On May 9th 2018, the California Energy Commission announced that it had unanimously approved the plan to mandate solar panels on new homes and apartment buildings built after January 1st, 2020. This supports the State’s goal of increasing renewable resources to 50 percent of its electricity consumption by 2030, and to reduce its emissions to 80 percent below 1990 levels by 2050.
The announcement is a reminder of the important role policymakers play globally in driving the adoption of more sustainable energy system topologies – a recurring theme in the discussions at the GRESB / Siemens: Sustainable real assets conference. Some of the debates that followed also highlight the challenges real-estate portfolio managers the world over face to build the business case for decarbonisation. They reflect the expanding spectrum of considerations in relation to building sustainability for property owners and investors – in particular around climate-related resilience and adaptive capacity.
Decarbonisation – building the business case
Buildings are set to become the number one energy consumers by 2025, with up to 50% of the energy they use going to waste (1).
By imposing solar panels alongside energy efficiency measures, California’s plan highlights the need for effective real estate decarbonisation to address waste and emissions reduction at both energy generation and consumption points. (More here: Real Estate Decarbonization – a joint report by Property Funds World and Siemens).
Distributed Energy Systems (DES) are an important piece of low-carbon buildings, encompassing renewable energy-generation technology – such as photovoltaics – as well as storage and monitoring solutions. They make low-carbon energy sources into real alternatives to centralized fossil generation: with projected energy bill savings outweighing the additional costs to home owners 2 to 1, California’s business case for mandatory solar panels on new residential buildings seems straightforward.
For commercial or investment properties, however, the business case is more complex. For example, the split incentive has long been a barrier to accelerating the adoption of energy and emission saving technologies. While policy changes can help (Article 19 of the Directive 2012/27/EU on energy efficiency calls for Member States to take appropriate measures addressing this barrier), real estate asset owners now also have new options to overcome this challenge and justify investments. Data in buildings is plentiful, affording a level of transparency into real estate operations and economics never experienced before. These ever expanding building analytics and reporting capabilities enable stronger business cases and a larger quantity of viable DES opportunities that can benefit all stakeholders involved.
This in turn improves the ROI on DES for asset owners who are better positioned to recover CAPEX costs, and capture OPEX savings. A recent study conducted jointly by engineering consultants Arup and Siemens, entitled Distributed Energy Systems: Flexible and Efficient Power for the New Energy Era, showed operational cost reductions from DES ranging between 8% and 28% and a return on investment (ROI) between 3-7 years compared to a business as usual.
There’s more to the business case however. This same study also identified greater reliability as an important dimension of the business case for DES, alongside cost reduction and higher revenue through on-site generation and load management. (More about DES and the joint research in this article: Distributed Energy Systems: Pooling resources).
Decentralization – a key element of building resilience
Corporate and public real-estate asset ownership models are changing. Today, it is not uncommon to see end users move even critical parts of their operations into rented real estate space. This is driving demand for buildings to become more resilient, in particular against climate-related risks.
Severe weather is a leading cause of power outages globally, the economic costs of which averaged $18 to 33 billion per year in the US between 2003 and 2013 (2). While power supply in places like the EU, is characterised by a relatively high reliability, the increasing occurrence of extreme weather events is changing the risk profile of the region’s centralised energy infrastructure. DES provide one important answer to asset owners and end users aiming to bolster their adaptive capacity: local, decentralized and controllable energy generation and storage sources can be designed to provide resilience or even full independence from the grid.
But unless this technology is proactively managed, asset owners still risk failing in their ‘duty of care’ towards tenants. To do this real estate owners typically leverage modern technologies to get the most of out of their building’s performance data. Best practices include deploying smart, cloud-based analytics to inform portfolio-wide energy and building technology risk mitigation programs. The performance and risk profile of each building can then be factored in portfolio resilience models and scenario planning.
Digitalization – partnering for smarter building risk management
Energy management is becoming an increasingly complex task, especially when it comes to managing the electrical performance of buildings in a way that satisfies all building stakeholders. Digitalization offers opportunities today to understand building operations on a deeper, more real-time level. This is critical to improving OPEX efficiency and building resilience.
As buildings get smarter and more connected, they become easier to monitor and maintain remotely. This reduces the need for routine site visits and the recurrence of costly unplanned equipment maintenance or replacement. Furthermore, IoT- and AI-enabled innovations help translate the vast amounts of data they generate into predictive asset efficiency management strategies: they extend the life cycle of buildings and their infrastructure, and safeguard operational continuity. This in turn improves the market appeal and revenue generation capability of real estate assets.
A key challenge lies in the fast evolving Proptech and service landscape, which is increasingly hard to navigate without expert help. DES and technical asset efficiency optimisation are two examples where striking the right partnership is critical. The right partner will also bring expertise and experience in alternative delivery models that will enable DES and building efficiency programs without having to make a trade-off between reducing CAPEX spending and achieving greater resilience.
Those who do this right stand to win big: a case in point is the Sello shopping centre in Finland. Resilient buildings are also more sustainable – in the true sense of the word: economically, by providing more productive work environment; environmentally, through lower climate impact, and socially, by fostering health and wellbeing among their occupants.
(1): ‘Big data’ is solving the problem of $200 billion of wasted energy – Business Insider, Lauren Browning and Skye Gould, May 28, 2015.
(2): ECONOMIC BENEFITS OF INCREASING ELECTRIC GRID RESILIENCE TO WEATHER OUTAGES – Report by the Executive Office of the President, The White House, August 2013.