CRE Innovations

Seeing Green

Adoption of wind and solar energy in commercial real estate is booming, but renewables still have a long road ahead.

Sustainability has been a buzzword in CRE for years, but different property sectors are starting to harness the power of green energy. Late last year, the U.S. Environmental Protection Agency released, “Commercial Buildings and Onsite Renewable Energy,” a report in the agency’s Data Trends series that details the development of green energy, specifically solar and wind power, in commercial real estate. The U.S. Environmental Protection Agency examined more than 263,000 properties in its database to determine which market sectors are leading adoption of renewables, examine geographical differences in use, and address difficulties in metering for green energy.

In the past decade, overall adoption of renewables is encouraging, with properties reporting on-site renewable energy increasing nearly tenfold, from 264 in 2009 to 2,447 in 2019. These properties now make up nearly 1 percent of all properties benchmarked by the EPA study.

“As a whole, the cost has been declining, and, in some cases, on-site renewable energy is cost-competitive. But evaluating each individual case depends on many factors such as physical structure, local or regional incentives, and others,” says Craig Haglund, ENERGY STAR program manager – CRE and multifamily, at the U.S. Environmental Protection Agency. “CRE companies continue to explore or invest in on-site renewable energy projects, indicating confidence in the business and environmental case for those installations. … When it comes to simply purchasing green energy, however, it can often just be flat-out cheaper than some traditional fossil fuels like coal. The cost to produce has fallen quite a bit, even before some incentives are factored in.”

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Most sites only produce less than 25 percent of electricity needs through these renewable sources, but the growth in adoption and improving cost efficiencies are encouraging trends for the market. Specifically, the industrial/warehousing sector is a bright spot; the properties that do harness wind and solar energy produce, on average, 51 percent of their needed electricity. Self-storage is another bright spot, with those sites producing 60 percent of electricity from renewables.

“A major driver for installation of on-site renewable energy systems is the physical structure of industrial properties,” Haglund says. “Large, flat roof space (such as those on warehouses) is ideal for cost-effective installation.”

Conversely, multifamily and retail properties face challenges in adoption due to smaller, more varied structures.

“It’s possible that the roof space issue is having the inverse effect here as it has on the warehouse industry,” Haglund says. “The business case for rooftop solar in the multifamily setting is not as clear-cut. A common financial approach to solar is to simply rent out your roof space to a solar installer, but this only works if you have enough roof space. One reason for optimism, though, is that there is industry interest. Additionally, multifamily companies are getting increasing pressure from investors to develop ESG policies.”

Of course, while these renewables saw strong growth in the decade leading up to 2019, COVID-19 has since seismically shifted CRE. The industry retains an appetite for sustainability, but the immediate effects of the pandemic might be troublesome for owners, operators, and developers.

“We can’t say for sure, but based on anecdotal evidence, the ability to pursue projects of any kind has been sidelined by other priorities,” Haglund says. “Although, this same anecdotal evidence suggests that many organizations do not appear to have slowed progress on achieving their environmental- and sustainability-related goals, including pursuit of renewable energy projects.”

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One other roadblock to wider acceptance of wind and solar energy is the difficulty in determining the cost effectiveness of green energy. “Utility-provided data that includes only net consumption — either because of net meters or utility billing practices — makes it difficult for owners and managers to benchmark their energy performance because they don’t know how much energy their building is using,” the report states. “What are the barriers, and how can they be overcome? To assess a building’s energy performance, you must know all its energy use, regardless of the source.”

Haglund understands CRE professionals want to know the impact of energy sources on the bottom line, which is crucial in assessing the cost implications of different energy sources.

“The adage ‘you can’t manage what you don’t measure’ applies here,” he says. “It is very important to accurately measure all the renewable energy flows — amount generated, amount used on-site, and amount exported — so that building operators can track and manage efficiency and the renewable energy contribution. CRE professionals should make sure that their renewable energy systems have meters that can track the renewable energy flows separately and not just the net amount.”

Regardless of the obstacles that remain — whether due to COVID-19 or the maturation of the renewable energies industry — the future remains bright for environmentally friendly, sustainable power.

“We anticipate that green energy procurement — both on- and off-site — will continue to grow dramatically over the next decade,” Haglund says. “Substantial ramp-up in renewable energy capacity is essential to achieving carbon goals."

Nicholas Leider

Nicholas Leider is senior content editor for Commercial Investment Real Estate. Contact him at nleider@ccim.com.

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