Explainer: How Do Retrofit Economics Differ For Commercial Buildings and Homes?

In Brief

Retrofits, on-site overhauls of buildings that make for smarter energy use, can drive up employment and drive down carbon. 

Yet financing retrofit projects remains tricky, largely because different parties pay and benefit at different points. 

This overview pinpoints where common interests can draw an assist from project finance to spread retrofits' gains more widely. 

Empire State Building exterior

Much focus in the energy decarbonization discussion has landed on renewable energy. However, energy efficiency outcomes from retrofits of buildings can drive down carbon emissions while stoking economic growth. But while renewable energy may immediately conjure to mind pictures of offshore windfarms, or fields full of solar panels, the concept of retrofitting can be a little less familiar.

When members of the energy industry discuss “retrofitting,” or energy retrofits, they are usually talking about one of two things. The first is replacing outdated, fossil fuel-consuming technologies in existing buildings with newer, more efficient appliances. The second is making modifications to decrease energy demand in existing buildings. These upgrades or modifications can range from the extremely simple to the more complicated. A retrofitting technique can be as simple as swapping an incandescent lightbulb for an LED. The more complicated projects can scale all the way up to replacing the entirety of the Empire State Building's systems, a project undertaken by the building’s owners and completed in 2010.

There are two types of retrofitting methods: conventional retrofits and “deep energy” retrofits. As the names hint at, conventional retrofitting is typically less invasive and in-depth, usually focusing on one area (lighting or insulation for example) and not considering whole building systems. Deep energy retrofitting takes upgrades to the next step, and uses a holistic approach to better predict energy use and savings when considering occupancy, equipment and the building as a whole. Deep energy retrofits can usually yield over 50% savings on annual energy costs, while conventional retrofits usually provide lower financial benefits, around 15-25% annual energy savings.  

While not every retrofit will be as complicated as a 102-story skyscraper, most commercial buildings involve more systems and more choices than you would face in retrofitting a detached house. For retrofits in commercial buildings, the process usually starts with a charette, or structured meeting aimed at aligning stakeholders. Commercial retrofits can involve building owners, tenants, HVAC mechanics, energy managers, financiers and other parties. Official energy retrofits are usually performed by energy auditors, who have licensing and certifications in building science and building energy use.

When approaching a retrofit, energy auditors will usually start with the things that use the most energy as they will likely provide the most potential for energy savings. As of 2012, electricity accounted for 61% of all energy use in commercial buildings, while direct gas accounted for 32%. The biggest contributor to electrical use in commercial buildings was lighting (18%). Given that lighting accounts for such a high amount of energy use in commercial buildings, it is generally the first thing looked at for upgrading. In a commercial building, standard older lighting fixtures are usually fluorescent, rather than incandescent. Compared to fluorescents, the latest in efficient lighting technology – LEDs – can save 20-50% of energy costs alone. In more extensive deep energy retrofits, experts may rework floor plans or space layouts to maximize natural light as well as smart lighting systems to sense building occupancy or room use.

Retrofitting the heating, ventilation and air conditioning systems in a commercial building will naturally be more complex and in-depth than doing so in a residential building, just because of the size. A common HVAC upgrade in commercial buildings involves switching a constant air volume system to one that lets airflow vary. A constant air volume system maintains the same level of airflow throughout the day, but changes the temperate of that air while a variable airflow system pumps air at the same temperature, just at variable rates throughout the day. A variable system is more efficient and commercial building owners can expect to save 10-21% on HVAC energy costs by making the switch. While many other technologies can be addressed, and initiatives implemented to change behavior, lighting and HVAC will be the primary two components in a commercial retrofit.

Unlike commercial buildings, for a household the primary source of energy use is heating and air conditioning. Heating and AC alone can account for over half of all energy consumption. However, much like in a commercial building, the easiest thing to tackle is lighting. In fact, a homeowner can usually upgrade the lighting without needing to enlist a professional. The average household can expect to save around $225 a year simply by switching from incandescent lightbulbs to LEDs.

One common retrofit involves adding insulation, which usually requires a professional contractor. As the common elementary school science phrase goes: “hot air rises, cold air sinks.” Insulation, particularly in the attic, helps to keep all that rising hot air put out by your HVAC system inside, where it can keep your house comfortable. According to recent estimates, homeowners can cut roughly 15% from thermal-control costs by air sealing and insulating their homes. Air sealing refers to using caulk or expanding foam to fill cracks or holes between your house and the outside. 

...increased natural light can provide up to a 23% increase in productivity. Energy efficiency upgrades have also been shown to have even more direct benefits on human health.



Air sealing can also be done on HVAC systems. A simple and non-invasive retrofit for residential HVAC systems is “duct sealing.” There are two ways to seal ductwork. The first, using a special tape to seal joints on the ductwork, can be done easily enough by a homeowner. The second, using a machine to blow sealant into the ductwork itself and seal cracks from the inside, is done by professional duct sealing companies. As may be expected, the second method is more effective, although both will yield savings. The U.S. government’s Energy Star program posts estimates suggesting that homeowners could increase the efficiency of their HVAC systems by up to 20%, especially with the latter approach.

One common misconception when it comes to residential retrofitting is that you should start with the windows. While windows can be a source of inefficiency, the cost to replace all windows in one’s home usually outweighs the savings one gets from reduced energy bills. The exception for this would involve a home with single-pane windows, which can save between $126-$465 per year depending on region.

Although commercial and residential retrofitting can come with strong financial incentives and rewards, the benefits go beyond the economic. In commercial buildings, redesigning floorplans to take advantage of natural light can increase the happiness and productivity of employees. One study comparing workers exposed to artificial light vs. those exposed to daylight found that employees working in daylight conditions were more alert and had higher cortisol levels than those working under artificial light conditions. Lower levels of cortisol are correlated to lower levels of stress. A meta-analysis by the Center for Building Performance and Design at Carnegie Mellon reviewed twelve studies showing the impact of lighting decisions on productivity and revealed that increased natural light can provide up to a 23% increase in productivity.

Energy efficiency upgrades have also been shown to have even more direct benefits on human health. A 2014 study from the Oak Ridge National Laboratory found that measures such as adding insulation and air sealing the home can reduce the number of visits made to the emergency room for breathing or asthma-related issues by up to 12%.

And lastly, one of the most well-known benefits of energy efficiency is its environmental impact. Energy efficiency retrofitting helps delay or eliminate the need for new construction, and the retrofitting initiatives previously mentioned reduce the total burn of fuels, fossil or otherwise. In fact, according to International Energy Agency-branded research,  energy efficiency improvements made between 2000 and 2017 led to a 12% reduction in greenhouse gas emissions. With a myriad of benefits ranging from environmental to financial to human health, retrofitting has earned its place in the energy decarbonization conversation.  

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