INTRODUCTION:

The tremendous growth in economic activity across the globe is placing pressure on natural and environmental resources. The construction industry in India is growing rapidly at a rate of 10% compared with the world average of 5.2%. It is observed that buildings in India consume about 20% of the total electricity in the country. Hence, real estate activity in India has a significant impact on the environment and resources. This indicates that there is a real opportunity to develop green buildings in the country.

However, developers face a major challenge in the development of green buildings as in some cases this increases construction costs. Developers find it difficult to opt for green buildings due to price constraints difficulty in sourcing green building materials, technologies and service providers or facilitators in India. This paper attempts to understand and find solutions to these problems. It investigates the cost efficiency of green buildings through Lowest life-cycle cost (LCC) which is the most straightforward and easy-to-interpret measure of economic evaluation. Some other commonly used measures are Net Savings (or Net Benefits), Savings-to-Investment Ratio (or Savings Benefit-to-Cost Ratio), Internal Rate of Return, and Payback Period.

Financial Benefits

1. Green buildings reduce capital costs

2. High performance buildings reduce operating and maintenance costs

3. Sustainable buildings result in lower risks and liabilities

There is evidence that building green is getting less expensive day by day because of more and more work is underway on developing better green technology and cheap green material in developing countries. People are also becoming more and more aware and getting experience in constructing the green facilities. Some findings of financial benefits of green building tabulated below¹;

Table 1: Financial benefits of green buildings (per sq. ft.)

Category	20 yr. NPV(in US$)
Energy value	5.79
Emission value	1.19
Water value	0.51
Waste value	0.03
Commissioning O&M value	8.47
Productivity and health value (Certified & Silver)	36.89
Productivity and health value (Gold & Platinum)	55.33
Less green cost premium	(4.00)
Total 20 yr. NPV (Certified & Silver)	48.87
Total 20 yr. NPV (Gold & Platinum)	67.31

Recent studies indicate that the economic benefits have been substantiated; more and more the focus is on demonstrating the financial benefits of these products and practices as well as highlighting the environmental benefits.

Stages and Cost Components for LCCA:

Costs:

There are numerous costs associated with acquiring, operating, maintaining, and disposing of a building or building system. Building-related costs usually fall into the following categories:

a) Initial Costs—Purchase, Acquisition, Construction Costs

b) Fuel Costs

c) Operation, Maintenance, and Repair Costs

d) Replacement Costs

e) Residual Values—Resale or Salvage Values or Disposal Costs

f) Finance Charges—Loan Interest Payments

g) Non-Monetary Benefits or Costs

Parameters for Present-Value Analysis:

1. Discount Rate: In order to be able to add and compare cash flows that are incurred at different times during the life cycle of a project, they have to be made time-equivalent. LCC method converts them to present value by discounting them to a common point in time, usually the base date. The interest rate used for discounting is a rate that reflects an investor's opportunity cost of money over time, meaning that an investor wants to achieve a return at least as high as that of her next best investment. Hence, the discount rate represents the investor's minimum acceptable rate of return.

2. Cost Period(s): Length of study period: The study period begins with the base date, the date to which all cash flows are discounted. The study period includes any planning/construction/implementation period and the service or occupancy period. The study period has to be the same for all alternatives considered.

3. Service period: The service period begins when the completed building is occupied or when a system is taken into service. This is the period over which operational costs and benefits are evaluated.

4. Contract period: It starts when the project is formally accepted, energy savings begin to accrue, and contract payments begin to be due. The contract period generally ends when the loan is paid off.

5. Discounting Convention: In OMB and FEMP studies, all annually recurring cash flows (e.g., operational costs) are discounted from the end of the year in which they are incurred; in MILCON studies they are discounted from the middle of the year. All single amounts (e.g., replacement costs, residual values) are discounted from their dates of occurrence.

6. Treatment of Inflation: An LCCA can be performed in constant dollars or current dollars. Constant-dollar analyses exclude the rate of general inflation, and current-dollar analyses include the rate of general inflation in all dollar amounts, discount rates, and price escalation rates. Both types of calculation result in identical present-value life-cycle costs. The constant-dollar method has the advantage of not requiring an estimate of the rate of inflation for the years in the study period. Alternative financing studies are usually performed in current dollars if the analyst wants to compare contract payments with actual operational or energy cost savings from year to year.

Life-Cycle Cost Calculation:

After identifying all costs by year and amount and discounting them to present value, they are added to arrive at total life-cycle costs for each alternative²:

LCC = I + Repl - Res + E + W + OM&R + O

Where

LCC = Total LCC in present-value (PV) dollars of a given alternative

I = PV investment costs (if incurred at base date, they need not be discounted)

Repl = PV capital replacement costs

Res = PV residual value (resale value, salvage value) less disposal costs

E = PV of energy costs

W = PV of water costs

OM&R = PV of non-fuel operating, maintenance and repair costs

O = PV of other costs (e.g., contract costs for ESPCs or UESCs)

E. Supplementary Measures

Supplementary Measures:

All supplementary measures are relative measures, i.e., they are computed for an alternative relative to a base case.

NS = Net Savings: operational savings less difference in capital investment costs

SIR = Savings-to-Investment Ratio: ratio of operational savings to difference in capital investment costs

AIRR = Adjusted Internal Rate of Return: annual yield from an alternative over the study period, taking into account reinvestment of interim returns at the discount rate

SPB = Simple Payback: time required for the cumulative savings from an alternative to recover its initial investment cost and other accrued costs, without taking into account the time value of money

DPB = Discounted Payback: time required for the cumulative savings from an alternative to recover its initial investment cost and other accrued costs, taking into account the time value of money

Evaluation Criteria:

Followings are the evaluation criteria to make decision about whether Green Building is a viable option or not.

Lowest LCC (for determining cost-effectiveness)

NS > 0 (for determining cost-effectiveness)

SIR > 1 (for ranking projects)

AIRR > discount rate (for ranking projects)

SPB, DPB < than study period (for screening projects)

Sensitivity Analysis:

Sensitivity analysis is the technique recommended for energy and water conservation projects by FEMP. Sensitivity analysis is useful for:

1. Identifying which of a number of uncertain input values has the greatest impact on a specific measure of economic evaluation,

2. Determining how variability in the input value affects the range of a measure of economic evaluation, and

3. Testing different scenarios to answer "what if" questions.

4. Break-Even Analysis

Decision-makers sometimes want to know the maximum cost of an input that will allow the project to still break even, or conversely, what minimum benefit a project can produce and still cover the cost of the investment.

A Case Study Analysis- Godrej & Boyce, Mumbai:

Life Cycle Cost Analysis Example:

This deals with the actual computation of cost and benefit associated with various credits of IGBC Green Homes rating system. A hypothetical residential multi dwelling project is taken to perform cost benefit analysis. This project is assumed to aim for gold rating level. 20 years of period has been considered for cost and benefit analysis.

Benefit Calculations³:

Occupants will get something and even when there will be installed win technologies, once they occupy the building. This annual benefit gets infected by 5 % in the end of 20th year.

Present Value (PV):

PV is calculated by discounting the future cash flows. Following equation is used for calculation of PV.

PV= {Cn/ (I+R) n} =1042.39 Lacs

Where,

n=year number (i.e. 1, 2, 3 …20)

Cn= net cash flow at the end of year n (in our case it is annual benefit), R = Discount rate (in our case R= 12%)

Net Present Value (NPV):

NPV is calculated as follows,

· NPV= PV-Initial Cost=1042.39-205=837.38

· Hence NPV of entire project is Rs.837.38 Lacs.

· Total Built up area of project=3, 55,072 sq.ft.

· Hence NPV per sq.ft. = RS. 235.88

Sensitivity Analysis

Table 2: Sensitivity Analysis

	Values Of Variables
	Most pessimistic	Normal	Most optimistic
Initial cost
Change in percentage	10%	0%	-10%
Initial cost (in lacs)	225.50	205	184.50
Net NPV (in lacs)	816.88	837.38	857.88
NPV per Sq. Ft (in Rs)	230.11	235.88	241.66
Operating cost
Change in percentage	10%	0%	-10%
Operating cost (in lacs)	11.24	10.21	9.19
Net NPV (in lacs)	941.62	837.38	836.46
NPV per Sq. Ft(in Rs)	265.25	235.88	235.62
Benefits
Change in percentage	-10%	0%	+10%
Benefits (in lacs)	121.95	110.87	99.781
Net NPV (in lacs)	825.19	837.38	849.58
NPV per Sq. Ft(in Rs)	232.45	235.88	239.32

Scenario Analysis

Table 3: Scenario Analysis

Scenario	Initial Cost	Operating Cost	Benefits	NPV (in Lacs)	NPV/sq.ft (in Rs.)
1	12%	15%	-10%	682.10	192.14
2	10%	10%	-7%	715.63	201.59
3	7%	5%	-5%	760.33	214.18
4	3%	2%	0	829.12	233.55
5	-2%	-3%	3%	879.10	247.63
6	-5%	-5%	8%	944.77	266.13

Distribution of Benefits

Table 4: Outcomes of cost & benefit of the project

	Total in	Costs/sq.ft
Additional cost for green building	205	57.75
Gross benefits from green building(Total PV)	1042.39	293.63
Net benefits (NPV)=Total PV- Additional cost	837.38	235.88

Developer’s Benefits

Table 5 shows that developer can earn additional profit of rupees 316. 19 lakhs by providing green technologies or by constructing a green building.

Table 5: Developers Benefit

	Rs. In Lacs
Share of benefit from green features	521.19
Initial cost incurred by developer	205
Additional profit=shared benefit-initial cost	316.19

Customer’s Benefit⁴

Benefit for customers can be a reduction in per sq.ft price. Besides this, customer will be getting reduced operating cost.

Customers benefit per sq.ft. = Total shared benefit * Total built up area

= Rs 146.81

Table 6: shows that customer gets benefits of Rs. 146.81 per sq.ft. In the price.

Table 6: Customer Benefits

	Rs/sq.ft.
Cost to customer	5000
Benefits	146.81
Net Cost	4853.19

Case Studies and Various Findings for Green Buildings in India

LCCA of Green Buildings in India and Various Findings⁵

Table 7: Performance of Green Building in India

Name of the Project	Location	Built-up-area (Sq. ft.)	Rating achieved	Increase in cost (%)	Payback period (years)
CII-Sorabji Godrej GBC	Hyderabad	20,000	Platinum	18	7
ITC Green Centre	Gurgaon	170,000	Platinum	15	6
Wipro	Gurgaon	175,000	Platinum	8	5
Technopolis	Kolkata	72,000	Gold	6	3
Spectral services consultants office	Noida	15,000	Platinum	8	4
HITAM	Hyderabad	78,000	Silver	2	3
Grundfos Pump	Chennai	40,000	Gold	6	3

Source: CII

Table 8: Cost Premiums on Green Materials, Equipment and Techniques

Green materials, equipment and techniques	Cost premiums Unit	Cost Premium Value
High-quality steel with recycled metal content	INR per tonne	5,000
Fly ash content in cement	%	22
Aerated blocks for solid masonry	INR psf	37.16
Double-glazed glass	INR psf	10
Ultra-low plumbing fixtures	%	3
Strom water management system	INR million	30
Special chillers COP-6.5	%	15
Low side HVAC	%	10
Rooftop garden	INR psf	250
Energy modelling consultant	INR million	1.2

Source: India bull Real-estate Ltd, Jones Lang LaSalle, Meghraj Project Management and Research

Table 9 depicts the Revenue outflows due to incorporation of green features.

Table 9: Revenue outflows

Cost Savings	Units	Value
Electricity cost savings	%	25
Water cost savings	%	30
Revenue generation
Rental premium (non-sustainability discount)	%	1-2
Carbon credits in ten years	INR million	90

Source: India bull Real-estate Ltd, Jones Lang LaSalle, Meghraj Project Management and Research

Graph 1: Comparison of initial investment cost (per Sqm.) Green Vs. conventional Building

Table 10: Calculating % increment in cost due to Green features

Typology	Location	Climate	AC/Non AC	Year	Increment in total civil works cost (in %)
Institute of liver & Biliary Sciences
Hospital	Delhi	Composite	AC	2004	1.2
Dental college at Jamia Millia Islamia
College	Delhi	Composite	AC	2007	2.1
Kendriya Vidyalaya
School	Delhi	Composite	Non AC	2008	3.9
Residential quarters
Residential	Ahmedabad	Hot & Dry	Non AC	2005	2.3
Super Speciality Hospital
Hospital	Jammu	Composite	AC	2007	5.9
IISER Hostel
Hostel	Pune	Moderate	Non AC	2007	5.8
Census Office
Office	Gandhinagar	Hot & Dry	Non AC	2005	4.3
Centre for Distance education bldg., Nagarjuna University
College/office	Vijayawada	Warm & Humid	Non AC	2006	7.0
Residential Quarters
Residential	Bikaner	Hot & Dry	Non AC	2006	6.6
NSSO Office
Office	Lucknow	Composite	Non AC	2005	5.5
RTI & Hostel Bldg. for CAG
Hostel/Training Institute	Mumbai	Warm & Humid	AC	2011	3.5

Increment was in the range of 1.2 to 7%, and an average of 4.4%

Life Cycle Energy Analysis of Multifamily Residential House: A Case Study⁶

Table 11: Life cycle energy comparison

Case	Features	Embodied	Operating	Life cycle	Life cycle savings (%)
Base case (AS Built)	Envelope: burnt clay brick masonry roof RCC	8.07	66.85	75.07
Case A	Envelope: aerated concrete block masonry	7.04	60.58	67.76	9.7
Case B	Envelope: aerated concrete block masonry(PV panels)	9.68	37.3	47	37.4

Case Studies and Various Findings for Green Buildings Other Than India

Table 12: Basic economic information for life cycle analysis of GOP option

Province/territory	General inflation rate	Discount rate (excluding inflation)	Economic life (years)	Environmental multiplier	Water cost ($/1000 cum.)		escalation rate (excluding inflation)
Canada	3.0%	6.0%	30	1.0		1031	5.15%

Total life cycle cost (TLCC) = CCI + PCF*(OCI + MCI)

Where

TLCC = total life cycle cost

CCI = capital cost increment

PCF = present cost factor

OCI = operating cost increment

MCI = maintenance cost increment

Table 13: Total life cycle cost parameter analysis

General inflation rate	Discount rate	Water cost escalation rate	Effective interest rate	Project life	Present cost factor
3%	6%	5.15%	0.93%	30	26.09

Table 14 shows Total life cycle cost evaluation of the office building tabulated below.

Table 14: Total life cycle cost evaluation

Base case capital cost	Alternative capital cost	CCI	OCI	MCI	TLCC
$300	$300	0	$10	0	$261
$300	$400	$100	0	0	$100

CASE STUDY: COLORADO COURT

Percentage of Net cost increased due to incorporation of green feature are listed in table 15 as follows:

Table 15: Net cost of Greening

	Cost ($)	Cost/Sq. ft.($)	% of total dev. Costs
Green design	4,700,000	157.41
Traditional design	4,085,778	142.98
Green design premium	614,222	3.75	13.07
Net cost of greening	614,222	3.75	13.07

Saving made by green features included in table 16.

Table 16: Green saving

Owner NPV by feature (before demand meter)	305,956
Owner NPV by category (before demand meter)	305,956
Owner NPV by feature (after demand meter)	227,513
Owner NPV by category (after demand meter)	227,513
Owner NPV by feature (assuming full buyback of energy)	88,780
Owner NPV by feature (assuming full buyback of energy)	88,780

Table 17 shows the operating cost of conventional building and what was the saving made in operating cost due to green features.

Table 17: Operating costs

Operating cost category	Green costs($)	Traditional costs($)	Annual saving($)
Electricity	5,762	8,448	2,686
Gas	412	981	569
Water	183	506	323
Total	6,357	9,935	3,578

Green saving made by the resident as well as the owner by both feature and category tabulated below.

Table 18: Green saving

Resident NPV by feature	88,921
Resident NPV by category	88,921
Owner NPV by feature	21,378
Owner NPV	21,378

Table 19: Case studies⁵

CASE STUDIES

Implementation

Impact on productivity

US POST OFFICE, RENO, NV

Energy efficient lighting and dropped ceiling

· Cost = $300,000

· Energy savings $22,400/year, payback 13 years

· Sorting errors dropped to 0.1%

· 8% increase in mail sorted per hour

· Annual productivity gains $400-500K

· Payback period < 1 year

HERMAN MILLER SQA BUILDING

295,000 sf. office & manufacturing centre

· Extensive daylighting

· Interior “street” with plants

· Passive heating & cooling

· $35,000+ annual energy savings

· Increase in worker effectiveness and productivity

EMERYVILLE, CA AFFORDABLE HOUSING DEVELOPMENT

Material efficiency

· Framing at 24” instead of 16”

· Significant saving on volume of wood used

· 50,000 sq. ft. school

· Costs of carpet vs. durable floor compared

· Includes installation, maintenance & replacement costs

· Over 40 years, durable flooring saves $5.4 million

Scope of the Problem

· 136 million tons of building-related C&D debris (1996)

· 43% from residential sources, 57% non-residential

· Demolition = 48%, renovation = 44%, construction = 8%

· 20 - 30% recovered for processing & recycling

· Most often recycled: concrete, asphalt, metals, wood.

“Deconstruction” → highest diversion rates (76%)

SCHOOLS

Energy cost got reduced due to incorporation of green measures

· Spend more than $6 billion annually on energy

· DOE estimates possible 25% savings through:

o Energy efficiency

o Renewable energy technologies

o Improved building design

Daylight schools vs. non-daylight schools:

· 2%-64% energy cost reductions

· Payback for new daylight schools < 3 years

· Increase in student performance