Landlords Take Steps
To Thwart Blackouts
NEW YORK -- Some real-estate developers, fearing another power outage like the one that left much of the Northeast in the dark over the summer, are getting off the grid.
They've teamed up with energy partners to install independent, mini-power plants in their buildings -- in basements, rooftops or parking lots. These so-called distributed-generation and co-generation plants operate independently from the nation's power grid, generating electricity right from the building.
The plants use natural gas, which is converted into electricity. In addition to electrical power, co-generation plants use the excess heat and thermal energy that are generated during the combustion process to heat and cool the building.
Wareham Development Inc., a San Rafael, Calif., a developer and owner of office and residential properties, has partly switched a couple of buildings to alternative power. Geoff Sears, principal at Wareham, had been considering the idea of installing co-generation plants in some of his buildings since the California blackouts and brownouts of 2001. He said one-third of the space in his company's 35 buildings are leased to biotechnology companies, which require power around the clock. He looked at solar and other alternative power sources.
Mr. Sears liked the idea of having a second energy provider, especially when there was so much uncertainty surrounding his primary provider, Pacific, Gas & Electric Co., which filed for Chapter 11 bankruptcy protection in April 2001.
But it wasn't until last month's power outage that Mr. Sears decided to push ahead with the plan.
"The magnitude and length of the blackout made it much more real in our minds," he said. "We wanted a higher level of power than an emergency generator," he said.
Plans are now in the works for RealEnergy to install co-generation plants in two of Mr. Sears's buildings.
Arden Realty Group Inc., a Los Angeles office real-estate investment trust, has also been active. It installed co-generation plants in eight of its 218 buildings in conjunction with RealEnergy.
In March 2001, Arden set up a special energy unit, called next>edge, which oversaw the installations, and has since expanded its service to install generators for other property owners.
Since the blackout, next>edge has received requests from three more clients who have decided to move ahead with installations, said Scott Lyle, president of next>edge.
For Everyday Use Too
Different from emergency generators, which provide limited energy usually through noisy diesel engines, co-generation plants are able to provide longer-term and cleaner energy. In many cases, the co-generation plants will operate daily, providing about two-thirds of the building's energy needs. The plants are fired up during peak periods when the cost of buying energy from the traditional provider is highest. This saves the property owner money.
RealEnergy, a distributed generation power producer, is so hot on the concept that it's offering to set up the plants in buildings for free. It will also pay rent to the building owner for the space it leases for the co-generation plants, and share some of the revenue it receives from the power it sells to building tenants.
John Paul, chief executive of RealEnergy, said his company has installed co-generation and distributed generation plants in about 17 office and hotel properties. Plans are in the works to install another 36, and talks are underway to potentially install another 150 others, he said.
His company jumped into the sector in 2000 as California was struggling with energy troubles.
"We saw a business opportunity related to deregulation," he said.
He typically installs the plants in buildings that are at least 200,000 square feet, or about 10 stories, to ensure there's enough energy demand to make it financially worthwhile.
His plants generate about two-thirds of the building's electricity needs, which could potentially help prevent the grid from being overtaxed.
He believes these plants could help to relieve New York City's power shortage problems without having to build new power plants. He cited a New York Independent System Operator Power Alert report that said New York would need at least 5,000 megawatts of additional capacity over the next five years just to maintain current reliability.
Newmark & Co., a commercial real-estate brokerage firm, estimates there are 3,554 buildings that are at least 10 stories high in Manhattan. If distributed generation plants were installed in even one-third of them, the island could produce 2,000 megawatts of power without having to build new transmission lines, said Chris Wissermann, head of RealEnergy's New York office. "Each megawatt that is generated at the point of consumer use is one less megawatt required from the severely strained grid," he said.
The biggest obstacle right now to installing the plants is getting through the myriad of red tape associated with city and state approvals. A property owner must get city air quality, state air quality, city construction, gas interconnection and synchronous electric interconnection approvals before proceeding.
Tim Daniels, vice president of government affairs for RealEnergy, said the toughest is the synchronous electric interconnection approval, which can take up to six months to receive. RealEnergy has joined forces with a coalition of energy-related companies to lobby the PSC, the state and the governor's office to speed up the approval process.
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