The California Energy Commission (CEC) passed new building clean energy standards that will affect high-rise multifamily, hotel/motel, office, medical office and clinics, retail and grocery, restaurant, school, and civic (like theaters, auditoriums, and convention centers) new construction starting January 1, 2023.
The standards need ratification by the state’s Building Standards Commission in December 2021, which virtually “always approves these energy changes,” Jorge Medina, co-head of renewable energy practice at Pillsbury Winthrop Shaw Pittman, tells GlobeSt.com.
The new standards incorporate mandatory inclusion of battery storage-ready solar power in new CRE construction. They also will include an “energy budget” to regulate the amount of hydrocarbon use to encourage builders to incorporate heat pumps instead of gas-fueled HVAC.
According to the CEC, 70% of the state’s energy use comes from homes and businesses and incorporates 25% of California greenhouse gas emissions. Over 30 years, the agency estimates that would be equivalent to taking 2.2 million cars off the road for a year.
Although “it should have a positive impact, it’s hard to say the magnitude,” Medina adds. In 2018, California passed standards for home builders, which were to go into effect in 2020. The pandemic played havoc with the plans and many projects were grandfathered in, so there’s been a lack of data to see financial impacts.
“The idea that it has to be built so it’s battery ready is useful,” Medina says. Rather than having to retrofit construction, inclusion of additional wiring at the onset can be significantly less expensive.
There are also significant tax breaks, both federal and state, for projects that include all the technologies.
Energy savings programs are a type of value-add that can make buildings more attractive to existing and prospective tenants.
The upside is good, but some in the industry note that CRE players are being put in the position of bailing out states.
“After transportation, real estate is the biggest consumer of energy,” Scott Crowe, chief investment strategist at CenterSquare, tells GlobeSt.com. “Because it’s really expensive. The challenge this creates is by basically transferring the energy problem to real estate. It makes it even more expensive to build new stuff.”