Institutional Real Estate, Inc.

NAREIM Dialogues: Fall 2016

The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products

Issue link:

Contents of this Issue


Page 5 of 31

Power of Change Electrification is perhaps the greatest technological advancement of the 20th century. The electric power grid, the system that delivers electrification, is considered by many to be the largest and most successful machine ever built. But it may be about to die. The power grid "machine" is an interconnected system of long distance transmission lines, local distribution systems, transformers, substations, generating power plants, and the computers and control systems that manage it. In the United States, it delivers $400 billion in electricity annually over 7 million miles of power lines and through the efforts of 3,200 utility companies. The infrastructure in the system is valued at over $850 billion. Uptime is an astonishingly high 99.97% (I certainly wish my laptop could approach that level of reliability) and growth in the system is delivered relatively reliably by simply calling your utility. All this is delivered at price that is slightly below where it was in 1960 in real terms. This is an incredible success story; it seems like there is little here to concern real estate investors and owners…right? If only it were so simple. We have entered a period of incredibly rapid change in energy technologies, and the future of the utilities that deliver power to our buildings, and even the future of the electric grid itself, is in considerable flux. The forces threatening to disrupt the power grid include distributed solar systems, energy efficiency software, demand response technologies, fuel cells, battery storage, electric vehicles, and various micro grid technologies. We can sum these up with the phrase: be your own power plant. Or to be cheeky, "adios, utility company." Even if you think your particular investments, assets, buildings or properties won't mess around with something like that, you may find that your access to cheap and reliable power could be seriously at risk if you don't adopt the new paradigm. It's important to note that "climate change" has not yet appeared in this narrative and nor will it again beyond this paragraph. While the threat of climate change has been a driver behind various incentives that support new energy technologies, many are now growing at a rate that will disrupt the utility system regardless of future government incentives. A U.S. government that chooses to support clean energy technologies in a substantial way will only further hasten these trends. THE RISE OF CHEAP SOLAR POWER The story starts with photovoltaic solar energy. Photovoltaics are the energy generating cells that you've seen on calculators for years, and are increasingly showing up on residential and commercial rooftops across the U.S. and the world. Since the mid-1970s the cost of solar panels has fallen 99% as installed solar energy capacity has grown 115,000x. This cost decline continues at a rapid pace, and has now made solar the cheapest form of new generation in some markets around the U.S. and the world. In fact, in 2015 the price of solar energy fell below $0.05 per kWh in 4 of 5 U.S. regions. Several contracts signed in 2016 have fallen under $0.04 per kWh, within the range of average U.S. wholesale power prices of $0.03 to $0.05. Bloomberg New Energy Finance predicts that a staggering 3.7 terrawatts (roughly equivalent to 4,000 nuclear power plants), or 43% of all new energy generation capacity built over the next 20 years, will be solar. By Matt Eggers VP, Yardi Energy

Articles in this issue

view archives of Institutional Real Estate, Inc. - NAREIM Dialogues: Fall 2016