Power Shift: The 2021 Outlook for Commercial Buildings
- Feb 18, 2021
The pandemic has already produced big changes in energy consumption by commercial buildings, and more shifts are on the way. For property owners and managers, that may be the biggest takeaway from the Annual Energy Outlook 2021, the U.S. Energy Information Administration’s annual forecast of energy production and use.
Few findings from this year’s forecast are more meaningful than COVID-19’s impact on consumption of delivered energy by commercial buildings, which declined 8 percent year-over-year in 2020 and is not expected to rebound in full until 2025, according to Meera Fickling, commercial demand modeler at EIA. Last year’s decrease represented the largest single-year drop for energy consumption in the buildings sector since 2012.
Furthermore, renewable energy incentives and declining technology costs will make renewables competitive with natural gas while also providing new capacity as use of nuclear power and coal declines. As for renewable power generation, the outlook estimates that the sector will grow more rapidly than electricity demand as a whole over the next 30 years.
Energy use in commercial buildings is projected to grow from 2020 to 2050—but by mid-century, properties will be using considerably less energy per square foot. “Two countervailing factors influence these separate trends,” Fickling told Commercial Property Executive.
“Increasing appliance efficiency, lighter building codes and greater adoption of sensors and controls decrease service demand intensity for key end uses such as space heating, space cooling, lighting and cooking. Meanwhile, service demand increases for computers, office equipment and miscellaneous electricity loads, (growing) electricity consumption,” she added.
Onsite electricity generation, utility efficiency rebates, population shifts to warmer climes and rising natural gas prices will also contribute to declines in service demand intensity.
The outlook’s projection models incorporate changing factors, notably the increased adoption of sensor and control innovations. That technology can lower demand for space heating, space cooling, ventilation and lighting, Fickling said.
Advocates of sustainable energy in building operations welcomed key projections in the forecast. Margaret Lo, director of business engagement for the Institute for Market Transformation (IMT) is particularly buoyed by the surge in renewable energy generation. Wind and solar power prices have fallen so low that the sources are often more affordable than coal- or gas-fired electricity.
EIA’s Commercial Buildings Energy Consumption Survey also shows that larger buildings are under construction in significant numbers around the country; those properties are more likely than their smaller counterparts to track and manage their energy use and submit data to Energy Star Portfolio Manager. But while the outlook points to declines in emissions from the commercial sector, “We need much deeper reductions … for a sustainable planet,” Lo said.
The 2021 forecast finds that the pandemic propelled a drop in energy use, but less than expected, Lo said. Occupancy has declined as much as 90 percent, yet has produced only a 23 percent decline in consumption, the result of lease limitations and control challenges.
“We see this as an opportunity to rebuild better and improve building performance,” Lo noted. “Owners and managers can utilize green leases, also known as performance-based leases, that reduce these challenges and allow for greater communication and collaboration among owners, managers and tenants.”
Renewables gain steam
EIA’s annual forecast provides a history and projection of electric generation capacity additions and retirements, noted Mike Bammel, managing director and national head of the renewable energy valuation team at JLL. “Much of the renewable energy additions are driven by states’ implementation of a Renewable Portfolio Standard,” he added.
According to the National Conference of State Legislators, 29 states, Washington, D.C., and two territories have adopted RPS with varying goals. “Solar is an attractive option for property owners, since the opportunity exists for onsite installation, roof-mount, ground-mount and carport systems, enhanced with EV charging stations and energy storage,” Bammel told CPE.
Renewables’ growing prominence is reflected in EIA projections that distributed generation will account for five percent of commercial building electricity consumption by 2050, a substantial increase from two percent in 2020. “More than 90 percent of this generation will be derived from photovoltaic by 2050,” Fickling said, noting that declining installed costs are the predominant driver of adoption of commercial solar photovoltaics in EIA’s model.
Photovoltaic costs are projected to decline most rapidly in the next nine years, despite the phase-down in the federal Energy Investment Tax Credit—from 30 percent in 2019 to 10 percent in 2022—and the four-year Section 201 tariff on PV cells and modules established in 2018. “Commercial PV capacity growth is fastest in the near- to medium-term,” Fickling said.
As renewable energy costs decline and renewables grow more prominent, IMT expects greater demand from owners, managers and tenants—as well as customers, investors, and local government—to electrify energy end uses, cut fossil fuel consumption and reduce carbon emissions, Lo noted.
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“Decisions cannot be made today based on expectations for 30 years from now,” Matt Cebula, director of energy services for AKAM Living Services, told CPE. “New York City and many other major metropolitan high-use cities have set aggressive or unreachable carbon emission goals to be hit by 2050. If we’re heading towards this end goal, electric use by 2050 will rise exponentially compared to where we were in 2020,” he noted.
Legislation like New York City’s Local Law 97 will become more prevalent, added Sam Ramadori, president of BrainBox AI. But recent artificial intelligence, Internet of Things and cloud computing innovations are delivering solutions that don’t involve the capital costs and complexities of deep retrofits. They have the potential to drive meaningful energy efficiency gains in the short-term, Ramadori said, for the “cost reductions and efficiency gains the sector desperately needs in its journey to net-zero carbon buildings.”
The agency’s energy outlook for 2021 should spark action at city, state and federal levels, resulting in incentives and mandates that open opportunities for commercial real estate operators, Jeff Perlman, co-founder & president of Bright Power, told CPE.
“Stay up to date on all of these developments: Energy pricing and trends; passed and proposed regulations; incentive programs to enable you to integrate high-performance or renewable energy technologies; and technologies that allow you to decrease your portfolio’s carbon emissions,” Perlman advised.