By Allison Bridges
According to the National Oceanic and Atmospheric Administration (NOAA), the cumulative cost of all weather and climate disasters in the United States in 2016 was more than $1.1 trillion. Low- and middle-income countries feel the financial impact of natural disasters more acutely, as the shortfall of insurance compensation relative to economic loss is greater. The human toll of disasters in places such as South Asia is also far greater than in developed countries, as seen in the recent floods that killed 1,200 people across India, Nepal, and Bangladesh. Coastal cities like Mumbai, home to over 20 million people, will likely continue to face monsoons and hurricanes leading to inundation and shoreline erosion, as well as degradation of freshwater sources and marine ecosystems.
But there is hope that we can build a better, more resilient future. Climate-adaptive infrastructure upgrades, needed in hundreds of cities around the world, could be financed by a combination of public sector spending, utility company investments, and public-private partnerships.
Real estate investors have the most to gain from adopting a longer-term view on the protection of their assets. With over $18 billion in real estate sector investment sales transactions in the first half of 2017, New York is a prime example of a city that could benefit from forging new public-private partnerships in support of resilient, low-carbon urban energy systems. Partnership initiatives, such as the MetaProp NYC real estate technology accelerator, work to bring together real estate investors and technology companies in order to encourage the integration of technological or energy innovations in the built environment. Unfortunately, connecting initiatives such as these to city planners remains weak, in part because of the lack of an institutional legacy for urban-level energy planning. Fostering partnerships between real estate investors, utilities, technology companies, and the city government can help address this weakness and direct private sector capital to develop urban microgrids and renewable distributed generation.
Recognizing the need to incentivize progress toward an upgraded urban power system, the New York State Energy Research and Development Authority awarded 30 communities each a $100,000 grant to conduct microgrid feasibility studies. Out of these feasibility studies, 11 communities were awarded a total of $11 million to develop microgrid projects. The three microgrid projects that received awards in New York are located in the East Bronx, Clarkson Avenue in Brooklyn, and the Amtrak/Sunnyside Yard. These projects target critical infrastructure such as hospitals, medical centers, and transportation networks and use a combination of energy technologies, including combined heat and power, solar, battery systems, and steam turbine generators. The projects mark an important shift toward more widespread integration of microgrids in the city, despite the absence of private sector financial partners.
A public-private partnership implemented in Hoboken, NJ provides a good example. Following damage sustained from Hurricane Sandy, city officials sought to improve their preparedness to provide health, water and sanitation services, as well as public safety, during disasters. With no other city in the U.S. having a microgrid to power a mix of public and private buildings, the Department of Energy funded a feasibility study that identified 55 essential buildings for connection to the Hoboken microgrid. The resulting financing model for the public-private partnership required the operation and maintenance to be paid for by the private sector while the local government continued to own the system. The city government incentivized construction by issuing zero coupon bonds to the developer, who owns the revenue for the duration of the investment period. These types of build-operate-transfer arrangements for energy infrastructure require new institutional capacity on the part of the local government to be able to effectively manage the energy assets after the investment period.
While a microgrid that is completely city- or state-funded is cost-prohibitive for many developing cities, stakeholder partnerships such as those found in Hoboken, can help meet multiple development goals. For example, a low-income housing project could offer residents solar power. The solar power units could be connected to nearby first-responder stations that provide reserve power during crises. Utilities can collaborate with local governments to provide distributed generation points at substations or in strategically located public buildings. To engage the private sector, municipal governments can incentivize private developers to install distributed generation or energy storage units through various tax abatement strategies or initiatives similar to the popular Property Assessed Clean Energy program in the U.S.
Real estate developers are well positioned to take advantage of this market opening in the electricity sector by leveraging land and building assets to install environmental upgrades. Such installations not only provide greater resiliency to storms but also provide peak shaving capability. Residential and commercial owners of renewable technologies may also increase the value of their properties. Owner-financed distributed solar units are an attractive option for real estate developers who have sufficient up-front financing and value long-term energy independence, particularly in developing countries where outages may be more common.
Transitioning to sustainable, resilient urban energy systems requires technological innovation, institutional innovation, and innovative business models that bring together multiple partners from both the public and private sector. A diverse portfolio of generating assets that combines existing capacity with more flexible and resilient renewables and microgrids will help meet growing energy demand while also meeting sustainability targets in urban decarbonization, energy efficiency, and disaster preparedness. Recognizing that the transition to sustainable urban level energy systems will require financial as well as technological innovation, including new grid management systems and smart grid infrastructure, partnerships between public institutions and private companies is likely the only way to ensure an energy-secure future for our global cities.
Allison Bridges, a postdoctoral fellow, recently joined the Research Program on Sustainability Policy and Management through the Earth Institute Fellows program. During her appointment, she will be continuing her research on institutions, local level governance, and the use of sustainability indicators in decision-making.