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To LEED or not to LEED – Part 2

In this concluding part, Sougata Nandi analyses four LEED-certified projects in Dubai as benchmarks

| | Jul 30, 2011 | 4:53 pm
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In this concluding part, Sougata Nandi analyses four LEED-certified projects in Dubai as benchmarks, with the focus on Materials and Resources, Indoor Environmental Quality and Innovation & Design Process.

Much has been said, much has been debated and much has been theorised – about green building certification in the UAE. The entire concept of green building certification and, more specifically, the utilisation of established green building rating systems, in general, and LEED, in particular, to certify buildings in the UAE, was opposed aggressively by the industry during the period, 2005-2008. Even today, there are reservations about these “imported” rating systems, although the UAE itself already has more than 40 LEED-certified projects. The key objections? Several: LEED is for USA and, thus, will not work in the UAE, ASHRAE 90.1-2004 Lighting Power Densities do not work in Dubai, green buildings cost tremendously more than conventional buildings, many LEED credits are not relevant to UAE, so on and so forth.

In August 2006, we deployed the Sustainable Development Policy at TECOM Investments, the knowledge economy developer in Dubai and the owner of 11 Business Parks (Dubai Internet City, Dubai Media City, Dubai Knowledge Village, Dubai International Academic City, Dubai Outsource Zone, Dubai Studio City, International Media Production Zone, Dubai Biotechnology and Research Park, Enpark, Dubai Healthcare City and Dubai Industrial City). The key objectives of the policy included constructing all new buildings as LEED Silver certified at the minimum, reducing electricity and water costs, and implementing sustainable procurement measures.

This treatise analyses four LEED-certified projects in Dubai and assesses what can and cannot be done in this part of the world, as also the commercial implications of LEED projects. Understanding of this treatise requires prior knowledge of the LEED rating system for green buildings. This treatise is not an explanation of LEED certification mechanism but a consolidation of four projects used as case studies to demonstrate the applicability of LEED in the region. In summary, it must be mentioned that LEED certification or, for that matter, any green building certification mechanism is an adoption of “best practices” in design and development, elements that should be considered by default for developments that aspire to be responsible to the environment, to the economy and to the people inside and outside the buildings.

Analysis framework

The Sustainable Energy and Environment Division’s (SEED) LEED certification work at TECOM is largely focused on Core and Shell type of developments. In 2009, we did deliver the first LEED Platinum Commercial Interior, the TECOM Management Office located out of Dubai Internet City’s Building No. 4. At 10,000 square feet of built-up space, the prime driver for us to have this space certified was to demonstrate our clear commitment to the green building programme and to lead by the highest example possible.

Beginning April 2009, TECOM has delivered four LEED C&S-certified buildings – the 6th, 7th, 12th and 13th LEED-certified projects in the region. This is in addition to TECOM Management Office’s LEED Platinum Commercial Interior, which was also the 5th LEED-certified project in the region. Thus, in a manner of speaking, SEED’s green building programme consolidated the trend of green building certification in the region.

As part of our ongoing mandate, SEED is committed to generating awareness on sustainable development in the region and has consciously shared technical and financial information on the LEED projects developed at TECOM. While data from four projects do not necessarily constitute a highly reliable statistical stock, it nevertheless demonstrates certain pointers, which may very well guide developers and sustainability practitioners to make the LEED certification process more efficient, cost saving and, most important, help focus on the right areas that are possible and relevant. Towards this end, this treatise is focused on information from four LEED Core & Shell certified projects, listed in Figure 1:

The LEED Gold Commercial offices at Dubai Studio City, secured the Sustainable GCC Project of the Year in 2010 at the MEP Awards.

Except for the OMD Building, all the other three buildings are designed to be served by district cooling systems, with the OMD Building having its own air-cooled chillers. While Nucleotide Laboratory Complex is designed to have 100% fresh air, being a laboratory, the remaining three projects have standard HVAC systems for office complexes.

This analysis will look at the credits that were achieved at these projects, review the project financials and will come up with certain conclusions at the end.

Those unfamiliar with the LEED for Core and Shell certification programme are advised to visit www.usgbc.org for detailed information on how the rating system works. This treatise assumes that the readers are well familiar with LEED and its various rating frameworks.

Performance evaluation of four LEED Core & Shell projects in Dubai

The summary LEED C&S scorecard for all four projects is listed in Figure 2. It needs to be pointed out that the prime driver for SEED’s work is to reduce Operating and/or Capital expenditure for the organisation. Having our new projects LEED-certified assists in reaching these objectives. The second key issue is that SEED is focused on small shifts at a time. Thus, the objective for all our projects is to secure a LEED Silver level of certification as a minimum, as opposed to LEED Platinum or Living Buildings. However, if an opportunity were to present itself to secure a LEED Gold or higher level of certification, this would be captured, as in the case of Commercial Offices at Dubai Studio City. This target may evolve and become more mature over a period of time.

The summary scorecard demonstrates that the number of points secured by these four projects range from 29 to 36, a narrow band of seven points only or 10% variation on a scale where 61 is the maximum. Commercial Offices at Dubai Studio City have outscored the next closest project by four points, of which three have come from the “Optimise Energy Performance” credit. Our focus, thus, is quite evident.

The percentages listed within each category in the scorecard indicate the success rate of the credits within that particular category: 57% for Sustainable Sites indicates that on an average (for these four projects), 57% of the credits within this category have been successfully secured. Similarly, the success rates are 95% for Water Efficiency, 48% for Energy and Atmosphere, 18% for Materials and Resources, 52% for Indoor Environmental Quality and 90% for Innovation & Design Process.

Overall, these four projects have secured 53% of the total credits successfully, in addition to fulfilling the pre-requisites. Projects planning to pursue LEED C&S certification, may want to utilise this number of 53% as a reference pointer.

The following sections address the details of the following individual categories for the LEED C&S certification, namely Materials and Resources, Indoor Environmental Quality, and Innovation & Design Process. (Sustainable Sites, Water Efficiency and Energy & Atmosphere were covered in Part 1 of this article.)

Materials and Resources

This category is the easiest to tackle due to the following reasons:

(a) For projects undergoing LEED certification for the purpose of enhancing financial performance, this category may not be considered strictly important or relevant. In fact, fulfilling the requirements of some of the credits like certified wood and recycled content, may require additional financial outlay, as neither are largely available locally and, thus, require to be imported.

(b) Credits for Building Re-use cannot be achieved for projects that are not renovation projects.

(c) While Construction Waste Management credits may be technically achievable, adoption of these do require extensive administrative work without financial returns for the project. Consequently, this credit becomes de-prioritised and disappears from the radar altogether as the project progresses. However, if a developer were to consider the project’s obligations to the environment and society at large, this segment ought to be prioritised.

(d) Finally, as it is evident from Figure 6, all four projects have consistently scored on the pre-requisites and two credits of Regional Materials only. These are essentially achieved almost by default as construction materials like glass and concrete are largely procured locally from within the UAE. No extra effort, time or money is required to achieve these credits for projects in the UAE.

Indoor Environmental Quality

Contrary to popular perception, IEQ is not only Indoor Air Quality, but also refers to access to daylight and views, occupant’s ability to control the immediate environment (light and temperature), the avoidance of chemical pollutants prevailing or originating indoors and, above all, no tobacco smoke inside buildings.

This category showcases some of the advantages of current market practices, some of which although detrimental in many ways, could well work to the advantage of some of the requirements of this category.

(a) Typical over-design of HVAC systems in this region results in meeting the 30% extra fresh air criteria quite easily. So, while over-designing is bad for initial costs as well as ongoing energy costs, this actually helps meet the criteria of extra fresh air, which has a positive impact on productivity of the occupants. A project may wish to choose lower capital expenditure and lower ongoing energy costs over providing extra fresh air and vice versa. All four projects under analysis have met this criteria indicating occupant productivity and health are important objectives;

(b) Fascination with glazed buildings has a similar impact to above, meaning if the glass U-values are not chosen appropriately, the energy costs may escalate, but substantial portions of indoor spaces will receive daylight and will have access to external views. Dubai International Academic City Phase 3 is the only project of the four that did not qualify for either daylight or views, as it lacks significant amount of glazing;

(c) An IAQ management plan is usually implemented during construction as an industry practice, thereby ensuring that all four projects secured points for this credit;

(d) The remaining credits are a matter of choice and were generally focused on once the four projects were in line with achieving the minimum targeted Silver level of certification through energy and water efficiency, which are the primary objectives;

(e) A point to note here would be that the easiest way to achieve the pre-requisite of Environmental Tobacco Smoke control would be to prohibit smoking indoor altogether as a company policy. Several organisations have already implemented this over the past decade and, thus, they all qualify for this pre-requisite by default;

(f) Figure 7 captures the fact that generally most projects would perform well in this category in this region.

8. Innovation and design process

This is, perhaps, the most understated yet most important section of the LEED certification framework, purely because of the fact that this section provides the opportunity to:

  • showcase innovative ideas not addressed by LEED
  • focus on and secure more credits for achievements that are, perhaps, more relevant to the project or region in reference
  • be recognised for performance and achievement that goes above and beyond that expected by the LEED framework.

Since this section is listed at the very end of the LEED framework, the LEED scorecard and the LEED reference package, it is not always given the due importance. From a “strike rate” point of view, this section is by far the most lucrative, at par with the section on Water Efficiency at the minimum, if not better. Meaning, more often than not, a project will secure five out of all five credits under this section. In many instances, this could help the project shift from a lower to a higher level of certification – viz. Certified to Silver or Silver to Gold or even Gold to Platinum (although the latter could be challenging, both technically and financially).

Figure 8 demonstrates that of the four LEED C&S projects, on two projects a full score was secured and in the other two projects, four out of five credits were achieved quite easily. Thus, on an average, these four projects achieved a success rate of 90% in this category. A standard credit that mostly all projects secure is the association of a LEED Accredited Professional (LEED AP) with the project. In a strict sense, a LEED AP is not a mandatory requirement, although his or her presence would help streamline the certification process by making it integrated.

Some of the other credits usually secured within this category are ‘Using facility for education on green building’ and enhanced performance in several credits like Water Efficiency or Materials & Resources.

Financial Analysis of the four LEED projects

Financial analysis is at the heart of the sustainable development work that we have been doing for the past several years. Primarily because “sustainable development makes business sense” is the philosophy driving our sustainability projects. Also, it needs to be borne in mind that for sustainable development initiatives to be “sustainable in the long run”, it must first have commercial benefits, especially in the corporate sector. This very philosophy helped intensify some of our work during both economic boom and bust cycles. Thus, for all our projects, we do ensure that a financial due diligence is carried out, before and after such projects are executed.

If a LEED-certified project would not result in financial gain for the developer, it would be extremely challenging for the concept to gain traction, anywhere in the world. However, building green can also be driven by individual or corporate social responsibilities, and this is a fine driver, too. Unfortunately, this driver may not result in mass adoption of green buildings, which is the need of the hour, considering the urgency of the climate change challenge. Therefore, the financial driver will, almost invariably, have to take precedence over other drivers.

Over the past few years, there has been general consensus that a green building will save money, but in the long run and over the lifecycle of a project. For this very reason, one would find sustainability proponents repeatedly focusing on lifecycle cost analysis. This is a fair and reasonable approach, too. And must be applied to all financial decisions, not only to green buildings. The drawback to this approach, however, is that, almost always, a lifecycle cost analysis is used to justify higher capital expenditures. This, in turn, reinforces the notion that building green costs more at the outset. Many would agree that it would be financially beneficial to build green; however, it would not be possible to embark on that journey because capex budgets allocated are inviolate. Although such people would happily approve cost escalations for better-looking light fixtures or marble facades. This has become a severe stumbling block, an uphill challenge, against which the green building industry is struggling to take off, in many parts of the world.

Given this backdrop, we need to carry out the financial assessment of green buildings and, more specifically, LEED-certified buildings from the following perspectives:

(1) Who incurs the cost and who reaps the financial benefits?

This is a tricky one and is generally missed. The one critical element in the financial analysis of a LEED-certified project would be to ascertain who bears the additional costs and who reaps the benefits of the financial gains. Since we are using office buildings in our case studies, we will limit this treatise to only commercial complexes. When the building developer is a commercial enterprise and constructs the building to occupy it with its own employees, the LEED for New Construction rating mechanism is applied. These projects are financially straightforward, as both the additional capital expenditure (if any) and the financial benefits belong to the building owner. In the case of real estate developers, where projects are constructed for the purposes of either selling or leasing to multifarious tenants, the applicable rating mechanism is LEED for Core and Shell (C&S). In such cases, the cost-benefit analysis has to address multiple scenarios: (1a) whether the tenants will be directly billed, as per actual consumption, for electricity, water and chilled water (in case of district cooling) or (1b) whether all utility costs will be included in the lease rates by the landlord.

(1a) in cases where the tenants are asked to pay for utility bills directly, any efficiencies in energy and water design as per LEED, will end up benefitting the occupants and not the developer. In such a scenario, the developer is then not positively inclined to pursue building green, especially if the perception already exists that it is going to cost more. However, if the cost recovery model could incorporate premium lease/ sale rates for spaces inside a green building, the developer, perhaps, would be somewhat inclined towards building green. This is already happening in mature markets where green buildings have gained some momentum. However, the Middle East is yet to reach this phase of market maturity. Moreover, during a financial downturn, where developers might be struggling to lease or sell spaces, commanding premium rates may be impractical. Consequently, for core and shell type of developments, going for a LEED certification may be financially challenging in situations where the utility bills are passed on to the tenants.

(1b) if the above were to be the norm, then how will green buildings get a toehold? The real estate industry, particularly for commercial office spaces, has worked very differently to the above scenario, in this part of the world – at least, till the concept of freehold commercial spaces arrived. Generally, a typical developer would not install meters for individual offices, nor would an office building be designed with modular offices (most are open plan offices). As a result, a majority of office buildings would have centralised meter/meters for electricity and water. With centralised chillers, the HVAC equipment are anyway supplied from landlord meters. In such scenarios, which appear to be the general norm here, the utility costs are estimated and included as part of the annual lease rates. While one might argue that even in this scenario the utility costs are being passed on, in reality, after the utility costs have been set out in the lease agreements, any reduction in these costs via efficiency regimes would belong to the landlord. In the eventuality of utility savings, the landlord may retain the benefits or may very well choose to pass on the benefits to the tenants by reducing the utility component in the lease rates. Thus, both the cost of building green and the financial benefits of all efficient utility regime would belong to the developer. This is where the market penetration and uptake of green buildings would potentially accelerate.

(2) How much more does it really cost to develop a LEED-certified green building?

Subsequent to the previous section, once it is established that the cost and benefit of developing a green building benefits the same stakeholder, let’s investigate how much more it really costs to develop a LEED-certified green building. The very premise of this treatise is based on factual numbers from four LEED C&S projects in Dubai. Figure 9 shows evidence of the extra expenditure that these projects have had to incur to secure the LEED C&S certification, in comparison to the capital expenditure of these projects.

For these four projects, the average capital expenditure of AED 555.95 per square foot of Built-up Area (BUA) was very slightly impacted by the marginal extra cost for the LEED certification of only AED 0.44 per square foot of BUA. This is an average cost escalation of only 0.08% over the capital expenditure of design and construction of these buildings. It may not be worthwhile to elicit a trend or co-relation between green premium and capital expenditure from these numbers, because all the four buildings are very different from one another in design, construction and quality. Also, only OMD Building at Dubai Media City has its own chillers, while the remaining three projects are supported by district cooling, making financial benchmarking complicated, indeed.

Figure 10 attempts to find a co-relation between the green premium and the BUA, if any.

Bearing in mind the general challenge of trying to find trends using only four data points, it is obvious from Figure 10 that there does not appear to be any co-relation between BUA and green premium. Except in the case of OMD Building at Dubai Media City, where the green premium is exactly double that of the average of the four projects. This could, perhaps, be attributed to the fact that given the very low denominator or BUA of this project, the green premium in terms of AED per square foot appears higher. It must also be noted that the green premiums on these four projects have largely been caused by fees incurred for energy modelling and administrative costs for certification. Since there has been no major additional feature implemented in these four projects to make them LEED compliant, the BUA does not appear to have any meaningful impact on the green premium.

In absolute terms, this green premium of AED 0.44 per square foot of BUA translates into AED 542,128/- additional expenditure incurred to make these four projects, with a total BUA of 1,813,365 square foot, LEED-C&S certified.

(3) How much is a LEED-certified green building expected to save?

So far, we have addressed two critical issues – one, who bears the additional cost of going green and who enjoys the financial returns, and two, how much more does it actually cost for projects to be LEED C&S certified in this part of the world, based on the four LEED-certified projects under analysis. It is important that green building proponents clearly ascertain the owners of additional cost and beneficiary of financial returns in order to corroborate whether a particular project in reference would be a viable LEED project or not.

We have also reviewed through actual numbers from the four LEED C&S projects on how much it really costs more to develop a LEED-certified project, and arrived at a figure of 0.08% escalation in capital expenditure. Does this imply that all LEED projects in Dubai would cost 0.08% more?

Let us now gauge the financial benefits likely to accrue by investing this extra AED 542,128/- on these four LEED C&S projects. Figure 11 showcases the easily measurable cost saving areas, namely energy and water cost savings that these four projects are likely to accrue in AED per square foot per year, compared to the additional capital expenditure of AED per square foot. The key point to be noted here is that while the additional capex is a one-time expenditure, the energy and water savings are recurring for the lifetime of the project.

Since some of these four projects are dependent on sewage tanker services due to non-availability of connection to Dubai Municipality’s sewage network and if on-site sewage treatment plants were not constructed, the potential savings through avoiding sewage tankers are also included in the saving calculations. One of these four projects also implemented out of the ordinary soil additive in order to reduce irrigation water requirement. This saving has also been accounted for in the above chart.

In summary, the Figure 11 financial analysis is based on the following:

a. Additional capital expenditure incurred to have these four projects LEED C&S certified;

b. Calculated recurring future cost savings through:

i. Energy efficiency

ii. Water efficiency

iii. Sewage tanker elimination

iv. Irrigation water optimisation

(c) Payback period

All numbers in (a) and (b) above have been captured in AED per square foot of BUA. While this may not be strictly appropriate for savings, like sewage tanker, irrigation water optimisation or even domestic water savings (this is largely dependent on number of people rather than square foot of BUA), this approach has been adopted for a simplistic analysis. Another challenge in the above analysis is the fact that it assumes that the additional capital expenditure is linked to the generation of future savings. In fact, for most of these four projects and as stated earlier, a significant proportion of this capital expenditure has been incurred for the LEED certification itself, viz. energy modelling fee to consultant and certification fee to USGBC. Only in the case of Dubai International Academic City Phase 3 some investment was made for the soil additive. Thus, the additional capital expenditure is not necessarily what is causing the savings, which in turn, leads to the issue that the payback period calculated do not co-relate, actual investment to savings. Again, for a simplistic analysis, this approach has been adopted.

In conclusion, if one were to argue the case of recovery of additional costs incurred to make these four projects LEED-certified, the average payback period is only 0.25 years or three months! This number may not be usable for estimation purposes for future projects, but it is a realistic number emerging out of four LEED C&S-certified projects in Dubai.

Summary assessment

At the outset, it is important to remember that summary performance of only four LEED-certified projects do not by any means construe a comprehensive benchmark that can help definitively state what works and what does not. However, given that these four LEED-certified projects are among the first 13 in the region, and given the fact that these were developed with the prime objective of commercial benefit, it would be safe to conclude that the LEED features of these projects could be replicated commercially and without significant technological hurdles. Suffice to say that these projects can be easily replicated by others opting to pursue a LEED certification in this region. Therefore, given this perspective, these four LEED-certified projects become the flag bearer of contextualising LEED certification to this region, which unarguably, was one of the biggest roadblocks to the early adoption of LEED here.

The graphic in Figure 12 essentially summarises the theoretical or design contribution of each category to the overall LEED C&S certification in comparison to how each of these categories have actually performed for the four LEED-certified projects. The black bubbles represent the proportion of each category in the designed LEED C&S framework. The red bubbles represent how much each category has contributed to the actual overall LEED C&S points achieved. For example, Sustainable Sites comprise 25% of the LEED credits as per the designed framework. In reality, Sustainable Sites category contributed 26% to the successful credits/ pre-requisites achieved.

Within the same category, if the red bubble on the chart is at a higher location than the black bubble, it implies that this particular category is easily implementable. Similarly, if the red bubble is at a lower position compared to the black bubble, it can be inferred that the particular category would face significant technical and/ or financial challenges to implement on a project. The bigger the gap, the more difficult or easy would be the actual application compared to the designed framework.

(a) Sustainable Sites: given that the difference between the designed proportion and the actual contribution is only one percentage point, it is fairly obvious that this category is as easily adoptable as it has been designed. Thus for the four LEED C&S projects in the region, Sustainable Sites contributed 26% of the overall achievement.

(b) Water Efficiency: Water Efficiency category is designed to contribute only eight per cent to the overall credit requirements for a LEED C&S certification. On a side note, this has been regarded as too little for this region. Interestingly, in reality, this section contributed 15% to the overall achieved credits for the four LEED certified projects. This was possible due to a couple of reasons. One, since TECOM is LEED certifying its buildings because “sustainable development makes business sense” – water efficiency reduces water costs and thus is always prioritised from a commercial standpoint. Two, Water Efficiency credits are easiest to achieve through simple adoption of appropriate flow rates and a bit of smart innovation.

(c) Energy and Atmosphere: This category is again a bit like Sustainable Sites, the actual contribution of this category is almost similar to how it has been designed as per the framework. Designed to contribute 23%, this category has contributed 21% to the four LEED-certified projects.

(d) Materials & Resources: This section is the proverbial Achilles’ heel. Almost always, this section will not be pursued aggressively if a project is undergoing LEED certification for commercial reasons. The credits in this section are not only challenging in this region, but also difficult to pursue even in the USA where LEED was developed. For example, the first three credits call for building re-use, which means that unless a project is a renovation project, these three credits are impossible to secure. However, this category can be considered significant if a CSR component can be integrated with the LEED certification exercise. Therefore, it did not come as any surprise to us that although this category is designed to comprise 18% of the overall LEED credits, in these four projects the Materials and Resources section contributed to only six per cent of the credits successfully achieved. Of course, this is the flexibility of the LEED certification system – it gives one the opportunity to do well in the overall certification mechanism even if the project’s performance in one or more categories are not satisfactory.

(e) Indoor Environmental Quality: The designed and actual credits achieved in this category are almost identical at 18% each. This is largely because buildings are designed as per ASHRAE standards for thermal comfort, which also happen to be the requirement for this category. Besides the fact that buildings in Dubai aggressively pursue glazing for significantly large percentage of the façade, it helps gain those credits of Daylighting and Views.

(f) Innovation & Design Process: two of the four LEED projects scored five out of five in this category and the other two projects scored four out of five. This clearly shows the importance of this category in shoring up the overall LEED performance of a project and sometimes can be the difference between one level and the next. Once a project engages a LEED AP to guide the certification process, one point by default is obtained. If nothing else, this is the minimum advantage of having a LEED AP on the project team! Another credit that has been consistently achieved on these four projects is due to exceptional performance in Water Efficiency category, above and beyond that dictated by the framework requirements – either in the form of innovative waste water re-use or potable water use reduction. Thus, in Figure 12, it would be noted that this particular category contributed 14% to the overall LEED certification, while it is designed to contribute only eight per cent to the overall framework.

In conclusion, it must be argued that a certification framework, whether LEED or any other, is just that – a framework. These frameworks specify the end results that individual projects must achieve, rather than enforce specific design methodologies. Thus, it is invariably up to projects to decide what feature is relevant and important to pursue and what to leave out. The objective cannot and should not be to look for a LEED Platinum on all projects. Even a Silver level ought to be perfectly fine, so long as a project is able to prioritise the important features and work hard to achieve these. And, finally, established certification frameworks work just fine in most parts of the world, as can be demonstrated by the fact that majority of LEED-certified projects in the UAE are either Gold level or higher.

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