Developments Can Revitalize Communities, Save Carbon at a Profit by Going 'Zero'

09/23/2016 03:51 pm ET Updated Sep 24, 2017

Net zero energy buildings--those that are responsible for the production of as much (or more) clean energy as they use annually--have been gaining momentum around the world, and continue to grow in popularity. Companies like REI, which recently completed a net zero distribution center in Arizona, are using net zero buildings as a way to save energy and money while deepening their brand's commitment to sustainability. We at Rocky Mountain Institute built our net zero headquarters, the Innovation Center, in Basalt, Colorado to show that a high-performance building could be achieved in the coldest climate zone in the U.S.

Despite these and other success stories, a common perception remains that achieving net zero energy, is too expensive or comes at a prohibitively higher cost than conventional construction. This perceived cost barrier is the primary reasons why net zero remains a niche market.

By 'thinking bigger,' and approaching net zero at the scale of an entire college campus or community, the economics change. You can optimize technologies and costs to achieve a better outcome than what can be achieved by taking a building-by-building approach to net zero (or making each individual building net zero in it's own right). We are starting to see this concept take hold with planned net zero districts like Fort Collins's Fort ZED and Arizona State University. But even at this scale, the perception that they cost more will prevent this idea from ever really taking hold.

A new business model presented by Rocky Mountain Institute in An Integrated Business Model for Net Zero Energy Districts debunks this perception and demonstrates the financial, performance, and environmental opportunities of net zero developments. When the concept of net zero is applied at a district scale, the benefits expand as quickly as the district's carbon footprint shrinks. Net zero developments can be structured to cost the same as traditional, lower-performing developments to build, and over time they can produce new income for developers and investors without transferring any additional cost burdens to property owners or their tenants. For cities looking to attract high quality tenants, net zero developments are a draw because they are better for occupants and the environment, offering improved performance, cleaner air, and more resilient communities.

The paper's model was developed for a 180-acre mixed use development on a former industrial site in Pittsburgh to help establish the community as a leader in sustainability, resilience, and revitalization. By attracting top tenants, it can help catapult the city as a whole--which is already experiencing its own revitalization and tech boom--to new heights in innovation and leadership. What's more, this net zero development will use 450 billion btu less energy per year compared with the base-case design, saving 60,000+ metric tons of carbon emissions and delivering on the development's commitment to environmental stewardship.

Capturing "Quadruple Bottom Line Benefits"
Committing to and delivering a financially viable net zero energy district requires buy in from and coordination among many parties, including municipal governments, investors, developers, architects, utilities, and anchor tenants. Fortunately, net zero districts can put in place certain measures that present unique and powerful value propositions for more stakeholders than a typical development project, helping these players rally behind shared outcomes and increasing the likelihood of success. Here's a breakdown of the "whys" and "hows:"

Developers: Get a leg up on the competition, with a better product at the same cost
Net zero districts can be built at or below the cost of conventional developments by shifting on-site renewable energy ownership to a third-party (like a power purchase agreement where someone else owns the the panels themselves, and you purchase the clean energy they produce at a lower cost than purchasing them from the electric utility), establishing a district-wide heating and cooling system (instead of installing heating and cooling capacity in individual buildings), and creating on-bill financing mechanisms to recover the incremental cost of energy efficiency installed in individual buildings. These cost elements removed from the first cost of individual buildings become an incremental third party investment opportunity Additionally for the developer high-performance buildings will typically yield higher sale prices or rents, especially so when not burdened with a higher first cost.

Investors: Take advantage of a low-risk, high-reward, and environmentally responsible investment opportunity
Net zero energy business models are financially attractive to investors because the large capital
investments in solar photovoltaics (PV), district heating and cooling, and energy efficiency are repaid over time on utility bills, generating a steady return that benefits from enhanced credit because of the utility-customer relationship.

Tenants: Get a better, cutting-edge space at a lower cost
For tenants, net zero districts are attractive not only because the sum of their payments for supply of solar PV, district heating and cooling, and energy efficiency can be lower than the simple energy bill in conventional developments, but also because the buildings are healthier and more comfortable for occupants. As an added benefit, tenants can also burnish their sustainability credentials.

District-scale developments are uniquely positioned to be a major driver of the next generation of high-performance buildings--while slashing the carbon impact of building stock and creating cleaner, more resilient communities and cities. When the design of these developments is approached holistically, net zero can be achieved without introducing the risk of financial compromise. Each element of this business model may not pertain to every large-scale development, but implementing certain components of the model can still be valuable, making such developments attractive to investors, developers, and tenants alike--increasing the likelihood that better buildings and communities scale now, and quickly.

The buildings and communities we break ground on today will define us, our communities, and our environment for the next 50 years. Let's make sure we do it right the first time.