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Commercial Construction Cost Increment Analysis

Determining the Cost of Building to ASRAE 90.1-2007

One of the Building Codes Assistance Project’s goals is to help policymakers understand both the pros and cons of
adopting an energy code in their state or jurisdiction. As an independent judge of the efficacy of energy codes, we
also strive to use data and case studies to address energy code barriers, such as real or perceived construction costs
incurred by code changes. One such barrier to energy code adoption is the concern from some in the building com-
munity that upgrading to the latest version of the commercial energy code, ASHRAE 90.1-2007, will result in cost-
prohibitive increases in construction cost. After examining available data, BCAP has found that no definitive analysis
or study has exhaustively calculated the commercial cost increment for all 50 states. However, emerging studies,
particularly a recent New York state analysis, anecdotally demonstrate that upgrading the commercial energy code
may result in some construction cost increases which are offset by energy savings within a few years of project

Commercial Incremental Cost Background

This analysis was undertaken in response to claims lodged by some in the building community that upgrading the
commercial energy code to the most recent and advanced version of the code (90.1-2007) will be cost-prohibitive
for builders and building owners. Amidst other negative economic indicators, including high unemployment, lower
wages, and an increasing cost of living, this claim has gained traction amongst builders, advocates, and policymak-
ers, causing the adoption of the latest commercial energy code to run into resistance. In light of this debate, the
need to document what incremental costs increases (if any) exist for commercial buildings is essential. It is our hope
that incremental cost information will empower decision makers about the costs of moving to current commercial
building energy codes, enabling them to make decisions about those issues when they consider the adoption of a
new code or code provision. The stakes in this debate are high, as the energy use (and possible energy savings)
from the commercial building sector are considerable. According to the Energy Information Agency, in 2008 com-
mercial energy use accounted for almost 19%1 of total energy use throughout the country, and over the last decade
the sector has been the second fastest-growing source of energy consumption in the United States.2

Incremental Cost and Payback in New York State

While the question of added cost is up for debate, numerous studies unequivocally show that upgrading the com-
mercial energy code to ASHRAE 90.1-2007 will save energy. One such study, recently released by the US Depart-
ment of Energy (DOE), Cost-Effectiveness and Impact Analysis of Adoption Standard 90.1-2007 for New York State,
analyzes the first costs and energy savings in the state of New York should it adopt the latest ASHRAE code.
1- According to the U.S. Energy Information Administration Energy Consumption by Sector 1949-2008
2- Energy Information Administration Table 2.1a – Commercial Energy Use 2008 – Commercial Energy Use 1998.

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To measure construction cost changes from IECC 2003 to 90.1-2007, the report modeled construction cost for three
standard commercial building types that are representative of commercial construction in each of the state’s three
climate zones. The report concludes that for New York to transition commercial buildings from IECC 90.1-2003 to the
90.1-2007 code would result in a construction cost increment increase of no more than 5% for all building types
throughout the state, inclusive of all three climate zones. The report also makes clear that costs will vary based on
the type of commercial building considered. For instance, for semi-heated buildings (such as warehouses and flex
space) the construction cost increment is estimated to be zero. For non-residential commercial space (which in-
cludes office buildings) the cost increase averages 4.4% between the state’s three climate zones. For a 54,000 square
foot office building, this cost increase would translate into an added cost of $23,482 per building.

Although these first costs are significant, the study estimates that building owners and operators will achieve signifi-
cant energy savings that allow them to quickly recoup construction cost increases. For instance, in two of the three
climate zones within the state, the payback period on the incremental cost is only 4 years. In the third climate
zone—which is based on notoriously expensive New York City construction costs—the payback period is 8 years.
These payback periods are estimated based on 2007 fuel costs; if energy costs increase, the payback period will be
shorter. It is also noteworthy that the authors may overestimate the payback period’s duration by using a conserva-
tive simple payback model. This type of payback model fails to capture the reality that building owners are able to
amortize the initial construction cost increases over the life of the building loan (known as “Life Cycle Costing”, with
the life cycle being the length of the loan, in this case) and pay these loans back over time with energy savings.

Incremental Costs and Annual Energy Savings for New Office Buildings in New York State
Initial Incremental Cost Annual Energy Savings
Climate Zone 4A 4.3% 4.8%
Climate Zone 5A 4.4% 5.4%
Climate Zone 6A 4.7% 5.7%

Building Performance Precedents

The case for 90.1-2007 construction costs being offset by energy savings is supported by a building performance
case study created by the New Building Institute. The New Buildings Institute analyzed a commercial bank branch
and office building that was built to a standard higher than ASHRAE 90.1-2007. The building, a Fidelity Bank Office in
Leominster, MA, was built to Core Performance guidelines, a standard which is equivalent to 31% over 90.1-2004
ASHRAE code. While the construction cost increment was significant ($100,622, or $2.15 per square foot) the
47,000 square foot building saved $27,600 in energy costs per year over the existing code—a 31% energy savings
over baseline code, which exceeded the 20-30% savings estimated by the building designers. The building’s simple
payback is estimated at less than 4 years, a payback period similar to the 90.1-2007 code modeled by DOE in New
York State. According to the bank, by including utility incentives the bank’s return on investment will be realized in
less than two years.

Other Statewide Precedents

Although incremental first cost studies for additional states to move to the current code (90.1-2007) are unavailable,
other preexisting studies demonstrate that ASHRAE energy code upgrades have a track record of delivering energy
savings with modest or nonexistent first costs increases. This is likely because the ASHRAE 90.1 Development Com-
mittees examines construction cost changes when considering code upgarades, and consider those with favorable

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cost/benefit. One such study, released by DOE’s Pacific Northwest National Laboratory (PNNL) reviews incremental
first costs for previous ASHRAE versions in the city of New Orleans, Louisiana. The study, Analysis of Energy Savings
Impacts of New Commercial Energy Codes for the Gulf States, concluded that annual energy cost savings after up-
grading from the prior ASHRAE Standard, 90.1-2001 to 90.1-2004 were between 7% and 14%, depending on the
building type.

According to the study, not only did the code change save energy in all building types modeled, including offices,
schools, retail, and hospitals, moving from the 90.1-2001 to 90.1-2004 code resulted in lower up-front construction
costs. The construction cost savings provided by 90.1-2004 saved builders between $31,000 and $363,000, depend-
ing on the building type. In the case of the upgrade from 90.1-2001 to 90.1-2004, the incremental cost decreases
were in large part due to the new requirements for lighting commercial buildings. These requirements carry with
them design standards that took advantage of more efficient lighting and often employ considerably fewer fixtures,
resulting in considerable equipment cost savings. Although no study was completed regarding incremental costs of
moving from 90.1-2004 to 90.1-2007, this analysis demonstrates that first cost savings may again be substantial if
the new ASHRAE 90.1-2007 standard is adopted in other states.

Total Incremental Cost For New Commercial Buildings:

Standard 90.1-2001 to 90.1-2004 in New Orleans, Louisiana
Office School Hospital Retail
Total Incremental Cost -$48,787 -$30,683 -$202,805 -$362,628

Conclusion and Directions For Future Research

From these limited examples we can conclude that the energy savings from adopting current ASHRAE standards will
help cities and property owners reduce their energy use and costs. Also, these studies provide anecdotal evidence
that where incremental costs are incurred by an upgrade to 90.1-2007, these costs are absorbed in a short period of
time by increased energy savings. However, the paucity of research and data on incremental construction cost ar-
gues that these findings should be considered preliminary and that additional research is required.

Future research should be focused on creating incremental cost estimates for all climate zones in the U.S. Emphasis
should also be placed on documenting building construction cost and pairing this data with actual building energy
performance. To create reliable construction cost estimates, there is an acute need for detailed data on construction
costs. Some data has been developed by ASHRAE itself – although manipulating this data into useful construction
cost increment projections will require additional data and considerable analysis.

BCAP recommends a coordinated effort to summarize ASHRAE and other data by a third party organization or com-
mittee. Such an “arm’s length” analysis would dispel concerns by ASHRAE officials that the data might be susceptible
to criticism from code change opponents. Simultaneously, putting construction cost data in the public domain would
allow proponents and critics a foundation for debate grounded in robust, factual analysis.

Dedicated to the adoption, implementation, and advancement of building energy codes
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