Nope, that’s not a typo in the title. Negawatt is a term you should get to know. You’ll probably hear it, and maybe even use it yourself, in the near future.

So, what is a negawatt?
\né-gə-wät\ n: A measure of the avoided use or the conservation of a unit of energy.

Coined by author and scientist Amory Lovins, the term has been around for quite a long time. When energy efficiency measures are implemented in existing structures, energy consumption is reduced. This reduction can be measured in negawatts. Get it? negative watts.

So why is it important, you ask?

1) Negawatts = cost savings. When your assets consume less energy, you pay for less energy. Depending on how your leases are structured, energy-use reductions can greatly improve your property’s net operating income and building value. Moreover, in any existing asset, there are always energy efficiency measures that can be implemented at near zero cost. The savings in energy costs represents cash flow to your bottom line.

2) Negawatts hedge energy price and investment risks. Energy prices can be volatile. When your assets require fewer units of energy to operate, you reduce your exposure to energy price risk. If prices increase substantially, you have a competitive advantage in the marketplace, which should help minimize the negative impact on your NOI.

3) Negawatts can limit your climate legislation liability. From our perspective, a national carbon policy or cap and trade mechanism is now just a question of time. Several green finance and investment experts expect a national carbon policy by 2012.

While we can only speculate about the details of climate change legislation and how it will impact commercial real estate, we expect to see resource efficiency rewarded, and resource waste penalized. Energy efficiency measures that produce negawatts should limit existing asset liability under climate change legislation.

The negawatt is a great tool to use when promoting and discussing the importance of energy efficiency. It’s a tangible concept that will resonate with your audience, whether it be your employees, tenants or other financial stakeholders.

--Courtesy of Galley Eco Capital