Friday Letter Revolutionaries in Madrid

None of 350 delegates at the annual INREV conference in Madrid last week was wearing a Che Guevara-style black beret. Indeed, surveying those gathered at the luxurious Westin Palace Hotel, it is hard to imagine a group more detached from the iconic Cuban revolutionary. 

Yet, on the last day of the conference, delegates were asked to think like a revolutionary by American renewable energy expert Jeremy Rifkin. Author of 17 books, an energy adviser to several heads of European states and founder of The Foundation on Economic Trends, Rifkin explained how a “third industrial revolution” was needed as a long-term solution to the world’s energy issues, and—wait for it—LPs and fund managers in the real estate community were central to the plan.

Green issues are now at the top of the agenda at a growing number of real estate conferences nowadays, so INREV delegates could have been forgiven for switching off and switching on their blackberries. After all, what’s all this got to do with making returns from real estate and don’t we already have green guidelines written into our investment criteria?

However, just like those people who heard about something called the World Wide Web many years before it actually changed our lives forever, there was a palpable sense in the room that this man was onto something, and yes, it was relevant to real estate.

As the world accepts that renewables are the only long-term viable alternative to oil, the debate is turning to how we can develop a system of storing unused power and redistributing it via a grid using the same technologies and know-how utilised by the World Wide Web.

Rifkin’s answer is a hydrogen-based system. His argument is that a renewable energy society is impossible unless the energy is stored in the form of hydrogen. This is because the sun isn’t always shining, the wind doesn’t always blow, the water doesn’t always flow and agricultural yields vary seasonally. But when energy is abundant, some of that electricity can be used to extract hydrogen from water, which can be stored for later use and distributed around a wider network. Then, presto, you have a continuous supply of power.

It’s already happening. In an industrial area in Aragon, Spain, a tech park utilising hydrogen technology will make the whole region energy self-sufficient by 2012—and there is talk of creating a grid to link similar technology and industrial parks in other regions.

“That may be a model and real estate is critical,” Rifkind told the conference. “I think for private equity the early adopters are going to be the creators of technology parks and common-interest developments. For the future, they should be planning their projects. Instead of putting them in the middle of the city, you might want to put them were you have optimum renewable technology between regions. Tech parks, industrial parks, common-interest developments and gated communities could be positioned so you can optimize renewable energy, use it and store hydrogen for cars and buses—and become a net-seller of energy.”

If you think this is too far fetched, remember that not only are car manufacturers developing hydrogen-powered vehicles, but the governments of Spain, Germany and Italy are accepting the idea of a “third industrial revolution.” Next week, all six major political parties in the European Parliament will sign a declaration calling for a shift to a hydrogen-based economy.

With these changes, property owners will be entering into the utilities business as developers add local renewable energy sources to their buildings, which will be able to create and store energy. “You are going to see a coming together of energy distribution and real estate across the world,” Rifkind says.

Just think who could control energy production in the world. Energy companies would distribute it, but real estate investors could be producing it. The fund managers and, ultimately, the limited partners who invest in real estate funds could be in charge pf producing our power. Suddenly, that room full of suited delegates in Madrid seemed an awful lot more powerful than mere property owners–or revolutionaries.