Choose Clean Power

Insight from MCEnergy

By Yardi Blog Staff on Sep 17, 2015 in News

Evidence of climate change is all around us – for example, the amount of Americans with asthma has more than doubled in the past three decades, and rates are alarmingly high among lower-income people, who are more likely to live near a power plant. It’s no wonder that people are getting sicker when, as a country, we emit more than 5.5 billion tons of carbon dioxide (CO2) a year.

As of August 2015, the Obama administration released a proposal to tackle this tremendous issue in the form of the Clean Power Plan (CPP).  The plan sets the country’s first-ever national standards limiting carbon pollution from power plants, which were previously unregulated. The CPP aims to reduce carbon dioxide emissions by 32 percent by 2030 by establishing standards, but allowing individual states the flexibility to choose how this should be accomplished.

With such a daunting goal, it can be confusing to know where to start when considering alternative energy for your properties. We caught up with Jennifer Burke, an energy consultant at Yardi subsidiary MCEnergy, to find out what this new plan means for the commercial real estate industry.

How will the CPP affect commercial real estate?

JB: The CPP is intended to reduce carbon emissions by 32 percent for U.S. power plants – below 2005 levels.  Coal fired power plants are the greatest emitters of carbon.  Therefore, the CPP will have the greatest impact to electricity pricing in geographic areas where coal is more dominant in the generation of electricity.  The PJM ISO, the largest Independent System Operator (ISO) in the U.S., which encompasses 13 states in the mid-Atlantic region, has a relatively high concentration of coal fired power plants and will be impacted the most.  As more coal plants are retired, there may be upward pressure on pricing as potentially more expensive fuel sources may be used in the generation of electricity.

How can a building’s usage of coal be curbed?

JB: A building’s usage of coal-powered electricity is based on its geographic location. For example, coal makes up 96.7 percent of West Virginia’s electricity generation resource mix, while in New York it is only 9.9 percent. Utility companies have designated regions that they must serve.  If your building is located in a utility jurisdiction where the market is not deregulated, your supply of electricity must come from that utility.  In deregulated states, building owners can choose their electricity supplier and may choose a supplier with a cleaner resource mix. In either case, a building owner also can choose to purchase Renewable Energy Credits (REC’s), thereby making a financial commitment to clean energy and offset carbon emissions. MC Energy supports our clients in making the decision on which supplier best meets their needs from both a pricing and sustainability standpoint. 

What is the most cost-effective way to incorporate alternative energy sources into an existing commercial building?

JB: The most cost-effective way to incorporate alternative energy sources into an existing commercial building is to purchase Renewable Energy Credits (RECs). An REC represents the green attributes from the production of one megawatt-hour of renewable energy. When a renewable generator sells a REC they transfer the benefit of renewable energy to the purchaser, which offsets the purchaser’s electricity emissions. Emissions reductions from RECs show a degree of environmental stewardship and can be claimed in sustainability reporting.  The REC market also supports renewable energy developers allowing them to build wherever economically feasible, knowing they will be supported by customers across the country.

Over the past six months, the price of National Voluntary Wind RECs dropped to the lowest level ever. The decline was mainly due to a two week extension of the Production Tax Credit, a government incentive to build renewable generation, at the end of 2014. In order to qualify for the extension, projects needed to be started before the Dec. 31, 2014 deadline. These projects are now in production, flooding the REC market with supply and driving down the cost.

What can property managers do to increase tenants’ awareness of their energy use?

JB: One cannot manage that which they do not know!  Historically, most buildings had a single meter to monitor the electricity consumption for the entire building and tenants were billed at often arbitrary amounts, regardless of their actual consumption. Individual tenants would be incentivized to reduce their usage if their monthly electricity bill was tied to their actual consumption. Many property managers have installed submetering systems to provide tenants with this information.  Armed with information, tenants can take control of their energy destiny.

This story originally appeared in Commercial Property Executive.