CEO and Co-Founder of Green Generation, which engineers and implements comprehensive integrated energy efficiency solutions.
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When I wrote my last article, I was confident that the next big hurdle on commercial real estate professionals’ plates would be navigating the climate- and sustainability-aligned executive actions, regulatory changes and legislation ushered in by the Biden-Harris administration. But I was perhaps too optimistic.
Not only has the emergence of new Covid-19 variants complicated the “return to normal” that the especially hard-hit commercial real estate (CRE) sector has been anxiously anticipating, but a few recent developments in the energy and infrastructure sectors, too, necessitate a review of my most recent advice to real property investors, owners and operators.
First are the early indications that the Biden-Harris administration is prioritizing decarbonization of the transportation and electric power industries to achieve its ambitious emissions goals. In contrast, the buildings sector — which accounts for more than 30% of U.S. annual CO2 emissions — has received comparatively little federal attention to date.
But there’s a bigger reason why I’m reconsidering how CRE should proceed in the Biden-Harris era: the catastrophic and nearly absolute failure in February of the electric power system in Texas.
The Texas blackouts have — beyond the tragic and preventable loss of life, eye-watering utility bills, finger-pointing, gaslighting, investigations and resignations it’s caused — elevated the issues of grid reliability and resilience for everyone, including public- and private-sector climate hawks and sustainability advocates.
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And whether you cite the ambitious power sector provisions of the recently introduced CLEAN Future Act, the majority of U.S. voters who feel the Texas electric grid should connect with those of other regions or the growing body of research that points to power sector reliability and resilience as essential to sustainability and economy-wide decarbonization, it’s clear this issue is here to stay.
It’s part of a much larger, world-changing trend. As I’ve written in the past, the convergence of climate and capital markets is accelerating, driven in the last year especially by capital markets’ demands to price-in current and future climate risks and increase capital flows toward climate action, and an increasingly favorable and responsive policy landscape. These forces are, in turn, driven by the growing sustainability premiums and the expanding expectations of consumers and voters, which are understandably driven by disruptions like the Texas blackouts.
We can see these trends beginning to impact the commercial real estate sector. Consistent across so many of the pandemic-era think pieces on “the future” of the office, the classroom and the urban residential building is an acknowledgment that reliability and resilience are integral to a real property’s value and its obligation to its community.
But what does all this have to do with Texas?
A joint FERC-NERC investigation into the disaster’s causes has been launched and, at the time of this writing, is ongoing. But we can reasonably expect that there will be a congressionally supported push to shore-up the reliability and resilience of the Texas grid and, in turn, U.S. power systems via planning for more inter-regional transmission, integration of distributed energy resources (DER) and new winterization standards for power providers.
Should that come to pass, it raises the possibility that the administration will create new incentives and introduce new standards, coordinate with state and local regulatory bodies and work to propel the development and deployment of grid-interactive efficient building (GEB) technologies and similar load flexibility mechanisms. In other words, if Washington’s capacity to realize its decarbonization agenda hinges on improving the resilience and reliability of its power grid, then it’s likely safe to assume the administration will take a more holistic, systematic approach to guarantee its performance.
But this is not my way of urging readers to invest in building energy management solutions to somehow “get ahead” of regulatory changes or transitional risk. While that’s not a bad idea in its own right, my intent here is to show that the events in Texas will bring new scrutiny both to how CRE measures and provides reliability and resilience, similar to how Covid-19 brought attention to CRE’s public health and safety performance.
Utilities, for their part, are demonstrating an increasing willingness to embrace this kind of approach. While this is mostly borne of necessity — pressure from investors, as well as state and federal regulators and policymakers — the trends they advance, such as the “DER boom,” indicate a shift in how power sector stakeholders value and seek to deliver system reliability and resilience.
CRE should follow suit. CRE investors, owners and operators stand to benefit from adopting a greater, more nuanced appreciation for the roles that asset reliability and resilience play in driving asset and enterprise value, as well as tenant and community well-being. By investing in GEBs, DER, demand response or other building energy management solutions, CRE can not only capture greater energy savings and climate benefits for tenants but also better mitigate the risk of power system failures posed by extreme weather events and emerging load profiles by serving as an increasingly necessary provider of load flexibility.
Most important for CRE stakeholders is the acknowledgment that the industry is not isolated. High-performance energy-efficient buildings have a proven capacity to engage with and facilitate the sustainability of systems outside the immediate boundaries of their property. It’s as much a matter of perspective as it is a matter of responsibility and accountability. And the sooner the industry comes to that realization, the better.
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