Efficiency Capital Budget

Tuesday, September 1, 2015

Purpose of the project

Though Kilroy had executed many energy and water efficiency projects in our existing portfolio, other efficiency projects that met our financial thresholds were not launched because of our capital budget process. Specifically, it was the responsibility of each asset management team to include efficiency projects in their budgets, but then these teams often cut these projects when budget reductions were required. To solve this problem, Kilroy decided to create a separate capital budget solely focused on energy and water efficiency projects so that more of these projects could be executed each year.

 Approach

Kilroy’s longstanding sustainability goal is to execute all energy and water efficiency projects in its existing portfolio that have a payback of three years or less, and periodically projects with longer paybacks. In the typical budget process, the Sustainability Department would source efficiency projects that met this requirement and give the various asset management teams the information they needed to include these projects in their budgets. These asset management teams then submitted their proposed budgets to senior asset management, who then assessed the overall capacity of the budget and asked teams to cut back their budgets accordingly. At this point, many of the efficiency projects would be cut to make room for high-priority repairs and other important building capital work. As a result, many strong efficiency projects would not go forward.
To solve this problem, in 2014 the Sustainability Department met with the Operations Team, which includes the CFO, the COO and the SVP of Asset Management. Together, they decided to create a separate budget for efficiency projects that meet the payback threshold and decided on an amount, equivalent to roughly 5% of the overall capital budget. Non-payback sustainability projects, such as LEED certification fees, would remain in the larger capital budget. The Senior Director of Accounting then set the budget up, and the Sustainability Team then populated this budget with projects. The efficiency budget then went through its own approval process, and the Sustainability Department began executing these projects in 2015.

Results

Having an independent budget in 2014 allowed the Sustainability Department to pick strategic projects that save energy and water without needing to account for other large projects going on in particular buildings. Before, buildings that had other large projects going on were always unable to make room in their budgets for efficiency projects, so even if an efficiency project was an excellent fit for the building those efficiency projects could never go forward. With this constraint removed, the projects in the first year of the efficiency capital budget include lighting retrofits, smart/drip irrigation upgrades, HVAC upgrades, installation of drought-tolerant landscaping, and an exciting pilot of a new electrified filter technology. These projects, which will be installed in 2015, are estimated to save over 745,000 kwh of electricity and over 3400 cubic meters of water. Based on the success of these projects, in future years Kilroy hopes to expand the efficiency capital budget further to execute even more efficiency projects.

 

“Investments in the energy and water efficiency of our buildings are often, as a result of our green leasing efforts, quickly recoverable. Creating a separate budget for these investments ensures that they do not get lost in the capital budget process, to the benefit of our buildings and our tenants.”