One hundred years ago, only 20% of the world’s population lived in cities — but that number topped 50% by 2010. Every year, the United Nations reports, nearly 60 million people move to cities worldwide. Today, cities make up just 2% of the world’s surface, but hold more than half of the human population. They consume three quarters of global energy, and are responsible for 80% of carbon emissions, according to a Schneider Electric White Paper, “The Smart City Cornerstone: Urban Efficiency.”

And the urban population is growing, adding one million people every week, and expected to increase 1.5% annually, from 3.4 billion in 2009 to as much as 6.4 billion by 2050. At mid-century, it is projected that 70% of the world’s population will be urban.

Growth is concentrated in the world’s “mega-cities,” with populations of 10 million or more people. Nearly all of these cities have significant infrastructure challenges, and a majority of older, inefficient buildings. Buildings are themselves energy hogs, consuming almost 40% of U.S. energy, and more than 70% of produced electricity, as well as generating approximately 40% of American global warming gas. And old buildings, designed for a time of inexpensive energy, are prodigious wasters. Thanks to the growing science and practice of retrofitting older structures, however, they don’t have to stay that way.

The waste problem is compounded in the United States, which has historically benefited from abundant, inexpensive sources of oil, natural gas and other resources. In early 2013, the U.S. won the dubious distinction of being the world’s number one energy waster, using only 43% of the total generated power entering the economy.

But studies show that relatively minor adjustments to monitoring buildings’ energy use — and adding efficiency measures — could reduce energy use dramatically. The American Council for an Energy-Efficient Economy (ACEEE), for instance, found that building shell improvements could reduce the need for space heating and cooling in both residential and commercial buildings by up to 60% in existing construction, and by 70% to 90% in new structures.

The marketplace is responding to that opportunity — and the chance for positive publicity — by creating a record number of urban buildings (both new construction and retrofits) that meet the high but voluntary standards of the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED). Green building is an increasingly visible and fast-growing presence — it was an $85 billion industry in 2012, and could reach 200 billion by 2016.

Cities have to get smarter, and that’s beginning to happen. As a report from IBM points out, today’s green buildings incorporate “systems that talk to systems,” such as smart electric meters, lighting that senses when a space is being occupied and water faucets that control use and flow.

Some ambitious construction goes beyond LEED with more rigorous protocols such as the Living Building Challenge (LBC), which requires water and energy self-sufficiency. The Bullitt Center office building in Seattle, for instance, bills itself as “the greenest commercial building in the world.” Opening on Earth Day 2013, it’s a pioneering LBC structure that collects rainwater and generates all of its own energy from a 242-kilowatt photovoltaic array. It also uses composting toilets.

The U.S. headquarters of German software giant SAP outside Philadelphia is also built to a high standard, and is certified LEED Platinum. The airy building features a green roof, rainwater collection and geothermal energy.

A Green Makeover for Philadelphia’s Navy Yard

Philadelphia has become a leader in energy efficiency under Mayor Michael Nutter. According to a 2012 progress report from the city’s Greenworks Philadelphia, municipal energy use has been cut 5% since 2009 — enabling the city to avoid nearly $4 million in energy costs from 2009 to 2011. Christina Simeone, director of the Energy Center at the PennFuture environmental group (with a green economy and clean energy focus), says that the state of Pennsylvania has been less proactive on these issues, with the legislature declining to endorse greener federal building code revisions for 2012. “They missed a chance to be more energy efficient,” she notes.

Given the city’s long history, it is not surprising that innovative green-building efforts are focusing on Philadelphia’s aging buildings. What is possible to accomplish even with very old structures will be showcased at Building 661 at the huge Philadelphia Navy Yard (the nation’s oldest.) The age of the buildings, some of which date to the Civil War, was a challenge when they were repurposed following the 1995 cessation of naval activities at the yard.

The Navy Yard totals 1,200 acres, and currently supports more than 10,000 employees. After investment of $2 billion through public/private partnerships, it will have 15 million square feet of usable space and a workforce expected to reach 20,000.

“With its existing stock of old buildings, the Navy Yard is in effect a sandbox or experimental test bed for technologies and practices,” says Mark Alan Hughes, a distinguished senior fellow at PennDesign at the University of Pennsylvania, and a lead investigator at Energy-Efficient Buildings Hub (EEB Hub). “There’s a nice mix of uses, retaining a large industrial presence with more traditional office space, data centers and small technology startups. It’s a super-cool place.”

The Navy Yard, just three miles from Philadelphia’s urban center, is working from a 2004 master plan created by Robert A.M. Stern Architects with a number of sustainable elements. In 2010, the federal government awarded $129 million to the umbrella Greater Philadelphia Innovation Cluster for Energy-Efficiency Buildings (GPIC), which includes Pennsylvania State University and the University of Pennsylvania, as well as partners from local and state government and industry. The goal is to cut energy use in commercial buildings in the Philadelphia region 20% by 2020.

In 2011, the Building 661 energy-efficiency retrofit moved forward with a two-day conference organized by a task force of the EEB Hub, which became the new name for GPIC as it was launched that same year by the Department of Energy. The two-story Building 661 is a former gymnasium that sat empty for 15 years. It dates to the 1940s, and in early 2014 will become the energy-efficient showcase headquarters for the EEB Hub.

According to Laurie Actman, deputy director of EEB Hub, “We go first for the lowest-hanging fruit — making these very inefficient brick-building envelopes more air tight. By installing controls and sensors, we gather information about how energy is being used in the building. Analyzing that data gets us to how we can get the best return in the retrofit.” 

Building 661, to be renamed the Building Energy Sciences Center, will feature a wide range of energy-efficiency measures, including demand-controlled ventilation, a high-efficiency condensing water boiler, second-story under-floor air delivery with displacement diffusers, automatic and time-of-day lighting controls, LED lighting, R-24 and R-30 insulation, double-glazed low-emissivity (low-e) argon-filled windows, and trees placed to provide shading.

The building will reduce overall lighting power for a complex its size by 8.5%, and will have a federal Energy Star rating between 94 and 97. It’s impressive, but will the savings pay back the investment? “The market drivers haven’t always been there for energy-efficiency investments,” Actman notes. “Every step is complex. I’d like to see a more integrated approach to retrofits, rather than actions taken piece by piece.”

New, But Retrofit

The University of Pennsylvania’s Jon M. Huntsman Hall, known as the Wharton School’s “newest, biggest building,” is more than 300,000 square feet with 48 classrooms and 57 group study rooms. It was built in 2002, which would presumably give it an advantage in terms of energy efficiency over older campus buildings. But Ken Ogawa, executive director of operations at Penn’s facilities and real estate services office, explains that it doesn’t work that way. Yesterday’s technology, even when it’s only a decade old, can quickly become counter-productive.

“Huntsman Hall is one of the biggest energy users on campus,” says Ogawa, who pinpointed a major reason for that: “Every classroom was equipped with carbon dioxide sensors, which help manage air quality in the classroom,” he notes. “But they need a lot of calibration, and have to be reset inside the classroom. If the sensors fail they assume a lot of CO2 is present, and max out the air flow — which uses a lot of energy.”

As part of a retrofit that included the switching of more than 600 lamps to LED (reducing annual energy costs by $13,500 and annual maintenance by $49,000), Huntsman is being equipped with a modern digital CO2 sensor system with centralized calibration. “The new system will really improve energy efficiency,” Ogawa states. “It’s realistic to expect that it will function effectively.” 

Before coming to Penn, Ogawa was a public works officer at the Navy Yard, and worked in Building 1, which dates to the yard’s earliest days. He notes that older buildings are often subject to historic preservation restrictions. Building 1, for instance, is of brick construction, with huge north- and south-facing windows. “There was a temperature delta [difference] of more than 10 degrees between the building’s north and south side offices,” Ogawa recalls, “with the latter benefiting from considerable solar gain. We couldn’t replace the windows, but I put in interior storm [windows] that reduced the delta to three or four degrees.”

Overcoming hurdles like that are regular occurrences at Penn. According to Rafe de Luna III, associate director of sustainability for Wharton operations, approximately 40 buildings are being studied for energy-efficiency upgrades as part of the university’s Century Bond program. At Steinberg-Dietrich Hall, improvements include LED lighting, occupancy and day lighting sensors, a green roof and chilled beam technology (a convection HVAC system that uses a heat exchanger). The building was constructed in 1950, but that hasn’t prevented Penn from seeking LEED Silver certification for it.

According to de Luna, Wharton currently has two LEED Gold buildings, and the LEED Silver pending for Steinberg-Dietrich Hall. LEED Silver is a minimum requirement for new construction at Penn. “We’re also trying to conserve energy through our operations,” de Luna adds. “It’s not just about capital improvements: For example, we’ve experimented with off-peak escalator shutdowns, which have the potential of saving 20% to 40% in utility costs annually. We’ve placed air-handling units on shut-down schedules instead of running them 24/7, and even de-lamped hundreds of fixtures in areas that may have been over-lit.”

Since Penn President Amy Gutmann signed the American College and University Presidents’ Climate Commitment in 2007, the school’s dedication to sustainability has deepened. John Keene, professor emeritus of city and regional planning at Penn, says that the building retrofits are part of a larger plan. “We realized we’d have to take a broader view than just focusing on reducing our carbon footprint,” he notes. “We now have a sustainability plan with six or seven components, addressing, energy, buildings, transportation, teaching and other areas.”

According to William W. Braham, a Penn professor of architecture, “The plan is to get the university to some form of carbon neutrality. So far, almost all of the decisions that have been made are business-positive or cash-positive. We’re investing, but at the end of the day you save more than you spend if you look at it over decades.”

At Tulane University in New Orleans, the devastation of Hurricane Katrina presented an opportunity to update seriously inefficient buildings with HVAC and water systems that were 40 or more years old. At Richardson Memorial Hall, for instance, analysis from new smart sensors on boiler, air ducts, lights, water pipes and chillers demonstrated that heating and cooling were sometimes operating simultaneously. With that situation addressed through an IBM energy optimization program, efficiency is up dramatically in the building.

“Every valve, every thermostat, potentially every light switch is talking to you, and if you listen, you can make intelligent decisions to optimize the comfort of the building and minimize the resource consumption,” says Charles P. McMahon, a Tulane technology services vice president.

Complementing Retrofits with Local Energy Generation

A large-scale solar farm of up to 1.5 megawatts is part of the energy master plan for the Philadelphia Navy Yard, though it may be realized on a smaller scale. There is currently no centralized renewable energy source to replace the grid, but planners are taking a variety of approaches to greening the Navy Yard’s electricity supply, including the installation of smart meters.

David Riley, associate professor of architectural engineering at Penn State University, lead EEB Hub partner at the Navy Yard, says that among the technologies being pioneered there are an experimental 125-kilowatt-hour utility-scale lithium-ion battery (with 250-kilowatt inverter) stored in a shipping container that will be integrated into the grid. It can provide solar load leveling and frequency regulation services. “This is a $200,000 prototype that will demonstrate the value of these systems,” Riley notes. “The next one will be much cheaper.” The developer of the system, SolarGrid Storage, estimates a less than 10-year payback period for the system.

Two other commercial buildings at the Navy Yard will also be generating much of their own power. The Navy Yard’s visitors’ center will combine solar panels and micro-wind turbines with such advanced technology as electrochromic windows, LED lighting, a geothermal heat-pump HVAC system and several kinds of high-performance insulation to create a net zero energy user. “This basically means the project produces as much or more energy in a year than it consumes,” says Steven Miller, the design project manager and an architect with Public Works Department Washington.

And Urban Outfitters, also a Navy Yard tenant, has already installed a 600-kilowatt Bloom Energy hydrogen fuel cell that is expected to provide 60% of its electricity needs, greatly reduce carbon dioxide emissions and pay for itself in five years.

As a result of all of the retrofitting and energy generation, Hughes estimates that utility bills in Navy Yard office space could be half what they are in similar square footage structures elsewhere, and that this will translate to market value — and the ability to charge tenants higher rent.

In order to roll out the kinds of innovative strategies being pioneered at the Navy Yard, some innovative approaches to local government also have to be developed. In 2011, PennFuture secured a $315,000 federal Department of Energy grant aimed at removing barriers to solar installation in southwestern Pennsylvania. In part, the money will be used to help create and standardize local solar codes and ordinances, and create educational campaigns for local officials.

“We’re getting municipalities to sign on to purchase agreements,” notes Simeone. “If 100 people in a community commit to buying solar, then each customer can buy in at $4 a watt. If there’s 200 or more, it’s $3.50 a watt, or 300 at $3 a watt.”

Eric W. Orts, director of the Initiative for Global Environmental Leadership (IGEL) and a professor of legal studies and business ethics at Wharton, says that widespread dissemination of such best practices for companies “can advance the business case for moving in this direction.” Best practice documents would also be useful in dealing with zoning laws and municipal permitting on such issues as solar installation and electric car recharging stations.

Finding the Financing

The process of creating sustainable buildings would probably be moving even faster if a return on investment could be guaranteed. “There are a lot of questions on payback, but green building upgrades can be cost-effective, especially if you take a long-term view,” notes Orts. “There are effective arguments for a return as long as you allow a five- or 10-year time horizon. That can be a problem for nonprofit groups and universities that expect quicker returns.”

Ali Malkawi, a professor of architecture at Penn and the director of the T.C. Chan Center for Building Simulation and Energy Studies, says that only recently has technology evolved that can prove to clients that their sustainable high-performance buildings really will realize the energy savings embodied in the plans. “If we can’t prove that buildings will perform as expected, it’s harder to justify the expense,” he points out. “Computer simulations help us bridge the gap between engineers and architects.”

For small businesses, the upfront costs of greening buildings can be prohibitive, according to Therese Flaherty, director of the Wharton Small Business Development Center. That problem needs innovative solutions, she says, pointing to new approaches to retrofitting fast-food restaurants that don’t require them to close while the work is being done — a huge savings for the bottom line.

Another timely option for building owners and managers, she adds, is the energy services companies, or ESCOs, developed in the 1980s. According to Flaherty, “ESCOs can absorb the upfront cost of an efficiency upgrade and get paid out of the energy savings. ESCOs can also provide project management and engineering services. The concept has so far been applied mainly to larger buildings, because the companies need to guarantee performance, and that requires a larger balance sheet.” But if the technology is extremely efficient, it would work well for smaller businesses, too.

ESCO offerings come from manufacturers, brokers, contractors and utilities. Performance contracting can be offered by a company that makes energy-efficiency products to build up the business. Brokers and contractors hire others to do the actual work. Utilities can offer ESCO services as part of an energy-efficiency portfolio.

“When done right, these services are invaluable,” reports Energy and Environmental Management magazine. “This is especially so when the engineering and contracting resources work together to identify and implement cost-effective retrofits, which otherwise would be overlooked through the more traditional plan-and-spec/competitive-bid method of design and contracting.” Unfortunately, ESCO isn’t always done right — wildly overestimating projected savings is one of the pitfalls.

Another way of encouraging energy-efficiency building improvements is via green leasing. In a typical net lease, building owners have no incentive to retrofit their buildings because energy costs are passed along to tenants. In many cases, tenants aren’t motivated either, because their energy bills are based on the square footage they occupy, not their actual energy use.

Adam Sledd, program manager of green leasing and federal buildings for the Institute for Market Transformation, says that in a more equitable “high-performance lease,” owner and tenant can negotiate an agreement that splits the cost of efficiency upgrades. According to EEB Hub, green leases “align the financial and energy incentives of building owners and tenants so they can work together to save money, conserve resources, and ensure the efficient operation of buildings.”

San Francisco officials, working with the city’s Business Council on Climate Change, created the free Green Tenant Toolkit to guide both building owners and tenants through the process of creating a green lease.

The Solar Leasing Option

Going solar — sometimes to the point of self-sufficiency, as Seattle’s Bullitt Center demonstrates, is also greatly enabled by the growing practice of solar leasing. As offered by SolarCity and other companies, this innovative approach allows landlords to install panels at no upfront cost and then make fixed lease payments, akin to a rental of the equipment, with the savings realized via lower monthly energy bills.

A variation is the solar power purchase agreement, which is similar but payments are based on the amount of solar energy actually produced by the panels — billed at a fixed rate per kilowatt hour. Many corporations have favored this approach, including Whole Foods, Walmart and Staples.

But there is a drawback to a solar lease or power purchase agreement, at least for some participants: it shifts subsidy benefits. Thus, ownership remains with the companies that provide the panels, so if eligible they get a federal tax credit of up to 30%, as well as cash incentives available from states and utilities. The solar company also retains the lucrative renewable energy credits (RECs), which can be sold to offset carbon emissions.

Real Value

Such improvements reduce operating costs and increase real estate value, though as Orts points out, the payback may be on a longer time horizon than some building managers have seen in the past. According to McGraw-Hill Construction, building green reduces operating costs by 8% to 9% on average, increases building value 7.5%, improves return on investment 6.6%, increases occupancy ratios 3.5% and rent ratios by 3%.

A recent federal General Services Administration post-occupancy report on 22 GSA green buildings (16 of them LEED certified or registered) found even better results — 25% less energy use, 19% lower aggregate operational costs, 27% higher occupant satisfaction and a 36% decrease in carbon dioxide emissions. “In short, the GSA’s 12-year commitment to green building practices is paying off,” the report concluded.

The U.S. Green Building Council certified 2,491 buildings to LEED standards in 2011, more than eight times as many as five years earlier. By 2012, more than two billion square feet of building space had been LEED certified. LEED is increasingly an international standard, and 40% of projects pursuing certification are outside the U.S. China, Brazil, India, Canada, Qatar and the United Arab Emirates are all green building leaders.

But LEED, while the leading player, is not the only green building certifier. California’s strong CalGreen building code (mandatory for new construction in the state) took effect in 2011. The Green Building Initiative offers the streamlined Green Globes, an environmental assessment and certification program for commercial buildings. Build it Green adopted the GreenPoint standards, which look at improvements in such areas as energy efficiency, indoor air quality and water conservation.

Clearly, the urban green building movement is gaining ground, both as new construction and renovations. The momentum has been sustained not just because sustainability is the “right” choice, but because it is seen as ultimately cost-effective in today’s increasingly populous — and increasingly challenged — cities.