Energy Infrastructure Powers Up Multifamily
Resilience, cost savings and resident appeal make this a trend destined for growth.
Gone are the days when energy infrastructure in multifamily communities was a novel perk. Today, these systems are signs of the developers’ and owners’ focus on quality and drive to future-proof investments.
Beyond bragging rights, there’s money to be made, said Joseph Nagle, head of corporate strategy at San Jose, Calif.-based tech company Pando Electric. “With solar on the roof, a battery in the garage, and EV charging to help increase consumption, a property could generate its power during the day for essentially nothing, and then sell it back to the residents at their normal rate or even with a slight discount at night, and make a huge margin,” he said. The company’s internal calculations indicate that a 200-unit property could generate an additional $600,000 in revenue annually by taking these steps.
Mindset over materials
Multifamily investors have additional reasons to put money into adjacent energy infrastructure, said Robert Shaw, a Toronto-based managing director with CBRE Investment Management’s private infrastructure business. One is the incentive to meet residents’ preferences for climate-positive buildings. Another is fast-tracking projects by ensuring access to power from the start of development.
Resilience is yet another rationale. “We’re in an area hit by bad weather a lot,” noted Jeff Klotz, CEO of The Klotz Group of Companies in Atlantic Beach, Fla., an investor-developer with a 14,000-unit portfolio. “Resilient infrastructure is important to us.”
However, the biggest attraction may be the soaring cost of electricity, which has climbed faster than inflation, said Patrick Sterns, vice president of regulatory and policy at PearlX, a California-based sustainable energy infrastructure and capital partner for multifamily properties. Last year alone, the California Public Utilities Commission approved a half dozen rate hikes for PG&E, a major power provider for Northern and Central California. CPUC has acknowledged that electricity prices may continue to rise by as much as 10 percent annually. The use of solar and battery storage may soften those blows by locking in costs over the long run.
Some investors are also driven by a desire to do what they believe to be the right thing. Propelled by its owners’ belief that sustainability is the key to long-term affordability, Zara Realty Holding Corp. has installed more than 6,500 solar panels in its portfolio at a cost of $6.5 million.
Zara’s solar installations cover more than 50 rooftops across Queens, N.Y., delivering thousands of kilowatt hours of renewable electricity to residential properties, daycare centers and grocery stores.
The company’s most recent property, The 88, was recognized as the “Most Sustainable Multifamily Residential Development” by the Queens Chamber of Commerce. Located in the borough’s Jamaica neighborhood, the development bested New York City’s stringent 2030 climate goals by 40 percent.
According to Tony Subraj, vice president at Zara, the installation of solar along with advanced HVAC and predictive utility systems helps give residents healthier building environments and greater energy resilience.
Solar and storage
As policy has evolved, multifamily developers and owners have been able to leverage onsite solar in ways that were once impossible, Sterns pointed out. Creative tariffs allow owners and residents to share savings. Solar and storage have gained more standing in multifamily-focused building codes and regulatory programs. Financing mechanisms created by the solar energy industry permit developers to pay for infrastructure over long periods, rendering the programs more affordable.
This is all happening as solar and battery costs have fallen precipitously. According to Our World in Data, in the 1970s solar panels cost approximately $100 per watt. Today, the cost is between $2.41 and $3.86 per watt. “Distributed onsite solar is now by far the cheapest form of retail electricity in these markets,” Sterns said.
While these developments were occurring, the cost of battery storage fell, the Inflation Reduction Act provided developers with incentives and solar energy continued to evolve apace. These trends have helped convince multifamily investors of the benefits of financing energy systems upfront, thus lowering long-term costs for them and their residents.
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“Housing with predictably low monthly energy costs is very attractive in high energy-cost markets,” observed Craig Collins, senior associate at Portland, Ore.-based PAE Consulting Engineers. “As extreme weather and natural disaster events become more prevalent, it is in everyone’s best interest to incorporate energy resiliency into the building process to ensure communities are prepared for the long-term impacts of climate change.”
The rationale for investing in solar energy is driven in part by the growth of virtual net energy metering (VNEM) policies, particularly in California, said Jarell Mason, strategic partnerships manager with Aurora Solar, a solar design software company in San Francisco. VNEM allows utilities to credit customers at retail rates for the excess energy their solar systems return to the grid. Customers then pay only for their net energy usage.
“This policy is especially beneficial for multifamily buildings, where energy credits from a shared solar array can be allocated among individual units and common areas, significantly reducing utility costs,” Mason added.
With expansion of solar has come the growth of battery storage. Among reasons for the growth of battery storage is load flexibility, the falling price of the technology and greater storage capacity, Shaw noted. Solar power is stored in the battery during the midday hours when sunlight is at its peak. Load flexibility then allows it to be kicked into the property in the hours after sunset, when the need for power is greatest.
Battery storage systems have grown far more affordable in recent years, as innovation rides the coattails of the electric vehicle charging revolution. “And not only have prices come down, but the power capacity in a storage container has gone up,” Shaw said. “The more energy can be stored in one battery, the less land you need. And that’s really important in multifamily development.”
Flexible solutions
Can a solar-plus-battery-storage infrastructure investment power multiple properties?
Yes—“but they need to be quite proximate to one another,” said Shaw. “If you’re building out solar plus battery, and you’re doing it for multiple multifamily developments, you’re essentially creating a microgrid for that development. You don’t want to have to build a large distribution network to bring power to where it’s being used. As a result, they’re usually neighboring properties.”
Microgrid systems can power multiple housing developments, Collins said, but that depends to a great extent on utility participation, which varies widely by location. “For these kinds of microgrid projects to succeed, it’s important to understand whether the utility in the area is willing to support them, or if they are mandated to do so,” he said. “In many states, it’s illegal to deliver power across property lines or public ways—streets—or both. Only state-regulated utilities may do so, so their willing participation is critical.”
Today, a growing percentage of multifamily projects include energy infrastructure, said Shaw, who predicts that the future will bring a greater number of efficiency measures. “For instance, ground-source heat pumps will become more prevalent, replacing the heating and cooling mechanics within the building,” he said.
For a glimpse at what the future holds, Klotz suggested, consider the huge increase in the number of EVs on the road. “It’s going to be the same thing with buildings in the future,” he said.
“You’re going to power more and more of your buildings with solar, and you’ll see federal government require energy infrastructure be part of the future multifamily communities. And they will provide incentives for carbon tracking and green financing to foster that change,” said Shaw. “Long-term, the more cutting-edge operators will focus more on generating and storing power in the most intelligent ways across the scope of their buildings.”
