The annual IBcon event always delivers on thought-provoking discussions and fresh insights about the intersections of technologies, policies, and financial drivers in the commercial real estate sector. The Smart Grid itself is the convergence of IT and OT (operating technologies). Smart commercial buildings – both office and multi-family residential – are experiencing a similar convergence of facilities management (the building analog to utility OT) and IT solutions. Not surprisingly, convergence means disruptions for the status quo.
As noted in my previous blogs, buildings use 40% of all energy in the USA. The National Academy of Sciences reported that if buildings fully deployed available energy efficiency (EE) technologies and programs, we could avoid construction of new electricity-generating plants in the USA until 2030. The good news is that the building sector is paying attention to the potential benefits of EE, demand response (DR), and distributed energy resources (DER).
Building owners and facilities managers care about top line and bottom line numbers to create a healthy NOI or net operating income. NOI is the income of a property after operating expenses, which include energy costs. A quick glance around the IBcon exhibit floor confirmed that heating, ventilation and air conditioning (HVAC) remains the biggest energy consumer in a building. It’s the low-hanging fruit with regards to energy management companies with solutions that can pinpoint when, how, and where HVAC is operating. It’s a major revelation and operating expense reduction when a facilities manager learns that an errant command starts the HVAC system in an office building at 1AM instead of 7AM. A simple adjustment can have a meaningful impact to this property’s NOI.
But like the grid itself, buildings are relatively dumb. The evolutionary and revolutionary drivers that are impacting the transition from today’s grid to tomorrow’s Smart Grid parallel the transformations from today’s structures to tomorrow’s smart buildings.
The same sensors and mostly wireless technologies that are the basis of numerous grid upgrades are disrupting buildings in similar ways. Building evolutions go well beyond M2M applications that deliver remote monitoring and control of building HVAC and lighting. Leveraging policies that encourage DR and harnessing initiatives like OpenADR allow more buildings to participate as prosumers by automating DR transactions. More capital for EE upgrades is now available in the form of green banks and other innovative financing mechanisms for property owners and managers.
The revolutionary impacts to the building sector occur in DER. For instance, the Shanghai Tower incorporates wind turbines in its roof to generate enough power to provision the building’s exterior lighting. The second tallest building in the world also deploys its own co-generation system to operate a number of building systems. That gives it some important resiliency from any service interruptions from the power grid. It’s the early days for fully integrated DER in buildings, and over time we’ll see more solutions that make them net zero or capable of sending electricity back to the grid.
There are other interesting parallels or similarities between the electric and commercial building sectors. For instance, both share these characteristics:
- Fragmented markets in the USA. For the electric sector, there are over 3000 utilities and 50 state regulatory agencies plus federal agencies that have jurisdiction over utilities. However, building codes and permitting processes reflect “local control” distinctions down to the municipal and county level. If there’s one sector that would benefit from some reductions in process friction via standardization, it is the building sector.
- Conservative and protective of the status quo. The building industry has not changed substantially in over 80 years. Construction techniques haven’t changed much for centuries with most buildings fabricated onsite. Utilities haven’t changed much since Thomas Edison.
- Asset designs and configurations are built for the long term but disconnected from consumers. Utilities built grids with inherent limitations and fragilities that get in the way of consumer expectations and prosumer transformations. Building construction doesn’t always reflect usage, requiring expensive upgrades and changes to accommodate end user needs.
- Data changes the way business is done. Data volume, variety, velocity and veracity are disrupting traditional business processes and creating significant challenges in reskilling people to these changes.
Of course, there is one important distinction between these two sectors. That is that the commercial building sector is extremely competitive, not organized as a monopoly. Building occupants have choices for office and residential space, and base their decisions on multiple factors including cost. The fear of declining occupancy and losing tenants keeps property managers awake at night. However, given the increased abilities for buildings to reduce energy requirements and generate their own electricity, the fear of declining customer bases and revenues may keep utility executives awake at night too.