How Can Commercial Building Managers Make Greenbacks from Green Acts?
Commercial real estate owners across the U.S. are now facing a vicious circle of rising electricity costs and rising future demand for electricity amidst an accelerating energy transition. Electricity costs for US commercial buildings have soared by over 20% in five years, driven by rises in both electricity generation and transmission and distribution costs. This comes at a time when commercial building owners also face pressure to invest in new green technologies from heat pumps to EV chargers, which will incur significant upfront costs and further increase demand for electricity. Yet smart energy storage solutions now offer an opportunity to optimize electricity consumption and reduce costs while harnessing surplus power as a new revenue source.
The Electrification Challenge
Commercial buildings are responsible for around 16% of all U.S. carbon emissions and owners face rising pressure to decarbonize, including through adopting more green technologies. This not only involves high upfront costs for new technologies from heat pumps to EV chargers but could also lead to higher long-term energy costs by increasing demand for electricity.
Electricity already accounts for 60% of energy use in US commercial buildings and applications such as EV chargers could both increase the average level of electricity use and drive more peaks in demand. For example, if just 10 electric trucks are simultaneously plugged in at the end of the working day, this could drive a significant spike in demand, attracting higher time-of-use tariffs and peak demand charges. More volatile demand for electricity will mean more unpredictable costs for commercial building owners.
Smart Energy Storage to Reduce Building Costs
Smart energy storage technologies now allow building managers to alleviate energy costs by reducing both long-term demand on the grid and flattening out short-term fluctuations. Storage can be strategically adjusted to reduce energy costs by, for example, storing surplus power in batteries during periods of low use and then discharging them during peak periods to avoid high demand charges. For example, it is feasible to roll out an integrated battery energy storage system along with a network capacity assessment tool to help companies charge hundreds of vehicles daily while avoiding costly spikes in demand on the grid.
Crucially, battery energy storage can be combined with onsite renewable energy production to reduce overall electricity costs across commercial buildings. Beyond reducing energy costs, smarter storage could also transform electricity from a cost center into a revenue source for the commercial real estate sector.
Energy Arbitrage
The term arbitrage is most widely associated with financial markets, but less widely discussed is how the practice can create new revenue streams in energy markets too. Some utility companies, such as Pacific Gas and Electric (PG&E) in California, implement a time-of-use (TOU) rate plan for business customers such as commercial building owners, which designates certain times of day as peak hours when electricity rates are higher. Its peak hours are between 4 p.m. and 9 p.m., while 9 a.m. to 2 p.m. is either off-peak or super off-peak depending on the time of year.
Battery energy storage systems (BESS) could enable commercial building owners to exploit those price differentials by, for example, charging batteries when power is cheapest between 9 a.m. and 2 p.m., and selling electricity back to the grid when prices rise after 4 p.m. The benefits are even greater with BESSes that have longer-lasting storage capabilities. The industry average tends to be around two hours, but there are options available that can store electricity up to eight hours, which means building managers can provide cost-efficient power late into the evening.
Grid Stability Services
The accelerating integration of fluctuating renewable generation into grids and more volatile demand from new technologies such as EVs and heat pumps are posting risks to power grid stability. Extreme weather events are also increasing risks around supply, as demonstrated when the recent California wildfires led to mass power outages.
Commercial buildings with onsite power generation and storage are not only safeguarded against these risks but can also use their power and energy to provide wider grid stabilization and thus additional revenue streams. In Massachusetts, Eversource and National Grid offer a program called ConnectedSolutions that enlists businesses to support grid stability in return for financial incentives. When the grid is under stress, such as during surges in demand from EVs, commercial customers are paid to reduce demand by drawing more power from their own batteries. Commercial buildings can also be paid to sell power back to the grid and provide stabilization when the grid is under strain such as from extreme heat during summer.
Grid Frequency Response
Grid frequency response, where BESS operators are paid to help stabilize grid frequencies, offer another potential revenue source for building owners. For example, our Swedish customer SellPower recently experienced a surge in demand for BESS, primarily to regulate frequency fluctuations as Europe’s renewable energy transition accelerates. Frequency response is now the most widely used application for batteries in the U.S., and there are a number of utility programs rewarding customers for providing frequency response services.
The Distributed Storage Market Opportunity
With the U.S. distributed storage market set to grow 460% in just two years, there is a major opportunity not only to reduce energy costs but to tap into a new energy market for commercial real estate. This would be mutually beneficial for commercial buildings and utilities, turning energy into a money-spinner for real estate owners while simultaneously alleviating stress on the grid and providing essential flexibility and stability for utilities.
States such as California, Massachusetts, and New York already have many financial incentives for distributed storage, and others may follow amidst accelerating economic electrification and new demand sources such as data centers. Meanwhile, there is a raft of tax incentives from the Inflation Reduction Act’s 30% tax credits for BESS to the income tax deductions in the Modified Accelerated Cost Recovery System allowing businesses to recover some of the cost of investment in BESS over time.
With incentives and applications varying across states, the key to success will be to tailor battery size, power, and energy use strategies to local market opportunities. Some companies are now using modular BESS that can be scaled up to tap into any available revenue streams from demand response to frequency and voltage regulation. These BESSes use open APIs enabling them to easily adapt to any external applications from energy arbitrage to grid stabilization services. This could allow companies with BESS to provide a wide-ranging stack of cost-saving, revenue-driving energy services and help overcome many of the obstacles to achieving renewably powered grids. Ultimately, BESS could become a multi-purpose revenue source for commercial building owners while transforming commercial real estate into a new distributed energy resource for America’s grids.
