Illinois Offering CRE Carrots, Not Sticks, To Boost Renewable Energy

When Gov. J.B. Pritzker sat down at Chicago's Shedd Aquarium last week and signed Illinois’ new energy bill into law, he generated a lot of headlines about the state’s decision to bail out several nuclear power plants. But it’s the strengthened commitment to renewable sources like solar and wind that could have a far greater impact on commercial real estate owners and developers.

The law requires Illinois’ major utilities to phase out the use of fossil fuels and rely on carbon-free energy sources by 2050. Most coal plants will have to shutter by 2030 and plants using natural gas must close by 2045. 

To help reach those lofty goals, the state boosted to $580M the amount in state incentives available for property owners that launch wind or solar power projects, a program that ran out of funds in late 2020 and led to a slowdown in renewable energy projects.

Few states are putting that much financial heft into efforts to expand the use of renewable sources, according to Clayco Vice President of Sustainability Ryan Spies. It opens the possibility of big savings in energy costs for property owners that can take advantage and it does so without onerous requirements or benchmarks.

“That’s the beauty of it,” Spies said. “It really is a market mechanism. It’s more the carrot and not the stick.”

However, funding that program, along with subsidizing several nuclear power plants, requiring utilities to tap renewable energy sources and paying for new infrastructure for electric vehicles, will come with a cost. That means rate hikes for consumers, according to Ron Tabaczynski, director of government affairs for Building Owners and Managers Association of Chicago.

Although Tabaczynski said he appreciates what seems to be a lack of new regulations that might ensnare commercial owners in red tape, state legislators weren’t transparent with the commercial real estate industry about all the particulars in the complex legislation as it took shape. That left a lot of open questions. There are also worries over how much the cost of energy will rise.

“Early on, we had a lot of engagement with the governor’s office and met with his point people on energy, but that cooperation didn’t happen once it was in the hands of the legislative working groups,” he said.

BOMA/Chicago is currently doing an analysis of future energy costs, Tabaczynski added, and its initial numbers don’t look good. The group estimates the owner of a large downtown office tower could pay about $68K more for energy in the first year of Illinois’ new system, increasing to an extra $174K annually by the 10th year, for a total of $1.2M over the decade.

Still, their analysis could change.

“There is just so much that is new in here, and a week from now, we may have different numbers,” Tabaczynski said.

State Sen. Michael Hastings, one of the bill's co-sponsors, estimated residential consumers will see increases of up to 4%, and commercial owners will pay between 5% and 6% more, according to a report by Capital News Service. 

Bailing out Exelon Corp.’s nuclear plants in Illinois won’t come cheap. The state agreed that rate hikes would help fund a nearly $700M, five-year rescue package after Exelon, the parent company of power utility ComEd, threatened to shutter several of its downstate plants.

Spies pointed out that nuclear power is a zero-carbon energy source and, if the state was going to meet its overall goal to reduce carbon emissions, it had to make it affordable for state utilities to operate the plants. Shutting them down would have left a big gap between the state’s power demand and supply.

“In the context of climate change, this is exactly what the state needed,” he said.

Spies sees the new law as a way for property owners to launch solar projects that will feed energy into the state’s grid and make use of renewable energy credits to cut down energy costs while helping the state meet its goals in curtailing carbon emissions.

Wind farms typically need large expanses of rural land to generate significant amounts of power, Spies added, so it’s unlikely commercial property owners will show much interest in that energy source. But landlords of large properties, especially industrial buildings with expansive roofs, may find their structures are perfect fits for new solar farms.

“The beauty of this industry is that a lot of solar developers will give you a pro forma [estimate] for free,” Spies said, so an owner will know how much an installation will cost, how much energy it would generate and what the return in lower energy costs will be.

Chicago-based Clayco brought Spies aboard earlier this month to help reduce its overall carbon footprint. He said the design-build firm is now considering how it can use the state’s new renewable energy credits, an opportunity he encouraged others to explore.

“If I’m a developer in Illinois, I’m absolutely looking for someone to come out and give me an estimate,” he said.

The new law also dedicates about $180M each year for training programs. Chicago-based developer A.J. Patton said that will help ensure that jobs in the solar and wind industries are created in disadvantaged communities. 

Patton's 548 Capital is redeveloping several multifamily properties on the South and West Sides of Chicago, adding a host of energy-efficient features, including solar panels that will cut energy use and operating costs, allowing residents to pay affordable rents. 

"This new bill gives us a lot more confidence, just knowing those resources are going to be there," he said. "They put some real meat and potatoes into this bill."