Malkin Holdings, the management team of The Empire State Building, are already among the greenest in the commercial property sector thanks to the massive investment they have made in energy efficient retrofitting. Now, CEO Tony Malkin is now upping the ante with a commitment to buy the landmark building’s energy from renewable sources.
To achieve this, the Empire State Building will purchase 55 million kilowatt-hours worth of Renewable Energy Certificates annually — enough to cover its yearly electricity consumption – from Green Mountain Energy, a renewable power and carbon offset retailer. The certificates are sourced through NRG’s wind power facilities. Tony Malkin believes the move will deliver a competitive advantage in attracting the best credit tenants at the best rents.
Renewable energy certificates are non-tangible assets representing the environmental, social, and other non-power qualities of renewable electricity generation. One R.E.C. is created for every 1,000 kilowatt-hours of renewable power generated, and the certificates can be sold with, or in some cases separately, from the power.
There is some scepticism around R.E.C. sales, notably around their use as a bit of greenwash. The Utility Reform Network, a California consumer advocacy organization, suggests there are two scenarios where R.E.C. sales do make a difference:
(1) The R.E.C.’s are sold under a long-term contract and this long-term contract allows a new renewable generation facility to receive financing and achieve commercial operations. In this case, the long-term R.E.C. deal provides critical revenues that enable the project to be financed.
(2) The R.E.C.’s are sold by a facility with high operational costs and the facility would shut down without future R.E.C. revenues. It is possible that some high-cost biomass plants could meet this criterion if their fuel costs are significant and they lack a sufficiently lucrative energy off-take agreement. The key question is whether the facility is likely to continue to operate based only on energy market revenues (without any R.E.C. sales). In the case of an existing wind project, there is no chance that a R.E.C. deal makes a difference because the operational costs are low and most wind projects receive lucrative federal tax credits based on production over the first 10 years. Once a wind project is online, the facility will continue to operate with or without a R.E.C. deal.
What’s clear is that The Empire State Building’s R.E.C. outlay is significant: it will more than double the amount of renewable power that any other commercial customer in New York City is currently buying.
