Quantifying the Financial Value of Building Decarbonization Technology: Case Studies on New Construction and Retrofitting in the Face of Uncertainty

Abstract

The built environment accounts for approximately 40% of global emissions. As a result, property owners face increasing pressure from regulators, investors, and tenants to reduce greenhouse gas emissions. However, building decarbonization requires costly investments that may or may not be recouped over a multi-decade horizon. The quantification of these financial returns is complicated by uncertainty in capital expenses, energy cost savings, emission regulations, and real estate market conditions. Against this background, building developers need a method to quantify the financial value of decarbonization under a variety of future uncertainties. This thesis develops an integrated framework that combines building energy modelling with real estate investment analysis to assess the energy-saving and financial impact associated with the adoption of decarbonizing technologies. To incorporate future uncertainties, the framework employs Monte Carlo techniques to simulate 10,000 different future scenarios of energy prices, real estate market conditions, energy performance, regulatory environments and grid decarbonization rates (which affect the emissions of a building.) We apply this framework in two case studies: (1) a new construction of an office building in NYC, and (2) an energy retrofit of an existing multifamily building in New Jersey. In the first case study, our simulations indicate that, in approximately 76 percent of scenarios, the most profitable decision for the building owner is to adopt a natural gas-powered heating system. However, adopting a building design that provides a building the flexibility to fully electrify at a later date is more profitable than a natural gas-heating building in 99 percent of scenarios. In the second case study, we evaluate 64 retrofit packages, and present a list of the top 30 retrofit solutions that maximize NPV, energy use reduction, and carbon emission reductions.