The case for clean energy: Incentives & opportunities for on-site renewables | The Pulse by GRESB

In this episode of The Pulse by GRESB, we explore the opportunities and incentives driving the adoption of on-site renewables in commercial real estate. Our speakers break down the financial and operational challenges of implementing solar, batteries, and EV charging across large property portfolios. We discuss Lumen Energy’s perspective on key market trends, the role of AI and policy in shaping renewable investments, and innovative solutions—like green lease amendments—that help landlords and tenants align on clean energy goals. Tune in to this insightful discussion featuring:

Can’t listen? Read the full transcript below. Please note that edits have been made for readability.

Reid: Hello and welcome to The Pulse, where we explore relevant topics in sustainability in the real estate world. Today, I am joined by Peter Light, CEO and co-founder of Lumen Energy, to engage in this discussion around renewable energy. Peter, great to have you.

Peter: Great to be here, Reid. Thanks for having me today.

Reid: Awesome. All right, well, let’s jump in with a little introduction. Tell us a little bit about your company, what you’re up to, and why you got this thing started.

Peter: So, Lumen Energy exists to enable commercial real estate owners to cut carbon and make money. And we’re helping building owners discover, across their large property portfolios, where they can make money from solar batteries and EV charging. And then we provide a clean energy marketplace to help building owners get the best value from a network of providers, and then fully contract, and then bill for clean energy when they’re ready to do that. So it’s an end to end platform to enable commercial real estate owners to get the outcome and the promise of clean energy where it makes the most financial sense for them.

Reid: Okay. This is great. So I’m really excited about this conversation because this concept seems almost like a no brainer, right? Like this is amazing. Let’s get free energy. Let’s get it on every building. But it’s not always as simple as that right away. So let’s set the stage first with kind of a generic high level question around trends in on-site renewables. So it’s 2025, or the beginning of 2025, now. Over the past 12 months or so, can you speak to some of the trends that you’ve seen: big trends in on-site renewables as of late?

Peter: Sure Reid. Seems simple enough, like buildings are getting showered with free energy forever from the sun. And yet, why is it so complicated to go from A to B? And it turns out that this process of figuring out among hundreds or thousands of buildings, with our customers today including companies like Nuveen or Greystar, the largest multifamily owner operator, AT&T with many thousands of buildings around the country. Any one person has this question, well, sounds like a good idea to use solar, but where does this actually make sense? And very quickly you get to this question: what are the economics? Like, how much new net operating income am I going to make at this building versus that building. And it’s just been a devilishly hard question to answer. And the reason is a couple things: One, buildings themselves are snowflakes, they vary in shape and sizes, use, and then and then you get into well, is it owner occupied, is it tenant occupied, that affects the metering configuration. Who pays the bills? And then you quickly get into things like, well, who’s the utility provider? There are about 3,000 electric utilities in the US. And then about 15,000 different utility tariffs. And if you’ve ever read a utility tariff, I hope you haven’t, but if you have, it’s like a healthcare bill. It’s very complex and painful but it determines exactly how much it costs to run that building. And that creates the baseline against which you say, putting solar or batteries or EV charging in my property, is that going to make me money or not? There’s also then a layer of policy complexity. There’s a federal tax component, tax credits. There are also local state incentives. And so to any one person, just burdening them with going to figure all this stuff out and being able to go confidently to their Chief Investment Officer or their CFO or their investment committee, it’s very intimidating.

And so I think what we learned at Lumen Energy was it’s really critical to be able to put all that information together in a very trusted, financially rigorous way that is in a full Excel model, but also can be simply summarized for a more general audience to say across my many buildings, which ones make sense? And then what exactly is a net operating income if I use this financing pathway, or if I want to invest my own capital, what’s the IRR? And I want to see all the numbers. So that’s really what we’ve set out to provide at Lumen Energy, which I think maybe comes back to your question around some of the trends we see. You know, I remember being at the GRESB forum last October in New York. And, you know, a lot of the key challenges that came up for people were, this theme of like transparent data at the asset level, and even just getting the data, I mean, like the address list, as simple as it sounds, can be tricky.

And then, you know, what are the utility expenditures? What’s the usage? Those have been historical challenges. What we’ve seen is while there are increasing centralization of those data sets within operators, the approach, at least, we have taken at Lumen, is to begin with industry leading forecasted data. So, we don’t require building owners to go get a bunch of information prior to getting value and working with us. In fact, we essentially can start on meeting one, and profile every building and give people a readout very quickly.

Some of the things that we do see happening is, you know, AI has been a huge topic all over the news, of course. And when you sort of see it from the computing side, it is creating this enormous demand for electric utilities to add more power generation and add more distribution capacity. These are the wires that go to your home and to your buildings. And so utilities now own and operate that equipment. They have to upgrade it to meet this increased demand. That results in increased capital expenditures. And something that we see is utilities all around the country are now setting out 5 year and 10 year plans to go invest a lot more capital. That might sound good. Well, what it’s also going to mean is that they need to recover those costs and the way they do that is in a form of raising electricity prices to end customers.

And so I think that’s something that’s been a quiet factor that is sort of creeping up on all of us, is that electricity prices are likely to rise. And against that backdrop, the technology costs of solar and batteries keep falling. And so, what we see starting to happen is buildings that did not make financial sense, that maybe didn’t quite clear a IRR hurdle in the past, are now starting to flip over. And so, that’s a really exciting development that we’re starting to see with a number of our customers today.

Reid: That’s really interesting, Peter. So you’ve got buildings, landlord owned, tenant occupied. When you talk about on-site renewable, there’s a lot of different ways that this can play out. The challenge around the split incentive, right? How does each party benefit? And maybe also in different types of assets or different types of lease structures, what have you seen that has been successful in the split incentive challenge?

Peter: Yeah, this really comes up in particular for owners of diversified assets where many firms and GRESB participants own, you know, multifamily, office, industrial properties, and these have different, from an energy perspective, we think of it as a metering type. Like, who’s paying the bill for electricity? But it really gets also to the lease type as well. The solution is different by those property types and the way we’ve approached it is just to categorize each at the beginning. Okay, what is the asset type and then what is, you know given the market, what is the most likely lease type that’s happening there. I think your question, typically with industrial, if it’s a triple net lease and the tenant is paying the bill, well, the belief for a long time was, there’s this split incentive, it’s a problem. You know, tenant can’t make the choice about the infrastructure, and the owner, even if they’re motivated, they don’t pay the bills, so they’re not incentivized. We really are seeing that flip and change and it’s for the following few reasons. One is that actually, GRESB is a meaningful driver for institutional real estate investors to stay competitive in capital markets and to be able to demonstrate that there’s a active risk management over a multi decade period as things like carbon increasingly matter. And just managing electricity costs increasingly matter. So that’s sort of one headline that we see.

The second is tenants increasingly care about this. We’ve had situations where triple net lease, real estate owners have come to us and said, my tenant was about to go put solar on the property that I own and, you know, the landlord said, you can’t do that. We own the building. And the tenant said, no, like, this is actually a requirement for me. And so we see these kind of things pop up more and more. And so then the real estate owner says, look, I probably need to get more strategic about this and sort of think about it holistically. Where should I be providing this value added service at least to be knowledgeable about it? But then when you get into the details of it, something we’re really proud of being able to recently solve is to be able to allow triple net lease real estate owners to monetize the solar battery or EV charging assets they deploy through a lease amendment, it’s an addendum to the existing lease, and that provides the mechanics for the real estate owner to get paid back for any savings that are generated from the investment that they make. And we’re finding that is a solution to sort of crack the split incentive problem and both deliver savings for tenants with no capital investment on their part. And then, you know, increase asset value to the real estate owner.

Reid: Okay, got it. So I’m hearing, we’ve got some tenant demand as well as the ability for both landlords and tenants to benefit through kind of a lease amendment.

Peter: That’s right.  And then, what we didn’t talk about was in multifamily, typically, the common area is typically a smaller fraction of the total electricity use of the property. And there are increasingly both state policies which support the asset manager being able to essentially provide on site clean energy that offsets not only the common area, but also for all the tenants as well and to get compensated for those savings generated. So that’s something called virtual net metering. That’s available in a few states in the US today. And then there’s some very clever ways to sort of mimic that structure. So we are finding also within multifamily. There are ways to open up the market as well. And I mention that in part becasue residential rates are the highest sort of class of payments in the country. Where I live in California, people can pay 50 to 60 cents per kilowatt hour as a resident, which might not mean anything to anyone, but the average in Texas might be more like 10 cents a kilowatt hour. So it’s just very very high, and therefore it makes it extremely lucrative for building owners.

Reid: That’s great. I want to drill down a little bit into your mention of lease structure. In what lease structure have you seen the most traction and success with on site renewables? And in what lease structure is this really challenging? What do you see being done in that space?

Peter: The first thing I’ll mention, the easiest place for people to get started, for asset managers listening, say you have a diversified portfolio across the country or are a sustainability leader, and you, say, have 300, or 500, or 1,000 assets. And you’re trying to figure out where to get started, what we usually do is we help people first look where there are community solar markets. Because this is a financing structure that is really independent of the lease structure. And so it’s only suitable in certain markets and at certain times, these programs get to be very competitive, but it essentially allows the property owner to get a new source of income from the roof. And so a third party developer through our network will compete and give you competitive bids, and then you will just get new 20-year roof lease net income from that bid. So that’s sort of option one.

And then when you get into the on-site cases, then it depends. Some of our customers are corporates who pay the electricity bills and they want to reduce their electricity bills. And for them, that’s really kind of straightforward. In the case of a third party commercial real estate owner operator who doesn’t pay the bills, we find that in offices where there tends to be more either gross lease or sort of, reconciliations or pass throughs, that’s where the landlord can be the decision maker about adjusting the cost. And then it’s really just an accounting piece to make sure that the desired savings are a portion to the tenant.

The third case of the triple net lease where the tenant is paying electricity bills, that’s where we see this green lease amendment being the most effective solution. And we find that some institutional operators are already getting into the motion of saying for every net new lease, we’re going to have this green lease amendment be just standard. Where we, the owner, get data rights as a baseline, which lets us just understand the electricity usage. So we make the assessment part simpler. But then, we also have the option of providing the tenant with just an offer to get savings, which seems pretty straightforward.

Reid: Great. All right, as we close, I want to look towards the future, and Peter, I want to tap into your wisdom and your experience in this space and ask you to kind of look into your crystal ball. In a few years time, what do you see moving in this space that might impact this work, as we kind of look to the future?

Peter: Yeah, I see a couple things. One, I think people will no longer take for granted the reliability of the grid. I think utilities are getting very challenged to meet the demands of just what’s called load growth. It just means more demand on a faster time scale than they planned for, along with extreme weather, which, you know, is cropping up more and more. So I think that’s one theme. We hear this from our customers where they say: I want to make sure I can offer a resilient property. I think that’s one thing that’s coming. I think the second thing is as transportation electrifies, and internationally, it’s happening at a rapid rate. The place that makes most sense for cars to recharge is at buildings. And so among commercial properties and multifamily properties, providing EV charging is now just a required amenity. And so, many asset managers are starting to say, well how do I make sense of this? And what I see happening, Reid, is that asset managers will start to look at this and say, wow, these things start to make the most sense together.

So a number of properties having EV charging, solar, and batteries in exactly the right combination. That is the way to get the best returns, the best net operating income. But where we’ve come in, it is figuring out how to do that well. It entails a lot of math to figure out what’s the CapEx, the OpEx, what are the avoided costs, electricity prices, what are the incentives for all these different assets?
And that’s really where I see the world going, is the integration of multiple technologies to get the best value, the best outcome, for building owners.

Reid: Well, Peter, thank you so much. This has been really interesting. Really informative. I hope that our listeners have enjoyed this as well. It seems that this is only going to increase in relevance, and more and more of these projects are going to be green lit in the future. And I hope to see Lumen being a big part of that transformation. Good work and I appreciate all you’re doing in this space.

Peter: Thank you so much, Reid. And thanks to the whole GRESB community.

Reid: Well, thank you all for joining. Look forward to more conversations covering all the interesting topics in sustainability in real estate.