It has been hard to miss the big renewables push many private real estate managers and investors have been making over the past year. Managers from logistics specialists ESR and GLP to generalist managers like Starwood Capital Group have been investing in, or otherwise partnering with, renewable energy providers to install green energy systems – primarily solar – on their properties, as we highlight in PERE’s November cover story published this week.
This makes a lot of sense, especially as private real estate moves toward achieving net-zero goals. Buildings, after all, are huge energy users and account for 40 percent of global emissions. Private real estate’s adoption of renewable energy will need to accelerate if organizations are going to succeed in reducing their reliance on fossil fuels and, therefore, in reducing carbon emissions.
For property owners seeking to reduce their carbon emissions, a key challenge is the fact a significant portion of that emissions profile is fairly fixed. More than half of a building’s carbon emissions are produced during construction, given the concrete and steel used to construct the property require particularly high energy inputs, according to some industry estimates. New building material technologies, such as the use of recycled concrete or alternative materials such as wood, can help to reduce that embodied carbon. However, it is still not easy for a building to get to net zero if the embedded carbon is included in the calculation.
At the same time, obstacles stand in the way of accelerating renewable energy adoption. For example, some managers have, encouragingly, been able to achieve not only carbon neutrality, but carbon positivity, with their assets. However, aging energy infrastructure has made feeding excess energy back onto the grid increasingly difficult.
It is clear while these challenges are being addressed, private real estate will need to take a more comprehensive approach toward energy. As Alistair Calvert, chief executive of pan-European manager Clarion Partners Europe, pointed out during a PERE webinar last month, renewable energy “is the easiest way to make the biggest inroads” toward net zero, which helps to explain much of renewables’ appeal among private real estate groups.
But alongside such investment, the industry will need to focus equal – if not more – attention on the more challenging task of reducing the energy usage of their buildings. In fact, in its Renewable Energy Strategies in Real Estate report published in March, the Urban Land Institute declared that maximizing energy efficiency should be the first step in reducing a building’s emissions, followed by on-site renewable energy generation and finally, purchasing green energy produced off-site.
This will call for making buildings as energy efficient as possible, through measures such as retrofitting the HVAC systems, installing new insulation and using smart meters. As Rick Walters, chief of standards and innovation at GRESB, recently told PERE, if buildings get 50 percent more efficient, only half as much energy is required for those buildings, making it is easier for green power sources to meet a building’s energy requirements in place of fossil fuels.
So renewables will be a major part of the answer to lowering emissions. But still only a part.