On May 25, the members of the European Parliament adopted a written declaration that was as notable for its cross-party support as it was for its grandiose initiatives. Signed by 420 elected members, the declaration not only sought to establish a green hydrogen economy in Europe within the next 20 years, but also to initiate a “third industrial revolution.”
Environmental issues have quickly risen to the forefront of everything from political discourse to real estate investing. And the overwhelming desire at the European Parliament to do something about sustainability points to the fact that businesses will not have the luxury of choice when it comes to going green; instead, they will be forced to comply with mandatory government regulations
The declaration calls for all European Union institutions to become 20 percent more energy efficient, reduce greenhouse emissions by 30 percent and produce 25 percent of their energy from renewable sources by 2020. Further, it says all EU member states should install hydrogen fuel cell storage infrastructure by 2025 and make power grids “smart” so that Europe's cities, businesses and citizens can produce and share energy based on open-access principles.
That's all fine and good, but what does this have to do with real estate?
Well, one month before the European Parliament signed its declaration, hundreds of property investors gathered in Madrid for INREV's annual conference. And it was there that American renewable energy expert Jeremy Rifkin addressed the 350 delegates on the same themes discussed in the EU declaration. By most accounts, it was the most thought-provoking part of the two-day affair.
Rifkin explained how the “third industrial revolution” was needed as a long-term solution to the world's energy issues— and LPs and fund managers, as members of the real estate community, were central to the plan.
As the world accepts that renewables are the only long-term, viable alternative to oil, the debate is turning to how to store and then distribute unused energy. According to Rifkin and other experts, hydrogen holds the key. Hydrogen can combine with alternative energy sources such as wind and solar power to pool energy. Advances in technology means hydrogen cells within office buildings and even cars, for example, can generate and store power. Surplus energy can then be redistributed via a grid using the same share-network software utilized by the Internet.
This may sound like science fiction, but it is already being tested in California's Silicon Valley and in another valley halfway around the world. The government of the Spanish valley of Aragon is hoping to make the entire region energy-self-sufficient by 2012. There is even talk of creating a “Wi-Fi” grid linked to other regions, one that could ultimately power the transport corridor from Spain to Eastern Europe.
Such a corridor and the location of key power sources could dictate, for example, the sites for technology parks, warehouses, industrial parks, offices and even residential communities in the future. Real estate capital would certainly follow.
“Aragon may be a model and real estate is critical,” Rifkin told the audience. “For private equity, the early adopters are going to be the creators of technology parks and common interest developments.”
He also told investors that they might want to locate projects, including tech and industrial parks, in areas of optimum renewable technology.
Naturally, plans that take 20 years to come to fruition do not present the most compelling opportunity to private equity investors, as Barden Gale, co-chief investment officer of pension fund ABP Investments, pointed out. To some delegates, the concept sounded like an infrastructure proposition. As such, governments would foot the bill in the first place and the market would only open up to secondary or tertiary deals afterwards.
But the logical conclusion is that if a “hydrogen economy” becomes established, hydrogen cells, energy efficient developments and new technologies will combine to create real estate that actually produces, stores and, ultimately, distributes power to where it is needed. And investors in these real estate projects will become, in essence, de facto energy brokers.
We might be a long way off—there are, of course, huge cost implications, technological impediments and first-mover risks—but industrial revolutions, unlike their bloody counterparts, do not happen overnight.
“You are going to see a coming together of energy distribution and real estate across the world,” Rifkin said.