Navigating the Energy Landscape: Commercial Real Estate and the Role of Microgrids
Commercial real estate is mostly about making every square foot count efficiently and financially.
Always regarded as a smart, durable investment tool—“Buy land, they’re not making it anymore,” Mark Twain may (or may not) have quipped—the commercial facility footprint feels nearly infinite, covering all kinds of endeavors from restaurants to office complexes to churches to hospitals to warehouses and more. When they say place of business, this is what they mean.
And no place is truly free. Any building or space comes with a price--such as a steady, sometimes steep cost in rent, upkeep, taxes and utility bills.
Where a new era of promise lies for commercial facilities is dealing with the last of those challenges by incorporating on-site, distributed energy resources or even microgrids, if the solution fits.
“That’s where it all starts,” Kirk Edelman, CEO of commercial DER developer SolMicroGrid, told Microgrid Knowledge in an exclusive interview. SolMicroGrid has installed solar projects for Wendy’s and Chick-Fil-A restaurants as well as numerous other customers.
We are looking at sites which can host a lot of solar capacity at the lowest cost, so rooftop arrays is typically the best option,” Edelman pointed out. “large grocery store chains are a great use case as they consume a lot of power, and they typically have large roofs. That’s a great combination for us, so we see a lot of potential out there.”
Indeed, the commercial real estate sector covers close to 97 billion cubic feet in the U.S. alone, according to reports.
All of those facilities are mission critical in one way or another—especially to those employed and invested there. Given the growing frequency of climate events and power outages, the idea of connecting commercial-scale buildings to resilient DERs and microgrids is becoming more and more attractive to those customers such as retail chains.
One size does not fit all customers even if they all wanted DERs. SolMicroGrid develops many of its projects in California and still finds a variety of customer needs out there in the Golden state.
“It has to be a very flexible model that is capable of providing a number of attributes to a site,” Edelman said. “Some hosts want resiliency, but some don’t. If it’s in northern California chances are resiliency is important. In southern California it may not be something the host requests.”
Microgrids for commercial real estate are a key theme at Microgrid Knowledge Conference.
MGK 2025 is happening April 15-17 at the Sheraton Dallas in Texas.
The resiliency equation in commercial microgrids
The value of the commercial DER project depends on the use case. One customer may be happy to have some solar and a small battery to offset some of the site’s energy use, cut down on utility bills and maybe even sell some excess distributed energy back into the grid.
Others want to be ready when an outage comes, and they need to stay energized for hours or even days at a time. They might even strive for sustainability within the buildings. In those cases, the microgrid may be the answer.
“Resiliency and backup power needs should be part of the microgrid design process for commercial real estate and facilities managers considering DERs and microgrids,” said Michael Stadler, CTO and co-founder of microgrid modeling software firm Xendee, a regular partner with developers in these types of transactions.
“This is where you set your objectives and start to determine which configuration is going to be optimal to achieve them,” Stadler noted. “For example, depending on how much time you want to stay up and running during an outage—three hours or three days—the optimal technology mix will change dramatically.”
Indeed, this is a key differentiator when facility decision makers either go with the DER solution of a bit of rooftop and/or canopy solar and maybe a small battery to something more upsized in terms of rate capacity. Size matters, especially if the commercial site has the footprint to enable a microgrid.
“We can provide limited backup power via a battery,” SolMicroGrid’s Edelman said. You don’t always have to go to a (diesel or natural gas-fired) gen-set with islanding capability. We can upsize the battery along with load-shedding capability which can provide back-up power for select equipment.”
Expanding to a higher battery capacity can capture and sore more of the intermittent solar resource’s power generation, thus utilizing more of the renewable energy for longer duration. Developers such as his company, the Schneider Electric-Carlyle joint venture GreenStruxure and others can adjust their solution to meet the commercial facility’s needs.
Staying in business even when the utility grid is out
One thing to keep in mind: All microgrids are distributed energy resources but not all DERs are microgrids. The resources generating for the microgrid are centralized by a controller which maintains a steady rate of discharge or storage, and that microgrid could be interconnected, but it is definitely must be islandable—which means it can operate disconnected if the main grid is down with an outage.
Regions with increasingly frequent exposure to weather extremes are now home to more commercial microgrid projects. Texas, itself the victim of numerous hurricanes such as last summer's Beryl and even devastating cold fronts such as Winter Storm Uri, has embraced DERs and microgrids. In fact, statewide commercial microgrid installation has more than doubled in the past five years, with overall microgrid adoption up twentyfold over the past 10 years.
Helplessly watching the regional grid ERCOT lose 52 GW of utility-scale power capacity in Texas during Winter Storm Uri four years ago certainly remains fresh in the minds of energy planners with retail outlets such as grocery chain H-E-B and retail giant Walmart. And the rollercoaster of energy prices in deregulated electricity also plays a large part in calculations.
Every microgrid requires a robust energy management system to factor in all the things that can go right and wrong.
“It makes sense to think about this in terms of the different stages of microgrid project planning, and then the operations after it’s installed,” Xendee’s Stadler said. “First, having a sophisticated way to analyze and have accurate data around loads, tariffs, weather patterns for renewables and other important factors is critical. You also need to be able to project the economic picture along with technical requirements into the future, including things like expansion plans and ongoing maintenance.”
Facility managers of the world, unite! Microgrids are complicated, expensive things which commercial and retail managers have little time to think about beyond deciding whether they want it or can afford it.
Freeing the customer of these financial and technical entanglements is why some microgrid developers offer to build projects on the “energy as a service” (EaaS) model. SolMicroGrid offers EaaS plans, as does GreenStruxure, Eaton and a few others.
EaaS essentially means that the developer will pay and supply all the manpower to design, permit, construct, commission, operate and maintain the commercial microgrid on behalf of the customer. The EaaS provider also owns the project.
The customer pays the developer or microgrid owner regularly based on energy bills. At some point, this equation makes the best sense if a customer saves money on bills and the developer still makes money over the long haul.
“Most people tend to revert to the mindset that they are buying the project from you; they’re thinking they’ve got to go to their board for the capital,” Edelman said. “You don’t have to do that. There’s no Capex (capital expenditure) for them. However, that also means that there’s a lot of risk for us.”
Making energy costs transparent for the long haul
Surely that sounds intriguing to customers, but a commercial real estate company, hospital operator, food processing or Big Box retailer also wants to clearly comprehend where the margin benefits them the most to pull the trigger on microgrid and DER arrays at their sites.
Creating energy bills that are “super transparent” is one key, SolMicroGrid’s Edelman pointed out. Sometimes helping them understand energy billing also involves tutorials on how the utility does it and what’s in those bills that impact the customer’s bottom line.
“We often end up educating our customers on how they are paying for their power to help them understand how we are saving them money and charging for our power,” Edelman added.
Somewhere along the way that can come down to percentages. For instance, how many points does the energy billing go down with the microgrid contract instead of the utility billing. This is the crossroads where data analytics and financial math intersect the most for commercial microgrid customers.
“What we’ve found is that at the end of the day a lot of customers say, what is the ballpark figure on how much your project is going to save me over the life of the project?” Edelman said. “Most people want to see at least a 10% savings. If not, they often question whether the juice is worth the squeeze.”
On-site power projects are tremendously varied, so savings can be more and less than that number. Meanwhile, those DERs or microgrid can replace a company’s real estate energy load by anywhere from 10% to 100% depending on the project’s design and goals. A new microgrid designed and installed by PowerFlex and Schneider Electric at the Domaine Carneros winery in Napa Valley, California, accounted for more than 70% of that site’s annual energy use.
Grid services are another part of the microgrid value proposition for commercial facility customers. Although California has eliminated much of the benefits of its net metering program, for instance, DER and microgrid customers may participate and gain revenue from deploying some of its on-site power back into the utility grid during times of peak demand or via virtual power plant technologies.
“Market participation can, of course, change the economic outcome of a microgrid project, but it’s also specific to the project whether it makes sense or not,” said Xendee’s Stadler. “The control strategy will need to be able to forecast grid prices and ancillary services prices, and be able to communicate with the market, which adds complexity and cost.”
Complexity and cost must be two key considerations into a facility manager or energy manager’s calculations around bringing the idea of a microgrid to his or her company’s leadership. Like anyone else, companies are navigating a future of growing electrification and limited or challenged utility capacity.
“I’m hearing a common theme from many folks,” Edelman said. “EV charging is a real challenge. Peak demand is driving our utility bills up. Can you help us with that? We can!”
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