Why Energy Efficiency Pays: Overcoming the Split Incentive

Finding value beyond energy bill savings

Why whole-building energy efficiency upgrades pay off, even when residents pay their own bills

If residents pay their own electricity bills, how does the building owner benefit
from energy efficiency upgrades?
This question illustrates a common misconception about multifamily energy
upgrades called split incentives. The solution is simple: comprehensive
upgrades through Pacific Gas & Electric’s (PG&E) Multifamily Upgrade
Program offer a total value that goes beyond energy bills.

Three ways energy upgrades pay

Higher rents, higher net operating income: Energy-efficient buildings can
command higher rents that can translate to a higher net operating income for
2 building owners. For example, after completing an extensive retrofit, a 93-unit
property near Sacramento, California recently raised its rents from $.65 to
$1.00 per square foot—nearly 53 percent—boosting NOI and offsetting rising
rent costs with energy cost savings.
Higher property values: According to a report by the Energy Cost Savings
Council, every $1 invested in retrofit measures can increase a property’s value
by $3. Other factors indicate that the market is placing value on energy
efficiency, too, including new legislation that requires multifamily buildings to
benchmark, and new property appraisal processes that incorporate energy
efficiency into valuations.
Lower vacancy and turnover rates: With better comfort and health, fewer
nuisances, and in some cases, nicer, newer appliances, energy-efficient
buildings tend to have higher resident satisfaction. Happier residents typically
stay put, keeping your units full, revenues high, and bottom line healthy.