseline would be
Energy Code compliance and measure costs would be the difference between meeting the code
and a more efficient alternative. Some of the Seattle benchmarked buildings might comply with
CBPS as new construction, but our analysis ignores that possibility.
Figure 2 shows the efficiency supply curve for office buildings. Energy savings have been
converted to a common unit kBTU so that the curve can include both electric and gas measures.
Many buildings use both types of energy 4 and we have assumed that building owners are energy
type agnostic and implement measure applicable to the energy used by their building in the
order of B/C ratio to comply with CBPS.
Apply Supply Curve to Benchmarked Buildings
The next step is to apply the supply curve to each of the benchmarked Tier 1 Seattle buildings
that do not comply with CBPS. We create a supply curve for each building based on the types of
use present in the building. For example, a building with restaurant and office floor area is
assigned all the measures that apply to those types of use. The curve always has the applicable
electric measures and will also contain gas measures if the building is served by that type of
energy. We know the floor area of each building and can scale the costs and benefits of each
measure to match each building’s floor area.
Measures are applied to each building as needed to meet the EUIt. We add measures to the
building in the order of highest to lowest B/C ratio and stop when the EUIt is satisfied, or we
have used all the measures in the curve. This generates a list of the most economically attractive
measures available to each building. Given the limitations of the supply curves, it is not possible
to meet the EUIt for all buildings. We have assumed that those buildings would comply via the
investment criteria path. We could not find any data available in the period allowed for work on
this preliminary analysis that could be the basis for a credible estimate of costs and benefits
associated with investment criteria compliance.
Data Analysis and Findings
We applied the methods described above in analyzing 776 Tier 1 buildings included in the
Seattle benchmarking data for 2019.
4
Some Seattle buildings use steam from the district heating system operated by Centrio. These buildings have been treated
as if they used gas for heating.
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We found that most of these buildings meet their CBPS EUIt. As shown in Figure 1, 67% of the
buildings, containing 66% of the floor area, meet their CBPS targets. Figure 3 shows that 19% of
these buildings (14% of floor area) have EUI more than twice the target. However, 20% of
buildings (17% of floor area) have EUIs that exceed the target by 10% or less, which may
require little to no capital investment to reduce energy use to meet the target.
Figure 2: Reduction in EUI Required for Compliance
Which Buildings can Achieve the Target?
Measures were applied to each building until the EUIt was achieved or the measure list
exhausted. Buildings that meet the target or can meet it with supply curve measures account for
more than three-quarters of all buildings. Figure 4 shows the total floor area and building count
by compliance path. For the purposes of this analysis, we have assumed that the remaining
buildings will follow the investment criteria path to compliance, which requires implementation
of all cost-effective measures identified in an energy audit of the building. We do not know what
measures will be implemented by those buildings and cannot estimate their costs or benefits.
Therefore, the balance of this analysis focuses on the group of buildings that can achieve the
target by applying the efficiency supply curve measures.
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Figure 3: Buildings by Compliance Path
Among the buildings that exceed their targets, Figure 5 shows the number of buildings and total
floor area for each primary building use by compliance path. Buildings with Office as primary
use dominate in the “Target Achievable” path (blue bar). Offices, Lodging, and Universities
have the largest share of floor area in the “Investment Criteria” path (orange bar). Note, we
found that no Hospitals, Retail, and Large Retail buildings could reduce the energy savings
enough to achieve their targets with only the measures from the Power Plan supply curves.
Figure 6 charts the average amount these buildings exceed their target by compliance path and
reveals the strong correlation between high EUI and compliance path, i.e., building types with
very high EUI over target have higher likelihood of being assigned the investment criteria path
in our analysis because their EUIs could not be reduced enough with the supply curve measures.
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Figure 4: Total Floor Area and Building Count by Primary Building Use and Compliance Pathway
above Target of Investment Criteria
Figure 5: Average EUI above Targetand Building Count by Primary Building Use and
Compliance Pathway
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Costs and Benefits of Compliance
The efficiency supply curve provides estimates of costs (first-cost, operations and maintenance,
interest expense, and others) for each measure, which occur throughout the measure’s lifetime.
We assume that all measures remain in service for 20 years, with replacements as needed as
they wear out. First-costs include project management, design, materials, labor, and other items
required to implement a measure. We assume that 100% of the first costs are financed, at rates
based on the type of owner (public or private). The supply curves also provide a lifetime stream
of benefits, primarily energy bill savings. In some cases, operations and maintenance costs are
reduced compared to existing conditions and these negative costs provide additional benefits.
From the list of the most economically attractive measures for each building, we sum up the first
cost of these measures to determine the building owner’s initial investment. In addition, we sum
up the lifetime costs and benefits of the measures and compute the net present value for each
building, which is lifetime benefits minus lifetime costs. The lifetime costs and benefits are each
present values of the cost incurred, or the benefits realized over the next 20 years. We use the
"Real discount rate" in ProCost of 3.75%, which assumes an average of~2% inflation per year
over a 20 year period in estimating the present value of these investments.
On average, for the buildings that can achieve the target, we estimate an initial investment of $2
per square foot of floor area, as shown in Figure 7. This is an average for 84 buildings that cover
a wide variety of building uses, including both publicly and privately owned buildings. The
average present value of the lifetime costs (20 years) for these measures is approximately $2.75
per square foot. However, the average present value of the lifetime benefits are almost $4 per
square foot yielding an average net present value of the investment at approximately $1 per
square foot. The benefit to cost (B/C) ratio is lifetime benefits divided by lifetime costs. For the
84 “Target Achievable” buildings, the average B/C ratio equals 1.3, which indicates that on
average benefits exceed costs.
$4.50
$4.00
$3.50
$3.00
$ per Square Foot
$2.50
$2.00
$1.50
$1.00
$0.50
$-
First Cost Lifetime Cost Lifetime Benefits Net Present Value
Figure 6: Costs and Benefits of Compliance
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We observed that the average B/C ratio for Offices is 1.1 while warehouses have an average
B/C ratio of 0.7. The remaining building types have too few “Target Achievable” buildings to
draw meaningful conclusions, though all types had average B/C ratios greater than 1 except the
one building with “Other” primary building use. Overall, 62 of the 84 buildings, nearly 75%,
have B/C ratios greater than 1.
The CBPS divides Tier 1 into three cohorts, based on building floor area. The first cohort is for
buildings larger than 220,000 square feet. The second is for buildings between 90,000 and
220,000, and the third is for buildings 50,000 to 90,000. The first Cohort of buildings must
comply in 2026 with second and third in 2027 and 2028, respectively. As shown in Figure 8 the
first cohort has the fewest buildings but accounts for the most floor area, while the last cohort
has the most buildings but claims the least total floor area.
Figure 7: Total Floor Area and Building Count by Compliance Cohort
Figure 9 shows our estimated average First Cost per square foot and associated average B/C
ratio for each cohort of buildings. The largest buildings, those in the 2026 Cohort, require the
smallest average investment and have the highest average B/C ratio.
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Figure 8: Costs and Benefits by Compliance Cohort
The more a building’s EUI is over its target, typically the more investment is needed to meet the
target. As we progress farther into the efficiency supply curves, measures are less economically
attractive. In other words, their B/C becomes less. This can be seen in Figure 10, which shows
that the 2026 Cohort has the smallest average EUI overage, i.e., on average their EUI is very
close to the EUIt, and most only need the most cost-effective measures from the efficiency
supply curve. The average EUI overage increases for the other cohorts and the average B/C
ratio decreases, averaging at 0.9 for the smallest cohort of Tier 1 “Target Achievable” buildings.
For buildings with a benefit-cost ratio less than 0.9, the investment criteria pathway allows
buildings to only implement cost-effective energy efficiency measures to be in compliance. 5
5
CBPS 002 Compliance through the Investment Criteria (wa.gov)
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Figure 9: EUI Overage by Compliance Cohort
Another factor is the share of buildings that have public or private owners. As can be seen in
Figure 11, among the 84 Target Achievable Tier 1 buildings in our analysis, the vast majority
are privately owned, both by total floor area and building count.
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Figure 10: Floor Area and Building Count by Ownership Type
Even though we used a higher interest rate for private owners, the public buildings exceed their
targets significantly more than the private buildings so require deeper investment and have on
average a lower B/C ratio, as can be seen in Figure 12 and Figure 13.
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Figure 11: Costs and Benefits by Ownership Type
Figure 12: EUI above Target and B/C Ratio by Ownership Type
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Limits of the Preliminary Analysis
Although our analysis is based on the best available data, we recognize it has the following
limitations:
Only modeling 2019 Seattle benchmarked buildings
Statewide building population may have different characteristics
Energy use characteristics are different in other climate zones
Only retrofit measures from Power Council / PSE IRP supply curves
Excludes new construction and major remodel
Average measure cost and savings for Washington state applied to all applicable
building use types.
Excludes energy saving electrification measures such as converting inefficient fossil-
fuel equipment to high-efficiency electric equipment such as heat pumps.
Excludes customized, building-specific measures and whole-building design
strategies.
Supply curve measures not sufficient to meet targets for most buildings. Buildings
that are unable to reach their target with supply curves are assumed to comply via the
investment criteria path and not included in this preliminary impact estimate.
Does not consider compliance with future CBPS cycles
Future EUIt reductions have not been established, as Commerce is not required to
update EUI targets until 2029, leaving uncertainty in how much to invest to reduce
energy use now versus in the future. Decisions building owners make now to comply
with the first cycle may have a significant impact on their costs for complying in the
future.
Credits, Incentives and Grants
Measure costs and benefits do not account for investment tax credits, utility
incentives or grants from local, state or federal agencies.
Other Cost Considerations
The SBW team shared the methodology and results of our preliminary financial analysis with
the Washington State Clean Buildings Workgroup on November 29th, 2023 at a two hour
meeting. The workgroup membership was outlined in the proviso and represents a variety of
stakeholders across Washington’s diverse building sector, including but not limited to: public
sector, private sector, local government, financing, and utilities. Below is a summary of
additional financial considerations we heard from the workgroup members during, before and
after the meeting. The workgroup's feedback encompassed both the procedural and substantive
aspects of the preliminary financial assessment. The building owner representatives of the
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workgroup called for a more comprehensive analysis that considers a broader range of impacts
and more representative set of buildings, as well as adequate time to familiarize themselves with
the analysis and provide more deeply-considered feedback. We agree with them and look
forward to expanding on and improving our analysis through further engagement with the
workgroup in 2024.
Cost Estimation Accuracy
The following is a summary of additional costs and other considerations that many workgroup
members anticipate and feel are not fully represented in the analysis:
Significant expenses relating to sub-metering, audits, and data gathering and management.
Prioritizing application of limited funds between deferred maintenance and CBPS
compliance.
Limited internal capacity and human resource costs associated with compliance. While
some larger institutions may possess in-house expertise, most building owners face the need
for learning about the legislation, paperwork, funding applications, and project
management.
Workgroup members raised concerns about potentially high labor costs and some may need
to hire consultants for additional support.
In response to the additional cost concerns expressed by the workgroup, we revised our analysis
to increase costs by 20% to cover administrative, planning, and related costs. Another
modification to our analysis after the workgroup presentation was to apply a higher interest rate
for private capital financing. These two adjustments increased overall costs and thus lowered
B/C ratios, but as noted above, most building owners will still see net positive benefits from
investing in their buildings to comply with CBPS.
Policy Considerations and Alternative Compliance Paths
Some members of the workgroup described the need to consider coordination with other
policies and initiatives and potential synergies or conflicts. For example, some building owners
and managers will use compliance measures as an opportunity for fuel switching and
decarbonization, which could increase their costs.
Financial Barriers and Funding Challenges
Discussions with the workgroup centered around challenges related to accessing capital, high
lending interest rates, and occupancy rates affecting real estate values. Concerns were raised
about the difficulty of obtaining funding for compliance, especially for smaller building owners,
and the potential impact on compliance choices.
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Next Steps
In 2024, the SBW team plans to further engage with the workgroup to expand and improve the
preliminary financial analysis. The planned improvements will address many of the limitations
of the preliminary analysis, including:
1. Add building-specific measures, focusing on building types least represented in the
preliminary analysis
a. Sample 6-9 buildings that represent diverse conditions to do case studies that will
provide cost and benefit estimates of building-specific measures
b. Collect other estimates of building-specific measures, e.g. BOMA study.
6. Adjust supply curves
a. Add building specific measures to supply curves
b. May increase the number of buildings that reach target.
As we continue this engagement with the workgroup, we will continue to collect input on
barriers to compliance and ultimately formulate recommendations to the legislature for how the
state can provide further assistance to ensure building owners can successfully comply with
CBPS and reduce building emissions.
Conclusions and Recommendations
The analysis presented in this memo quantifies the financial investments required for Tier 1
buildings to comply with the CBPS. It is limited to the costs and benefits of efficiency measures
which occur throughout the measure’s lifetime. For example, costs include first-costs,
operations and maintenance, interest expense, and other related costs for each energy efficiency
measure. The analysis results provide a baseline estimate of the financial investments required to
comply with the CBPS EUI targets. They show the impact of the measures themselves before
analyzing the effect of additional cost considerations that may increase the costs for some
building types.
This baseline estimate answers some important initial questions such as how many buildings
already comply with the 2026-2028 CBPS targets, how much do non-complying buildings need
to reduce their EUIs to comply, what are the initial and life-cycle costs of the efficiency
measures required to comply, and are the retrofit packages cost-effective? These results do not
provide a full picture of the potential financial investments, but they provide early insight into
the range of retrofit costs and are a foundation for the workgroup to contrast the retrofit costs
with possible total compliance costs for individual buildings, including additional work required
to implement the retrofit measures.
Summary of quantitative analysis:
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Buildings that already meet target. 67% of benchmarked Tier 1 buildings in Seattle already
have EUIs below their CBPS targets and do not need to apply any measures to further
reduce their EUI.
Buildings that do not meet target. Of the buildings with EUIs greater than their targets,
about 20% can meet the target by applying the Council Plan’s efficiency supply curve
measures. The remaining 80% of the buildings needing to reduce EUI to meet their target
were assumed to need to take the investment criteria path.
Building types not represented. Buildings with key primary uses including hospitals have
such high EUIs that application of the available efficiency supply curve measures were
insufficient to meet their targets. Our analysis assumed these buildings would take the
investment criteria path and thus are not represented in our financial impact results.
EUI reductions required. 19% of the Seattle Tier 1 buildings have EUI more than twice
their target, while 20% of Seattle Tier 1 buildings have an EUI that exceeds the target by
10% or less.
Costs per square foot. On average, for the buildings that can achieve the target, we estimate
an initial investment of $2 per square foot of floor area. The average lifetime costs for these
measures (20 years) is approximately $2.75 per square foot. However, the average lifetime
benefits are almost $4 per square foot, yielding an average net present value of the
investment at approximately $1 per square foot, which indicates that on average benefits
exceed costs.
Benefits across size cohorts. The benefits exceed cost for the 2026 and 2027 cohorts with
average B/C ratios greater than 1, but the 2028 cohort on average has benefits slightly less
than costs with a B/C ratio of 0.9.
Public buildings. Public buildings have higher first costs than private buildings and lower
B/C ratios, though the average is still greater than 1.
Summary of additional costs and other considerations:
Sub-metering, audits, and data gathering and management.
Near-term inflation spikes if supply chains and labor markets are tightened due to the CBPS.
Limited internal capacity and human resource costs associated with compliance.
Coordination with other policies and initiatives and potential synergies or conflicts.
Access to capital, high lending interest rates, and occupancy rates affecting real estate
values.
By estimating the baseline financial investments for efficiency measures and identifying an
initial list of important additional cost considerations, this memo lays the groundwork to better
account for the real-world cost barriers the workgroup has raised. The 2024 work will build on
the estimates in this memo and will help identify how to target support for building owners. For
example, what are the biggest additional cost barriers, how do they apply across various
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building types and owners, and what type of additional support would most benefit building
owners?
High-impact opportunities for support could include changes to CBPS administrative
requirements and the Early Adopter Incentive program, more coordination across related
policies and codes, additional technical assistance, guidance on retrofit best practices and high-
performance solution sets, and investment in market capacity building and training to
streamline compliance and reduce costs. The 2024 report will include the results of the
expanded analysis and a set of prioritized recommendations for how the legislature can support
building owners while maximizing the effectiveness of the Clean Buildings Law to reduce
energy use and emissions in Tier 1 buildings.
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