Chicago Energy Transformation Code Sets Up Cleaner Future But Challenges Developers Today

The city of Chicago is taking a major step toward a more sustainable future by requiring new buildings to comply with clean energy measures outlined in the 2022 Chicago Energy Transformation Code, a move that is being applauded by sustainability leaders while generating some grumbling from the development community. 

Chicago became one of the first major U.S. cities to adopt and exceed the 2021 edition of the International Energy Conservation Code in September 2022, and it came with a long list of requirements for the development of new buildings. City building permits filed this year will need to comply with enhanced sustainability requirements, including wiring for all-electric appliances and ensuring all buildings up to six stories with available roof space be solar-panel-ready.

“The energy transformation is adding a new piece, an additional piece, getting ready for transitioning to a cleaner energy future ... really caring what those sources of energy are,” Grant Ullrich, managing deputy building commissioner for the city of Chicago, said at Bisnow’s Chicago 2023 Outlook event last month.

The move has required developers to rethink how they are designing their buildings to be in compliance with the code.

“To me, it's really great,” Ryan Spies, vice president of sustainability at Clayco, told Bisnow. “That doesn't mean it's without its challenges, as I've learned from our engineering folks that are in the weeds on it and our development folks that have to figure out, 'How does this change costs or change profiles of buildings?'

“In general, it's an updated energy code. Things are more stringent. There are higher standards to hit, but I don't think that they're out of the realm of possibility.”

The requirement for buildings to be all-electric-ready for appliances has led to extra costs for developers, who are installing both electric and gas hookups for the time being.

At Clayco’s developments, Spies said tenants often still want gas stoves rather than electric or induction stoves. For One Fulton Market, Clayco’s new multifamily development with commercial space, Clayco’s development firm, CRG, and its architect, Lamar Johnson Collaborative, are still deciding if they should go fully electric right away. 

“It's not something people are clamoring for, so we still want to put in gas stoves because that's what attracts tenants,” Spies said. “We also understand that the transition to electric does make a lot of sense for a number of reasons. But now it feels like there's almost like a double cost because we want to attract the clients with the gas stove, but we also have to put in the electric.”

That approach of both a gas and electric setup for HVAC and kitchen appliances does comply with the code and is what Draper and Kramer is generally doing for its developments too.

“What our consultants and lenders have been pushing us toward is to go to really a hybrid situation to prepare for an all-electric future, but at the moment, start day one with some primarily natural gas in the building, just simply to account for the fact that the technology doesn't seem to have caught up with the ideal of moving to all-electric,” Draper and Kramer Senior Vice President Gordon Ziegenhagen said.

“It's definitely more costly because you, in effect, have to build infrastructure for two different power sources, both electric and natural gas.”

Spies said supply chain issues have made all-electric appliances unrealistic for the time being and have driven up costs given the high demand.

“What we have found is that it's not feasible to move to all-electric day one, unless we were to make major changes to the building — dramatically reduce the window sizes, things of that nature that would really cause us to throw out the building design and start over,” Ziegenhagen said. “You're trying to stay within the rules and make the most cost-effective decisions that you can to bring a project to fruition.”

While Chicago is an early adopter of the International Energy Conservation Code, its requirements are less strict than some municipalities in California and Washington that have fully banned gas appliances in new buildings. 

“[Chicago] is certainly on the forefront, but they are not the very tip of the spear in my view.” Spies said. “That's a great place to be. It's aggressive. It's progressive, and it's challenging, but it's doable, and it's the direction that we have to go.”

Yet Chicago is still considered far ahead of most cities across the nation, which puts its developers at the top of the heap for federal incentives.

“We were the first in the nation to move towards the new model code,” Matthew Beaudet, commissioner of the Chicago Department of Buildings, said at the January Bisnow event held at 600 West Fulton. “Federal funding, federal rebates, federal incentives — Chicago's at the front of the line.”

There are also tax benefits for moving toward cleaner energy sources in homes, said Molly Phelan, a partner with Siegel Jennings’ Chicago office.

Phelan said the increase in value of properties made more sustainable wasn't taxable.

“If you move to a more sustainable HVAC system, that may be more expensive, [but] you're not going to get that extra cost or value put on your building,” she said. “You're not really exposing yourself for putting that extra investment into your property to pursue those sustainable changes.”

A.J. Patton, founder and CEO of climate-friendly development firm 548 Enterprise, is focusing on sustainability measures in his firm's developments on the city’s South and West sides. His firm is putting solar panels on 24 projects this year.

“We've got two big passive house projects,” he said, referring to ultra-low-energy buildings that require little energy for heating and cooling. “We're going to do a community solar project … 3 megawatts of clean energy that will power 500 homes on the West Side.”

Though the new code has presented some challenges in how developers approach their new projects, both Clayco and Draper and Kramer said they have prioritized sustainability in their projects for years. Both companies view Chicago's code as a step in the right direction despite the headaches.

“We very much embrace sustainability,” Ziegenhagen said. “We've lived with this as a mantra of ours as part of our development mission for well over a decade. Trying to marry the idealism with the technology has really been the challenge that we're facing.”