Buildings Buzz

3 Ways Energy Storage Adds Value to Existing Buildings

PHOTO CREDIT: STEM

Over the past two years, more than 400 energy storage systems have been installed in buildings throughout California. Around 10% of Fortune 500 companies have secured energy storage solutions, and 30% are actively considering storage. The customer-sited energy storage market is now opening up in states like New York, Massachusetts, Connecticut and Hawaii. Thanks to a variety of influences such as state and utility incentives, intelligent control platforms that squeeze more value from batteries, and quickly descending lithium-ion battery costs, energy storage is now a viable and cost-effective way to increase property value and lower operating costs in several regions. Analysts from GTM Research predict that over the next four years, storage deployments in commercial and industrial buildings will have increased 10 times over 2015 installations.

So why is energy storage becoming an essential component of smart buildings within the commercial real estate industry?

1) Storage Increases Property Value

There are two ways that energy storage systems can improve property value. First, remember that any technology that can guarantee persistent savings over time will improve property value by increasing Net Operating Income (NOI). It’s essential to choose a storage solution that provides a strong performance guarantee that not only eliminates risk, but also increases property value by guaranteeing verifiable savings for the duration of the engagement.

The second way is by increasing the amount of leasable space within the building. This is possible in regions where energy storage economics are particularly strong because utilities are compensating storage providers for aggregating distributed storage systems to support and balance the grid. Because of the value storage systems provide to the grid in these areas, property owners can receive lease payments for space occupied by the system that would otherwise go unused.

By guaranteeing persistent cost savings and increasing rental revenues, energy storage systems improve NOI, and thus property values.

2) Storage Lowers Energy Costs

FMs understand the value of improved building efficiency and reduced operating costs, due to the fact that inefficient properties with high electricity fees have a harder time raising rent, take longer to re-lease, and are less desirable to investors. For inefficient buildings, these factors can even increase the building’s illiquidity risk premium and possibly reduce their exchange price.

Many property managers have implemented energy efficiency initiatives and successfully lowered the energy portion of tenant’s utility bills. Yet, despite these efforts, a continuous theme that comes up in conversations with real estate and facilities professionals is the challenge of managing costly demand charges. Energy efficiency initiatives help lower electricity use, but do not directly address peak demand. This is a major problem for properties in states where demand costs are rising quickly. In California, for instance, demand costs have increased by an average of 75% over the last decade, and now often make up more than half of the electric bill. By not addressing demand charges, property managers risk leaving themselves and their tenants completely exposed to these rising costs.

Commercial buildings operators typically have a shortage of time allocated for cost-saving measures, so automated storage systems are designed to bring high value without using any extra staff time. Intelligent energy storage systems can continuously learn and adapt to a building’s energy profile, enabling properties to enhance performance year after year while simultaneously protecting the tenants and owners from increasing demand charges, which continue to rise between 7-11% annually in many states. Companies with intelligent energy storage systems, such as Adobe, Whole Foods, and InterContinental Hotels Group, have been able to reduce these costs by up to 25%.

3) Storage Software Provides Visibility into Building Operations

Automated energy storage systems are powered by predictive algorithms that tell the storage system when to charge and deploy. Some storage providers have leveraged this platform, which monitors electricity consumption and controls the battery system, to develop consumer-facing software interfaces that building owners and operators can use to gain real-time visualization into their building’s energy use. Users can opt to receive alerts and utilize other data-driven tools to optimize energy use and predict future energy costs.  For instance, software platforms can support the implementation of future sustainability projects by enabling accurate forecasting of each initiative’s impact on energy costs, as well as verification of project results following implementation.

Asset managers, building owners and site operators who seek to best serve their clients’ interests and future-proof their investments from increased cost-risk may benefit from energy storage. In California, New York, and Hawaii, where strong incentives are currently in place, now is the best time to act. As costs continue dropping and more utilities across the country begin utilizing distribute storage assets for grid support, new markets will continue opening for energy storage.

Andrea Sanders is the Marketing Manager for Stem and can be reached at: andrea.sanders@stem.com.

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