The Perks of a Portfolio-Wide Energy Strategy
How systems thinking can improve energy efficiency and deliver value across all properties
Creating an energy strategy that drives down energy cost and increases net operating income is a goal of many commercial real estate firms. There are various ways to achieve this goal, but all strategies are not created equal.
For some, the strategy includes going along with a salesperson who calls with a compelling opportunity that solves an energy problem. And for others, the strategy is to wait until something breaks then simply swap the old for the new. Companies also tend to look for ways to reduce overhead expenses. One strategy is to buy in bulk to drive down operating expenses because it reduces the cost per unit and how much is finally paid. Many commercial real estate firms bundle their properties and buy energy in bulk assuming this strategy works just the same for energy, but buying energy is altogether different than the bulk purchase of other office goods and services.
Energy is complex, which is why it’s not always obvious that there are often better ways to approach an energy problem. Though reactive and ad hoc approaches may seemingly meet energy goals, there are more effective energy strategies that can ultimately deliver more value in the long run.
Systems Thinking for Effective Energy Strategies
Engaging in a onesey-twosey approach is often where the challenge lies. It’s easy to default to it: A problem pops up, it gets solved and then it’s time to move on to the next pressing matter. Systems thinking, on the other hand, requires planning time and creates opportunity to address energy issues using a holistic approach, leaving the whack-a-mole game for the carnival.
Systems thinking is a lot of things. It’s a diagnostic tool that leads to asking better questions. It involves observing data to identify patterns over time and surfacing details that drive those events. Systems thinking also exposes the interrelationships between many elements in a complex system, like energy.
For example, the bulk buying strategy doesn’t always work because the more electricity you buy doesn’t necessarily translate into a better price. That’s because a building’s load profile––or how a building uses energy––is a big factor in generating the cost of energy.
Think of a building’s load profile like a consumer’s credit score. The better the credit score the better interest rates consumers are able to lock in. In energy terms, the better a building’s load profile, the better rate available when purchasing power. If a company bundles all its properties together to buy in bulk and there are buildings with a poor load profile, the overall load profile will decrease resulting in higher energy rates.
A great way to improve load profile is through energy efficiency projects. Energy efficiency projects not only reduce the amount of energy, which reduces cost, but can also help to improve a building’s load profile. The key is knowing which energy efficiency projects for which buildings need to be prioritized to achieve maximum benefit. A portfolio-wide energy strategy uses a systems thinking approach to holistically look at all properties and identify the buildings that need to be improved to have the most impact.
Benefits of Pursuing a Portfolio-Wide Energy Strategy
Standalone energy efficiency projects still have positive impact, but there can be more bang for the buck if the approach is comprehensive. A portfolio-wide energy strategy can help drive down cost more efficiently because it uses data to drive the prioritization and decision-making processes across all properties in a portfolio.
The process of creating a portfolio-wide energy strategy is simple. The first step is to determine the current state of energy efforts by collecting and analyzing data across the portfolio. That information in turn helps determine program boundaries and builds benchmarks, such as identifying those properties that have good or poor load profiles. Then, improvements are planned and executed.. The next critical steps are to monitor and report performance of the improvements and reset targets as needed. This process is repeated for continuous evaluation and enhancement.
A portfolio-wide strategy created by an effective energy advisor can be done relatively quickly. This is beneficial for commercial real estate firms that traditionally pursue a low-risk strategy and buy energy in a fully-fixed contract for a defined period of time, usually a few years. A fully-fixed approach may not make sense for companies actively undergoing energy efficiency projects. Instead, negotiating an agreement that allows companies to take advantage of improved load profiles offers a double benefit of increased efficiency and lower costs.
At MD Energy Advisors, we’ve been empowering commercial clients to make informed decisions about energy since 2010. Over the years, we’ve seen how a bit of extra insight during the due diligence phase can pay off in the end—whether that’s savings or peace of mind or both.
MD Energy Advisors demystifies energy through education, and can help commercial real estate clients increase asset value by anticipating and solving their energy problems. Learn more at www.mdenergyadvisors.com or call us at 410.779.9644.