Ukraine is impacting your Portfolio
Regardless of the end-use of energy, GeoPolitical events can and do impact energy availability and price in a major way underscoring the importance of risk management.
As the Russian Military pushed into Ukraine and brought with it the horrors that tragically have impacted so many, something has also happened across the global economy. As nations-sanctioned Russia, one of the levers was reducing or eliminating Russian gas and oil, which caused the price of a barrel of oil to increase. It will impact all downstream users in the form of higher gas prices, higher heating prices, and higher electricity prices. This should serve as a reminder of the impact of commodities and how events can impact the market cost of those commodities.
How does this relate to ESG? Those fossil fuel costs rising are based on the supply being reduced, but not the demand, and while this event may be on our televisions and in our hearts or minds, the same thing happens nearly every day in the oil and gas markets. From weather events that cause us to increase our use for heating to a holiday weekend that can increase the gasoline demand, there is a constant increase and decrease in the need for fossil fuels and the supply available for that demand which impacts cost. Keep in mind fossil fuels are not renewable - when we use them, they are gone, so that supply will continue to reduce over time.
But instead of focusing on how renewable energy sources are not finite, I want to reflect this week on how we can manage that cost and impact of the energy we use in the built environment. The current state of oil prices provides an example of why we need to be aware of our energy supply sources and what strategies we can use to reduce risk related to both market factors and the impact of the fuel used to generate that energy.
If you read through my past articles, you can see an emphasis on efficiency. It makes sense - don’t buy things you don’t need, and don’t waste energy or water. If you can operate efficiently, that is a critically important foundational principle. You would not want to pay the additional cost to install a solar photovoltaic system that provides more electricity than you really need; the return on investment just is not there. So why would you not make sure your property is efficient and then design the system to deliver what you actually need, not more than you need.
This principle holds beyond the installation of on-site renewables. Your portfolio uses energy, and that energy has to be generated somewhere. If it is not generated on-site, it is generated off-site, so there is a supply of energy to your building - be that gas or electric. The regulation of how that energy is generated is often controlled at the state level, and it falls into two general categories - regulated and deregulated.
In the case of both natural gas and electric, your state controls how the energy for that state is generated, and this is done through energy policies set by each state. These policies are administered by Public Service Commission or Public Utility Commissions (PUC). These commissioners are charged with assuring that utilities provide reasonable, adequate, and efficient service to customers at just and reasonable prices.
In some states, these PUCs regulate investor-owned utilities in their state and in a vertically integrated manner that oversees both distribution and supply. These monopolies set the price for the consumer and oversee state energy policy around what percentage of the energy generation has to come from which source such as renewables, nuclear, natural gas, coal, etc. In some states, both natural gas and electricity fall under this structure; in others, it may be just electricity or gas.
In other cases, the state may have restructured gas and/or electrical utility supply in order to encourage competitive markets to drive supply. These deregulated markets rely on independent system operators or regional transmission organizations and oversee the competition to ensure non-discriminatory access to market participants.
But again - how does this relate to ESG?
As the buyer, you have some say in the energy type, and source you are purchasing, and the type of energy you are buying and using is your Scope 1 and Scope 2 emissions. While we can address efficiency and should, it does not change the emissions related to the energy you do use. Yet, we can impact that as well.
In regulated markets, it is a bit trickier. In some states, Conservice has the ability to enroll communities in Community Solar programs where regulations allow. Even in a regulated state, this enables communities, and their residents, to enroll in community solar, providing both lower cost and lower carbon impact of their use. Some states even allow common areas to participate in these programs.
We have tools to make the ROI on on-site solar installation more attractive through virtual net metering, which allows owners to pass on capital costs related to photovoltaic systems back to residents where permitted. Other states still allow tenant billing but require additional equipment such as submeters. While more complicated, the impact of these types of programs on payback can be dramatic.
A third option is participation in a utility company-sponsored green program. An example is Ameren Missouri’s Pure Power Program, and this program provides an avenue to purchase green-e certified RECs to offset power purchased through Ameren Missouri.
The path towards cleaner energy generation is often easier in deregulated electricity markets. As noted above, deregulated energy can be gas, electricity, or both. However, natural gas remains a fossil fuel, which means if you leverage deregulation to reduce impact, you need to focus on deregulated electrical markets. You should still pursue energy supply for natural gas markets, but understand this is an economic play that provides budget surety. Natural gas remains a fossil fuel.
By simply asking questions about the generation source options for the electricity in that portion of your portfolio that is in deregulated states, you may have the ability to move quickly towards a reduced carbon impact at minimal cost and often savings.
When we consider the path towards net-zero, including these strategies around the procurement of energy supply, is a vital component. While we certainly need to pursue efficiency, we must also consider the origin of our energy supply.
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 ThirtyNine Blog author, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping the real estate industry minimize energy and water impact as the Vice President of Sustainability for Conservice, the Utility Experts. Whether Multifamily, Single Family, Student Housing, Commercial, or Military, we simplify utility billing and expense management by doing it for you. Our insight into your utility consumption provides an opportunity to identify risks. Leveraging innovation and experience, we ignite solutions with tangible impacts and track performance to ensure the trendline stays laser-focused on the goal. At Conservice, we have developed a true bill-to-boardroom solution to help truly make a difference. We have before us a tremendous opportunity. Standing shoulder to shoulder, we will get this done. Contact me at claughman@conservice.com for more information.
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