This is my first blog post focusing on smart building technologies and IPG smart building strategy. We all have a responsibility to evaluate and apply market appropriate, state-of-the-art, smart-building technologies and innovations in our real estate investments to generate optimal value and returns for investors.
That is why, in this post, I’d like to discuss current advancements in energy storage systems – in particular, battery technology and their applications in commercial real estate.
Battery Advances Powering Smart Buildings
First of all, you have to be aware that recent advances in battery technology are closely related to almost everything, in every aspect of our lives. From cell phones or electric cars, batteries are continually getting lighter and more reliable, but less approachable to the public eye is the fact that battery technology is making an impact in many areas of commercial real estate.
Stationary Energy Storage In Buildings Powered by Lithium
There are multiple types of battery technology systems, but lithium-ion has emerged as the leader comprising 95% of energy storage deployments in the past years. Price, performance, extraction and safety improvements are making lithium-ion batteries the ideal choice for stationary energy storage in buildings.
The upgrade in energy storing technologies and systems is enabling many benefits for tenants and real estate investors, serving to reduce energy costs, enabling greater power reliability, and improving environmental performance.
You might as well be asking – how, and why lithium?
All kinds of businesses are looking to manage their energy capacities (especially during busy periods) and improve the overall grid reliability. Lithium-ion battery systems offer a potential solution, providing the ability to curtail the use of grid power during such times.
When installed at a property, the lithium battery system is fed energy by the utility grid up to its capacity and then can be used to supplement or replace grid power, as necessary. You’re creating onsite energy reserves that can be used during high-energy demand.
Just as you would structure your cash flows to build a fund reserve, this power bank creates a “savings account” for energy that can be tapped when needed – by tenants or even the local utility. Lithium is irreplaceable for the high-energy batteries offering high voltage and high capacity that cannot be replicated by other metals.
With storing or/and releasing energy on a minute-by-minute basis, this system can smooth out energy flows dynamically throughout the day, from renewable energy, such as solar and wind enabling utilities, to better grid management and accelerating the adoption of environmentally friendly, clean and sustainable energy sources.
This is a win/win for the customer and the utility, since reduced grid demand can decrease costs by lowering application charges. The returns vary by region, with California as one of the states that typically have utility rate structures (such as high demand charges) and incentives that create a financial opportunity.
For example, small to medium-sized commercial utility customers in California could see a 20% rate of return on the installation (through avoided demand charges) on a one-hour capacity battery system, and 12% on a two-hour system.
A Sensible Investments Strategy For Real Estate
I believe that there are a few factors to consider before deciding to invest in an energy storage project using advanced lithium battery technologies:
- electricity load requirements – are they erratic or stable?
An energy storage solution may not have much impact on the process if the energy load is predictable and consistent.
- Where is the facility located?
Certain U.S. markets provide a convenient payback because of their high demand charges. Look at California, New York, Hawaii, and Kentucky to start with. Additionally, a good candidate can be some sensitive location with a history of power outages.
- Does the facility cover enough space to house the batteries?
Battery systems can take up a large amount of space, so the location and the available square footage need to be taken into consideration.
- Does your insurance cover this?
Although lithium-ion technology is considered safe, it’s still flammable so liability insurance coverage should be reviewed.
- Would onsite energy storehouses grant a competitive advantage for the facility?
The increased reliability from energy storage may (help) drive leasing interest from tenants with critical building systems and operations.
In the upcoming years, I expect that battery technologies will continue to evolve and improve in safety, capacity, longevity, and price. We are continuously tracking these trends with our client Lilac Solutions and identifying where battery systems, among other technologies, can play a greater role in mutual portfolios in order to enhance strategic positioning and potentially the financial return for our clients and investors.