Comment
The Real Estate Board of New York to the New York State Energy and Research Development Authority (NYSERDA) on the Cap-and-Invest Program
REBNY
September 29, 2024
REBNY is the City’s leading real estate trade association representing commercial, residential, and institutional property owners, builders, managers, investors, brokers, salespeople, and other organizations and individuals active in New York City real estate. REBNY appreciates this opportunity to comment on NYSERDA’s Cap and Invest (NYCI) program.
Building decarbonization is a critical priority to achieving the goals of the Climate Leadership and Community Protection Act. Buildings account for about 2/3 of all carbon emissions in New York City and about 30% of all statewide emissions.(1) However, advancing building decarbonization is challenged for several important reasons including the cost of making building-level improvements and the need to ensure that there is reliable carbon-free power available for buildings that no longer rely on on-site fossil fuel combustion for heating, cooling, cooking, and hot water. NYCI is an opportunity to overcome these barriers.
Recent experience has demonstrated that building decarbonization will not advance on the timeframe required by the Climate Act unless additional steps are taken. For instance, the New York State “Clean Energy Standard Biennial Review” projects that only 4% of buildings are on track to have heat pumps installed by 2030, indicating that electrification projects are not proceeding at the pace needed to reach 2030. This is in large part due to the fact that the upfront costs of electrification projects are significant. NYSERDA’s “Carbon Neutral Building’s Roadmap (2)” found that the upfront per unit cost of electrifying an existing gas heated multifamily building are $21,000 while only reducing annual operating costs by $500. For office buildings, the analysis found electrification would result in an $8.80/sf upfront cost while reducing annual operating costs by $0.40/sf.
In addition, building owners are similarly concerned about the ability of the electric grid and local distribution networks to provide reliable carbon free power. The New York Independent System Operator (3) found there are significant risks to electric system reliability in the coming years – particularly in the downstate region. Furthermore, existing local distribution networks are generally not upgraded prior to demand arriving for that load, which can deter building owners from pursuing projects that require significant increases in electrical capacity.
Overcoming these challenges should be a significant goal of the NYCI program, which is why we are providing the following recommendations to guide how revenue from the NYCI program is allocated.
First, we urge NYSERDA to take advantage of existing programs, like the aforementioned Empire Building Challenge, that have already proven to successfully advance building decarbonization in the most challenging properties. Creating new programs to spend money collected through NYCI would have administrative and other costs and would take significant time to develop. In addition, building owners and managers are familiar with existing programs, which will reduce barriers to entry. For example, REBNY members are participants in several leading programs including NYSERDA’s Empire Building Challenge, a $50 million initiative that seeks to transform New York’s buildings. Many of the key lessons of this initiative were recently unveiled as part of Empire Building Playbook (4) initiative, which is based on the successful efforts of companies including Empire Realty Trust, the Durst Organization, Vornado Realty Trust, and Hudson Square Properties. Greater funding of this program will allow more buildings to participate in this successful program and help these playbooks be more widely adopted.
In addition, as part of investments in building-level upgrades, programs should consider expanding funding for building envelope improvements that would not otherwise happen due to cost and lack of payback but will be helpful in mitigating demand for electricity in the future. There is significant opportunity to improve building performance by making improvements to envelopes and a scalable retrofit program is urgently needed to help large buildings finance these upgrades and alleviate high future demand on the electric grid.
REBNY also urges NYSERDA to allocate cap-and-invest revenue toward addressing broader market challenges. Achieving decarbonization building-by-building will be a daunting task and will require an understanding of each building’s unique capital needs. In addition to programs that focus on specific buildings, NYCI revenue can be used to make investments that benefit many buildings at the same time. For instance, in order to reduce the cost to consumers and enhance supply chains, NYSERDA could establish a program to purchase significant quantities of heat pumps and other building systems that will be in high demand in the coming years.
Alternatively, NYCI revenue could be used to support the enhancement of existing district energy systems – for example supporting Con Edison’s efforts to decarbonize district steam generation in New York City – or building new efficient thermal systems that support campuses or other networks of buildings. Earlier this year, the New York State Department of Public Service advanced nine pilot Utility Thermal Energy Network (UTEN) projects across the state. The UTEN pilot projects are intended to test out various models to provide standardized building electrification as opposed to individual electrification on a building-by-building basis. Expanding these efforts would be a similarly prudent use of NYCI funds.
Similarly, NYCI investments should also prioritize electric grid and local distribution investment and reliability that will help support various industries as the pace of electrification increases in the coming years. In order to electrify, most large buildings will require upgrades to their electrical capacity. According to the “2023-2042 System and Resource Outlook” (5) from the New York Independent System Operator (ISO), New York is projected to increase electric energy consumption by roughly 50% - 90% and become a winter-peaking system over the next 20 years. This is a daunting and expensive undertaking, and many buildings trying to upgrade at the same time will only further strain the ability of the local utilities. The Public Service Commission’s annual report highlights that current local distribution systems are reactive rather than proactive, often responding to individual load requests rather than systemwide upgrades. (6) To address this issue, the Commission recently announced a new proactive grid planning proceeding that will require local utilities to identify investments that will be needed to support greater electrification. Supporting those types of forward-looking investments would also be a prudent use of NYCI funding.
Directing NYCI revenue towards building decarbonization is a strategic and necessary step to meet New York’s climate goals. We urge policymakers to prioritize the kinds of investments discussed above to ensure a sustainable and equitable transition for all New Yorkers.
Zach Steinberg
Senior Vice President of Policy
Real Estate Board of New York
zsteinberg@rebny.com
1 https://www.nyserda.ny.gov/All-Programs/Carbon-Neutral-Buildings/Carbon-Neutral-Buildings-State-Fair
4 https://www.nyserda.ny.gov/All-Programs/Empire-Building-Challenge
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