The following is an excerpt from “Monetizing Energy Assets in the Commercial Real Estate Industry: A Complete Guide for Earning Revenue with demand-side energy management” by CPower:
For the past several years, the economic and policy climate of North America has created an impetus for green and sustainable energy-efficient buildings. The commercial real estate (CRE) industry has contributed to this momentum.
Keeping the supreme goal of providing a great tenant experience at the forefront of their operations, commercial real estate facility managers and executives are increasing their focus on energy management plans rooted in a sustainable building philosophy based on cost-effectiveness and energy-optimization.
The CRE industry’s current push toward a more efficient and sustainable future comes at a serendipitous time when energy markets around the country are working to integrate distributed energy resources (DERs) onto their energy grids in an attempt to diversify their fuel mixes.
Right now and for the foreseeable future, grid operators and electric utilities in each of the nation’s six deregulated energy markets have created a wealth of incentive programs to encourage commercial and industrial organizations to help integrate their grids with distributed energy.
CRE organizations with distributed resources at their facilities like backup generators, solar photovoltaic cells, fuel cells, energy storage and more are therefore in a position to reap significant financial benefits by working with a properly licensed company that can help them monetize their existing energy assets.
The Importance of Tenant Experience
No two commercial buildings are alike and every commercial real estate organization is unique. One trait CRE organization’s share, however, is the unwavering desire to provide a great experience for their tenants.
More and more commercial real estate companies are realizing that sound demand-side energy management–the practice of modifying consumer demand for energy–can play an integral part in providing a great tenant experience.
Without satisfied tenants, of course, the CRE industry wouldn’t exist. That’s why every measure a CRE organization explores concerning energy management should be examined through the tenant-experience lens.
Demand for Green Buildings
Utility costs related to energy, water, and waste have a significant impact on a CRE organization’s profits. For decades, CRE organizations have sought to reduce these impacts by making their buildings more efficient and (if at all possible) environmentally friendly.
Green buildings–those which are environmentally responsible and resource-efficient–are estimated to consume 30-50% less energy than non-green buildings. Green buildings also use an average of 40% less water, emit 30-40% less carbon-dioxide, and produce 70% less solid waste.
Green Buildings, Happy Tenants
In the last several years, CRE organizations across North America have recognized the direct correlation between green buildings and tenant attraction.
The increasing popularity of green leases, which include an up-front establishment of sustainability goals and allocation of implementation responsibilities between the owner and the tenant, is proof that the notion of sustainability is a value shared between CRE organizations and the tenants they serve.
Since the Great Recession, many tenants’ business performance has been and continues to be evaluated by customers and investors looking at aspects beyond the strictly-financial. Tenants want to tell the story of their operating in a green building that actively pursues sustainability efforts with a positive effect on the community and the environment.
CRE organizations who oblige will not only provide a superior tenant experience, they’ll also be in a position to monetize their efforts through demand-side energy management.
Energy Assets in the CRE Industry
CRE Organizations that have made their buildings more energy efficient–whether by lighting upgrades, HVAC improvement, or any other measure, may be eligible to earn money for the permanent reduction of their electric demand.
They may already possess energy assets like back-up generators, energy storage, solar generation, and more that can also earn revenue through demand-side energy management.
When selecting a company to guide your demand-side energy management, it’s important to consider the company’s scope of demand-side expertise. Do they serve the markets where your properties reside? Does the company specialize in one type of demand-side energy management, or is it equally skilled in a wide range of energy asset monetization practices?
Most importantly, a demand-side energy management partner should earn your trust in every aspect of the relationship your organizations share.
Demand-side energy management is not a one-size-fits-all exercise. No two buildings are alike and every CRE organization is unique in its complexities.
Like your business, your demand-side energy management strategy should evolve and refine over time, forever in pursuit of perfection as energy markets continue to change and your needs as an organization evolve.
Visit https://cpowerenergymanagement.com/commercial-reit-lp to learn more about CPower’s extensive experience in the commercial real estate industry, including how Tishman Speyer Commercial Real Estate earned more than $1.4 million through demand-side management with CPower as their guide.
To read the entirety of “Monetizing Energy Assets in the Commercial Real Estate Industry: A Complete Guide for Earning Revenue with demand-side energy management” click HERE.
The Electric Reliability Council of Texas (ERCOT) and independent market analysts agree on at least one thing: there will be about 4,200 MW less fossil fuel capacity in the Lone Star State in 2018, a decrease that can be attributed to the approved retiring of three coal-fired generation plants–Monticello, Sandow, and Big Brown.
Exactly how the decreased capacity reserves will affect the Texas market is less agreeable, at least for now.
ERCOT maintains a capacity reserve margin target of 13.75% of peak electricity demand so the grid operator may serve electric needs in the case of unexpectedly high demand or levels of generation plant outages.
Analysts like Potomac Economics, an independent market monitor for ERCOT, predict the retiring generation plants in Texas will lead to the grid’s capacity reserves dipping below ERCOT’s margin target.
Potomac’s prediction is at odds with ERCOT’s official forecast for capacity reserves in 2018, at least now.
Last May, ERCOT released its bi-yearly Capacity, Demand, and Reserves (CDR) Report, which projected the grid’s reserve margins to be above 18% until 2022 when the margin falls to 16.8%. The report, however, was published several months before the recently announced coal retirements.
After doing the math and subtracting the capacity associated with the retiring units from the 2017 CDR report’s forecast, a breach of ERCOT’s target reserve margin seems possible.
So ERCOT’s capacity reserve may drop below the 13.75% target. What does that mean?
We’ll likely learn the official answer in mid-December 2017 when ERCOT releases an updated CDR report to address what the loss of capacity from retired generation plants will mean to the grid.
Until then, we can make a few educated guesses on how the Texas market will react to decreased capacity based on the market’s recent history.
In the last 10 years, ERCOT’s reserve margin projections have dropped to single digits 10 times, reaching a recent low of 5.8% in 2012. The market has repeatedly bounced back from low projections. It’s worth noting, however, what happens when ERCOT’s capacity reserves actually fall below the grid operator’s target reserve margin.
That last happened in 2011, which was also the last time ERCOT’s scarcity pricing mechanism was triggered.
Scarcity pricing introduces a price floor and price cap to the market when an electricity supply emergency causes concerns of forced power cuts (called emergency load shedding) throughout Texas. When ERCOT’s reserves hit 2,000 MW as they last did in 2011, scarcity pricing sets an automatic cap at $9,000 per MWh.
Now let’s analyze who benefits from scarcity pricing. The short answer is generators. In an energy-only market like Texas, generators make money when the price of electricity spikes. Over the last several years, demand for electricity in Texas has set numerous peak load records, including new monthly highs in July and August 2017.
Power prices in Texas, however, have remained relatively stable. In fact, ERCOT reported that 2016 saw average wholesale prices in its real-time market hit an all-time low (see chart below). Increased wind production, which accounted for less than 1% of ERCOT’s power in 2003 rose to 15% in 2016, continues to put downward pressure on prices, as does cheap natural gas supply.
The drop in capacity reserve in 2018 may lead to the kind of price spikes that generators have been waiting for, but generators will not be the only beneficiaries if wholesale prices see a significant rise.
If triggered, scarcity prices will be translated into ERCOT’s day-ahead ancillary services capacity procurements. That could mean financial opportunity for businesses who participate in ERCOT’s Load Resource demand response program, which pays businesses to be on call to curtail their energy use on short notice when the grid is stressed or electricity prices are exceptionally high.
Load Resource, ERCOT’s go-to ancillary service demand response program, already has the potential to pay businesses 2-3 times more than reliability-based demand response programs in Texas like the Emergency Response Service (ERS) program.
If scarcity pricing triggers in 2018, that potential payoff may be a lot bigger in Texas.
Part 1, “ERCOT Fundamentals: DR 101,” introduces you to DR in ERCOT and covers topics ranging from market structure to participating with automation and emergency generators.
Part 2, “Strategies for Maximized Results,” takes your DR knowledge to the next level and shares some important out-of-the-box methods for maximizing your value.
Both webinars are FREE and now open for registration.
ERCOT is ready to meet summer demand.
On May 3, 2016, ERCOT released seasonal and 10-year outlooks that anticipate adequate generation capacity for upcoming electricity demands in Texas. According to the ERCOT’s Director of System Planning, Warren Lasher, the ISO expects to have ample generation to serve its customer’s needs this summer. “However,” according to Mr. Lasher, “hotter-than-normal weather combined with low-wind conditions or high generation outage rates could cause operating reserves to drop below target levels, making it necessary to take additional actions to maintain grid reliability.”
ERCOT is not expected to see any significant pricing fluctuations this summer.
Response Reserve Service (RRS) pricing, determined by the Day-Ahead Market, has the potential for price spikes. However, such spikes seem unlikely given the low natural gas prices and high wind generation capacity working to suppress current clearing prices set by power generators.
An event like the one mentioned in the ERCOT’s press release could lead to a price spike in the Day-Ahead or Real-Time Markets. Such an event could also trigger emergency operational procedures, potentially resulting in the dispatch of Load Resources or Emergency Reserve Service. However, unless we realize more formidable weather conditions, we can expect prices to remain where they are this summer.
Localized dispatch of Load Resources (LR) is a possibility in certain ERCOT regions.
Last fall ERCOT called a LR event in the Rio Grande Valley due to congestion in the region. While there is no cause to anticipate a similar event being called this summer, the region could be one that experiences the kind of “hotter than normal” weather the ISO has warned of and should be on alert for dispatch.
ERCOT has made a change to how they procure Ancillary Services that will affect the summer season.
ERCOT has made a change to how they procure the RRS Ancillary Service. They have removed the Reserve Discount Factor, which served to reduce a generator’s available capacity during periods of likely higher temperatures across the grid, from the calculation. Instead, ERCOT will now procure an additional 200 MW of RRS during Hours Ending 15-18 during July and August of 2016 only.
To find out more about what you can do to prepare for the summer season in ERCOT, contact Peter or anyone on CPower’s ERCOT team.