Insights

Legislators are mandating more use of Renewable Energy, which comes with a price; now’s the
time to prepare for how this will affect your energy spend.

No longer viewed as “niche,” renewable energy is coming into its prime. Most agree that definite changes in our use of natural resources are needed. Greater concern for our planet has sparked societal shifts. Electric
vehicles are fast becoming the standard for cool cars across generations. Most people recycle when they can.
Restaurants now serve drinks with paper straws. And homeowners and building owners alike are implementing
practices to manage energy consumption.

Recent History

In the energy sector, a noticeable shift in electric power generation has taken place over the past decade; an abundance of natural gas in the United States has led to a shift away from coal and towards natural gas as one of the primary sources for electric power generation. As a result of the shift to inexpensive natural gas, the United States has consistently experienced lowered energy prices. These prices have translated into cost savings for businesses and homeowners in recent years. For example, in October 2005, the Henry Hub Natural Gas Spot Price (the pricing point for natural gas futures on the New York Mercantile Exchange) was $13.42. In October 2020 it was $2.39. While this has been good news for energy budgets, these times won’t last. Conditions and factors impacting the price are changing. And although natural gas is a cleaner fuel than coal, interest in alternative forms of renewable energy are on the rise and being mandated by state legislation.

New Energy Standards

In recent years, there has been an increase in legislation to raise the standards and uses of renewable energy sources, like sunlight, wind, rain, tides, waves and geothermal heat. During and since 2019, several jurisdictions in the Mid-Atlantic region began increasing their requirements for the percentage of energy that must come from renewable sources. Washington, DC raised its requirements to 100% by 2032, meaning 100% of the electricity consumed in the District must come from renewable (clean) energy sources by the year 2032. Virginia set a renewable goal of 100% by 2050. Lastly, in 2019, Maryland enacted the Clean Energy Jobs Act which increased its requirement for renewable energy to 50% by 2030, and also set a goal to achieve 100% clean energy in Maryland by 2040.

Impact to Building Owners

What’s important to note here is this is only the beginning. Building owners can and should expect regulations to get more stringent. So what does that mean for you as a building owner?

Energy costs will be rising due to the higher percentage of renewable electricity being mandated. It is important to start preparing for this change now.

Most commercial users of electricity are currently locked into fixed-rate contracts with third-party energy suppliers and have been temporarily shielded from this increase. However, they will feel the impacts of the new legislation when their contracts come up for renewal.

Your Energy Budget

Your energy budget is comprised of two factors – price and usage. The goal for building owners has always been to try to manage down both factors resulting in lower energy bills. Shopping for the best energy rates will be more critical than ever as these new green energy sources come more into play. And implementing as many initiatives as possible to reduce building energy usage, while still providing tenant comfort, will be the goal for property managers and building owners alike.

Develop a Holistic Energy Strategy

Although you can’t control the legislative environment or the energy market, the good news is that by implementing a holistic strategy now you can still achieve the lowest energy cost possible when supply rates start rising. Below are five key steps:

  • Step One: Work with a qualified and trusted energy consultant to keep you abreast of all current
    developments in the energy market and to obtain the best pricing from suppliers.
  • Step Two: Identify areas/systems that need equipment upgrades or improvements and closer monitoring
    to obtain the lowest energy usage.
  • Step Three: Benchmark buildings and set energy usage targets.
  • Step Four: Plan and execute upgrades/improvements.
  • Step Five: Monitor and report performance.

As you develop your capital plan and the impact of increasing energy costs, consider the value a seasoned, professional property management firm can bring to the process. To learn more about the comprehensive services offered at The MacKenzie Companies and how we can help you navigate the renewable energy shift, contact us today.

YOUR PARTNER IN BUILDING ASSET VALUE

Brendan Gill, President | MacKenzie Management Company, LLC | bgill@mackenziemanagement.com | 410.494.4889

Joyce Frank, Executive Vice President | MacKenzie Management Company, LLC | jfrank@mackenziemanagement.com | 410.494.4831