Build it Green: A Construction Megatrend

Skyrocketing energy costs and heightened awareness of sustainable - and healthy - living and work environments are together leading to growing demand for green, energy-efficient buildings. A further boost to this "megatrend" has been increased affordability of green building materials. It has been a venture-friendly trend for some time, reflected by the fact that Emerald Technology Ventures has at least four cleantech companies riding the green building wave: EnOcean with its wireless switches, SynapSense and its wireless mesh network sensors, Xunlight and its flexible solar modules, and Arxx with its energy-efficient building envelopes. Technologies from all four companies promote the efficient use of energy or the adoption of clean energy.

There are several systems in the market for rating green buildings. The two most prominent are LEED (Leadership in Energy and Environmental Design) and Energy Star. The LEED program was developed by the U.S. Green Building Council (USGBC), composed of more than 13,500 organizations from across the building industry that are dedicated to green building practices. LEED is enjoying international traction with other National Green Building Councils. Energy Star is an initiative of the U.S. Environmental Protection Agency.

LEED is rapidly becoming part of the de facto standard for Class A commercial space and has even evolved to include residential buildings. It is a point system that considers overall sustainability in six categories: site selection, water conservation, energy efficiency, sustainable material use, indoor environmental quality, and innovation in the design process. In addition to basic LEED certification, Silver, Gold and Platinum levels are assessed. Energy Star, on the other hand, is purely an energy efficiency measure. An Energy Star-rated home must be at least 15 per cent more energy efficient than a home built to the 2004 International Residential Code. It includes energy-saving features that typically create 20 to 30 per cent savings for homeowners.

There are three principle drivers for the green-building paradigm shift. First, a sharp increase in energy prices - e.g. a stunning 15-fold jump in the price of crude oil in less than 10 years - is pushing up the operating costs of homes and commercial space. Second, many municipalities in North America have declared themselves "green" and are mandating LEED-level building standards for new construction. And third, more builders are using green building practices to differentiate themselves and improve margins in a challenging and highly competitive market.

In the United States, despite a downturn in the overall construction market, green building practices are on the rise. It should be pointed out, however, that McGraw-Hill and the National Association of Home Builders draw a distinction between homes with green aspects (e.g. energy-efficient windows) and truly green homes that incorporate a number of elements, including efficient windows, insulation, Energy Star appliances, alternative energy and water conservation. They project the market for green homes will grow to $20 billion (U.S.) in 2010.

It's fully recognized that commercial buildings constructed under LEED standards command higher sale values. They also show stronger returns on investment, attract higher rents, and have better occupancy rates. There are also intangibles, such as the greater health and well-being of building occupants. These benefits are backed up by a recent report from the CoStar Group, which found that green buildings have higher occupancy, rents and sale prices compared to similar non-LEED or non-Energy Star properties. The study reported that LEED buildings command an average of more than $11 per square foot in monthly rent and Energy Star properties show at least a $2 premium. Buildings with either certification have average occupancy rates been 3 and 4 per cent higher than their peers. In sales, the average market premium is $171 per square foot for LEED buildings and $61 for Energy Star buildings.

It's clear that the green construction sector is ripe for investment. Not only are high energy costs creating a greater appetite for energy-efficient buildings, but the current building recession in North America is also providing two synergistic 'upsides' to the investment community: the players in the value chain have the time and desire to learn about new technologies, and valuations leave plenty of room for growth as green buildings weather the economic storm.

For an overview of our latest investment in this space, see Arxx elsewhere in this newsletter.

Neil Cameron is a Technology Specialist for Advanced Materials with Emerald.

Emerald Technology Ventures is pleased to announce the seventh annual European Energy Venture Fair (EEVF) will be held September 22nd to 23rd, 2008 at the Swiss Re Center for Global Dialogue in Zurich/ Rüschlikon. This "by invitation only" event is designed to strengthen relationships and facilitate discussions amongst the leading energy and cleantech investors in Europe. The conference also provides investors the opportunity to meet a select group of up-and-coming cleantech companies looking for financing. The 2007 conference was an enormous success attended by over 100 investors, representing 70 independent fund and corporate venture capital investors. For more information on EEVF 2008 please visit www.europeanenergyventurefair.com EEVF Initiating Partner