Why Kilroy is turning buildings into batteries

Kilroy Realty
Kilroy Realty's property in El Segundo, one of the sites slated for an energy storage installation.

Real estate owners know that they have to offer something better than the competitor across the street, and at a lower price, in order to attract and keep occupants. Owners who trade on their sustainability smarts face this pressure when they manage and price energy for tenants. 

For Kilroy Realty, a family-run real estate investment trust based in Los Angeles, a new deal with an energy storage startup could bring a new sustainable amenity to upscale commercial buildings. 

Kilroy, a real estate investment trust that owns roughly 12 million square feet in major West Coast markets, has started a process to install five Tesla-made PowerPack batteries in each of five office buildings in Southern California. The batteries run on software that detects when power from the electric grid is especially scarce, and switches to power that was stored at some other time, thus avoiding drawing power at peak times, when it’s most expensive (and not always the cleanest.) Technology company Advanced Microgrid Solutions designed the algorithms and dashboards for building staff, and will manage the systems.

For the two partners, the deal takes on different dimensions. Advanced Microgrid, also headquartered in Los Angeles, treats the installations as a proof of concept. The arrangement is part of a larger agreement it struck in 2015 with Southern California Edison, the local utility, to automate up to 200 megawatt-hours of "demand response" services — industry-speak for dialing down power when everybody’s using it — throughout a key market called the Los Angeles basin. Delivering on that agreement means siting batteries at nodes where the electric grid faces heavy demand. The planned Kilroy sites, Advanced Microgrid stated, eventually will relieve 11 megawatt-hours of demand — at any time that power shift should prove necessary — over 10 years.

Delivering on that agreement means siting batteries at nodes where the electric grid faces heavy demand. The planned Kilroy sites, Advanced Microgrid stated, eventually will relieve 11 megawatt-hours of demand — at any time that power shift should prove necessary — over 10 years.

For Kilroy, installing the batteries expands the real estate company’s quest to make its buildings more energy efficient. "It’s a tool in the arsenal," said Sara Neff, Kilroy’s head of sustainability. When we caught up by phone, Neff gently placed the batteries in context. The batteries don’t necessarily tap renewable energy, she reminded us, and they don’t look to her like a "resilient" solution because they can’t run independently of the grid in a blackout.

But they can reduce costs, by enabling the building’s management system to sidestep grid power when it’s costliest. "The software is a learning-based algorithm on past usage, current electricity price, weather and what’s going to happen to the system in the future," said Manal Yamout, vice president of policy at Advanced Microgrid. With these inputs, a building will be able to shift back and forth between grid power and battery power, saving grid burden and associated electric bills, she said.  

An evolutionary approach to demand response

Advanced Microgrid usually buys, finances, operates and manages its batteries so that it can provide them as low-cost service to owners, Yamout noted. Terms of the Kilroy deal fall under a nondisclosure agreement, but she said it's not very different from the kinds of agreements her firm usually makes with private owners.

The company has a $200 million credit facility with Macquarie Capital, which it inked last July, to finance batteries at what Yamout called a "low cost of capital."

For Neff, who aspires to "net zero" buildings that run on renewable fuels or otherwise manage to add no carbon to the atmosphere, this is the right solution for a certain property type. "My job is to save energy, and my buildings are too tall and centrally urban" to run on wind turbines or independent solar power supply, she reasoned. The batteries involved with these installations won’t store solar or wind power. They do, however, spare owners from having to draw on expensive and inefficient central power.

[Learn more about energy storage applications at VERGE 17, in Santa Clara from Sept. 19-21.] 

For Advanced Microgrid, the deal presents another showcase for its strategy to brand clients as alchemists "turning buildings into batteries." The company calls sites such as the ones in the Kilroy deal "hybrid electric buildings." The premise is that the company’s technicians and software customize an installation and response software to a site’s conditions and to the way the people in it use power, Yamout said. This then makes it possible for properties to run on their own power.

Advanced Microgrid markets itself to customers such as Kilroy and another SoCal developer, Irvine Realty, which in turn market their buildings to tenants trying to run their operations more sustainably. "Customers are motivated by quantified savings," Yamout said. "They are leaders in sustainability already."

Marketing to owners who already see the bottom-line appeal of sustainability means encouraging building managers to think more broadly, she added. "You have your LEED Platinum, and what’s next? What’s next is turning your building into a grid resource."

Without a doubt, this software-based solution appeals more intuitively to tenants than traditional "demand response" systems, in which building management systems cut off air conditioning or dim hallway lights at peak power times. "Our [solution] allows [owners] to participate in demand response without having to turn down the A/C," Yamout said.

That amenity has Neff "very excited" about the project, which should see installations begin in the next several months. She said she hopes the software improves on old building management systems that couldn’t respond quickly to demand peaks, either because they get too hot in summer or because their systems face too many glitches.

Neff also predicts more visibility for batteries as California moves toward demanding more electricity from renewable sources. A big renewables mandate, she said, "doesn’t work without storage."

It isn’t just California where turning buildings into batteries makes sense. Advanced Microgrid has set up offices in Massachusetts and New York, which also have seen policy shifts to conserve power along the electric grid. The company intends to repower batteries in the Kilroy properties and at all its sites after deals expire, Yamout said. By then, one hopes, policy incentives and rewards for storage have solidified.

As storage improves and fossil power becomes less fundamental to owners’ energy mix, the business of convincing owners to invest in batteries seems near the sweet spot of sustainable real estate.