The Building Electrification Conundrum

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The age of fossil fuels is over. Much of the world has already started to make its transition from coal and gas as ways to power our lives. This has directly impacted the property industry. Governments around the world have passed both regulations and incentives to reduce our buildings’ carbon footprint. But while I am rooting to reduce our dependence on pressurized plankton (oil doesn’t come from dinosaurs like we all think), there are some important barriers that no amount of carrots or sticks will be able to break. The increasing threat from a warmer climate thanks to the blanket in our atmosphere ended our love affair with carbon. But like many lovers, fossil fuel will not just let us easily walk off to our next interlude.

Electrifying buildings is a really great way to lower our fossil fuel use. Buildings consume a lot of energy to regulate temperature and to heat water. Most do this in a central facility that uses natural gas to power boilers and chillers. Switching these to electric-powered alternatives like heat pumps give buildings the ability to be much more precise, heating or cooling only the areas that need it when they need it. Electrical equipment also provides energy from cleaner sources, at least if the local utility company has invested in them.

One of the main challenges to switching our buildings over to run completely on electricity is getting them enough electricity to do so. Most electrical infrastructure was built at a time when no one could have imagined the amount of energy that we need today. If all buildings switched over to be all electrical we would need to increase the capacity of our electrical lines, which is no easy feat since most of them are buried beneath our roads. The Department of Energy predicts that transmission will need to be expanded 60 percent by 2030, meaning we will need to see a much faster pace of infrastructure construction than ever before.

It is also important to remember that buildings will now be competing for electricity from cars as well. The switch over to EVs is already creating more demand for electricity. One study calculated that in order to put 20 million EVs on the road we would need to invest $75 to $125 billion into the grid. The first thing everyone learns in economics is the power that supply and demand have on price. But the relationship goes both ways. As we decrease the use of fossil fuels it will get cheaper and therefore be harder for electricity to compete with.

Changing out major building systems is a lot of work, work that needs to be done by skilled labor. Unfortunately, there is a huge shortage of people who want to work in fields like HVAC and electrical (everyone wants to just write a newsletter I guess) so finding servicers for electrical conversions is difficult and expensive. The equipment is also hard to come by. The wait right now for cold weather heat exchanges extends well into next year. This makes it hard for companies making these upgrades as they often need to justify these expenditures in the current financial period.

Eventually, our buildings will be electrified. We have the technology, capital, and will to make it happen. But it will not happen overnight and it likely will not happen in the timelines set forth by regulators. Rather than trying to punish building owners into compliance, governments should spend more energy building a clean energy infrastructure that makes it financially viable to do so. There are a lot of hard questions we need to ask ourselves about ways to make our electrified dream feasible with our current pace of renewables (yes, I am talking about nuclear).

Bill Gates made headlines for saying that we can not solve the climate crisis by asking people to consume less. I agree with the sentiment but I do think there are ways to get people to do more with less. When it comes to built space, we could all likely use less. The sprawl that the American city has become creates a lot of unnecessary consumption (along with other negative externalities like loneliness and obesity). The problem is that building denser cities is dictated more by local politics than by market forces.

There is also another important factor that could help persuade people to use less: societal pressure. Only one generation ago in the US (and still in many countries around the world) it was not a faux pas to litter. Now most of us would never dream of doing so, especially if anyone else is looking. Eventually we might feel the same pressure about energy usage. Every step we take on the journey to a more sustainable society is a good one, I just don’t think we should fool ourselves into thinking that it is a shorter trip that we actually have in store.

Overheard

"At the end of last year, overall fossil fuels represented 81% of energy consumption. 10 years ago, they were at 82%," says Jeff Currie. "$3.8 trillion of investment in renewables moved fossil fuels from 82% to 81% of the overall energy consumption." pic.twitter.com/VhQN0S9oo9
— Squawk Box (@SquawkCNBC) October 3, 2022

Mapped

If you are wondering what kind of investment in energy infrastructure is happening in your neighborhood, check out this interactive map which shows the energy investments of every grid operator.