Schematic Floorplan and Axonometric View of Building Design Options.
Distribution of the difference between fully electric design option net present value of investment (NPVs) and gas design option NPVs for each scenario.
The KPF Environmental Design Director collaborated on the piece, which quantifies cost benefits in support of fully electric-ready building investments, with fellow experts from his alma mater’s Center for Real Estate (CRE).
The paper, “Quantifying the Financial Value of Building Decarbonization Technology Under Uncertainty: Integrating Energy Modeling and Investment Analysis,” addresses the increasing pressure property owners face from regulators, investors, and tenants to reduce building greenhouse gas (GHG) emissions, particularly in large cities. Decarbonizing real estate requires costly investments for property owners, which tend to be recouped with increases in property cashflows over a multi-decade horizon. The best design and investment strategies are different for each building, and the unpredictability of energy prices, carbon regulation, and market trends play a critical role in decision making.
The paper develops an integrated framework that combines energy modeling with investment analysis, to support the adoption of decarbonizing technologies under these uncertainties. This integrated framework includes projections of costs and benefits associated with the adoption of technology (i.e., changes in rental cashflows, vacancy rates, maintenance, and energy costs) under a wide range of potential pathways of energy regulatory markets, as well as local real estate market demand for green buildings.
The group used a KPF-designed office building in New York City as the case study for their approach. In considering this project, they evaluated the decision to adopt a fully electric heating system, against a heating system relying on natural gas that serves as a baseline. The paper considers 10,000 scenarios, including possible future GHG emission penalties under Local Law 97, investments in the local electric grid, local real estate market conditions, and energy prices. Their research found that, as of today, in approximately 76 percent of scenarios, the most profitable decision for a new office building owner is still to use natural gas-powered heating. However, designing a building that provides the flexibility to fully electrify at a later date is more profitable than a natural gas-heating building in 99 percent of scenarios, as it minimizes potential market risks and unexpected costs. As KPF and the architecture industry at large seek design solutions to meet ambitious goals, such as the AIA 2030 Commitment, these findings signal a positive path forward for other fully electric-ready buildings. The paper captures some of the results of a 2-year ongoing research collaboration between KPF Environmental Performance (KPFep) and MIT CRE, which continues to explore the impacts of decarbonization policies in the design and development of buildings and cities.
In addition to Carlos, the contributing authors are Siqi Zheng, Samuel Talk Lee Professor of Urban and Real Estate Sustainability and Faculty Director of MIT CRE; Juan Palacios, Massachusetts Institute of Technology (MIT) – CRE and IZA Institute of Labor Economics; and Alejandro Valdez, Massachusetts Institute of Technology (MIT) – CRE.
The piece, MIT Center for Real Estate Research Paper No. 23/07, can be read in full here.