Biden vs. the Built Environment
$400 Billion over 10 years provides opportunities to reduce the impact of real estate assets, will you be positioned to take advantage?
This week I’m taking a brief detour from my planned schedule of exploring GRESB strategies to discuss the potential impact of last week’s election. While every election has impact on energy strategy, there are elements in Biden’s platform that are designed specifically to impact the built environment. Planning ahead may help leverage those strategies to reduce the impact of your portfolio while maximizing incentives to improve your return on investment.
Key among campaign promises is re-entry into the Paris Climate agreement and a pledge to achieve economy wide net-zero emissions no later then 2050. To achieve that goal, an intermediate goal was also published in Biden’s Climate Plan to invest $400 billion over ten years, part of which will go towards a target of reducing the carbon footprint of the US Building Stock 50% by 2035. Specifically, this included creating incentives for deep retrofits that combine appliance electrification, efficiency, and on-site clean power generation. The plan cites a goal of impacting 4 million buildings and goes on to state that he will work to identify barriers to help offset the upfront cost of building upgrades and put in place a national program to target a package of affordable energy efficiency retrofits.
To be clear, Biden’s apparent victory in the Presidential Election does not guarantee his platform will be fully enacted, however bi-partisan support for climate action has been growing on Capitol Hill in recent years and even without a majority of senate seats, it only takes a few senators willing to support these measures to gain congressional support.
The elements behind the platform’s goals are nothing new, for the past decade a patch work of individual utility incentives have laid out similar programs to reduce the impact of the built environment. What is different is the potential scale and the incentives coming from the federal level instead of local utility companies.
This increased attention to efficiency likely means increased awareness among building owners and operators, which translates to increased competition to the funds. For your portfolio, how will you make sure your are ready when the programs to be announced? Will you be applying for the program, or figuring out if you would benefit from the program?
Unless your new to my blog, you have heard me say many times the fundamental element to developing an efficiency strategy is first to understand your consumption. You cannot understand your consumption if you don’t know what your consumption is. You know what your consumption is by gathering data concerning that consumption. Whether that data is from utility bills, meters, or connected sensors it all leads to the same place - understanding the amount of energy and water your portfolio is using.
Once you gather that data, you have to analyze the data to determine where the biggest impacts are, both in terms of costs and consumption. From a portfolio view, you need to understand where you are using energy and water, what you are spending on it, and how does your consumption at each property compare against similar buildings, in similar climates.
Having identified your consumption and where the opportunities exist to reduce that consumption provides the ability to prioritize where those improvements need to occur. Many factors go into this decision including hold strategy, impact on asset value, impact on operational expense, ease of implementation, as well as return on investment.
Conducting such an analysis now, prepares you to move more nimbly when national programs are rolled out. You’ll be in a position to leverage those programs to improve ROI, and you’ll be in the position to know which programs to apply for. While other portfolio owners are trying to figure out if the program makes sense to pursue, you’ll already be enrolling and benefiting.
This strategy however goes beyond merely preparing your portfolio for the potential impact of Biden’s Climate Plan. The same steps also provide an opportunity to align your strategy with existing utility incentives that can drive improved NOI within a portfolio.
In a time of concern around revenue, improved efficiency offers a way for properties to reduce operational expense. It also provides some flexibility around creating additional ancillary income as well. Most residential tenants have a budget in mind for housing and utilities. If you can reduce the amount that residents need to spend on utilities, you have effectively freed up income for the resident. Income that could be spend on community level amenities. A property gains no advantage by making sure the residents continue to spend an increasing amount of income on utility expenses, however if you can reduce those expenses an opportunity to redirect that income may present itself.
The strategy outlined is not difficult to implement as long as the property owner or operator has developed a plan to gather and analyze their utility data. This can be done internally or there are external resources that can provide turnkey data collection and analyzation. In fact, this is precisely what Bright Power provides with the EnergyScoreCards platform. A turnkey solution that allows real estate owners and operators to manage energy and water on an ongoing basis to increase portfolio value.
A final note, it is absolutely essential that we all continue to push for data access. Benchmarking ordinances have provided access in 20+ cities as well as across California, but most of our nation still lacks owner availability to access the energy consumption of their assets. This will only change when enough owners demand access. Concerns over privacy can be overcome through aggregate reporting, but without whole building data, particularly in multifamily real estate, it will be very difficult for us to increase data coverage and fully understand the impact of our assets.
You can help reduce the impact of the built environment by sharing this blog with your peers. Together we can impact the 39% of greenhouse gasses attributed to the built environment. It starts with awareness and we succeed with teamwork.
Stay well!
Chris Laughman is the author of the ThirtyNine Blog, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping multifamily properties reduce their energy and water impact as a senior account manager at Bright Power. A full service energy strategy company, Bright Power is a leading provider of energy efficiency, renewable energy and energy management solutions for the real estate industry. We use our Find-Fix-Follow approach to Find the best opportunities across a real estate portfolio, deploy the Fixes on specific assets, and Follow to ensure long term value, always optimizing for your financial and sustainability goals. Contact me at claughman@brightpower.com for more information