Powered Down: Denver’s Energy Grid Causing Headaches For Some Industrial Businesses

As Colorado moves toward its goal of drawing 50% of its energy from renewable sources by 2030, some industrial property professionals say it is getting more difficult to meet their clients' energy needs as the resilience of the state’s energy grid is being tested like never before.  

The struggles coincide with extreme weather, including record heat waves, that put more stress on the state’s energy grid. Meanwhile, commercial property owners in Colorado are being asked to increase the electrification of their buildings, in turn increasing the amount of power each building needs to operate. CBRE Senior Vice President of Industrial and Logistics Jessica Ostermick said the combination of these forces is already causing problems for some industrial tenants. 

“We’re running into issues where these businesses aren’t able to find spaces that meet their energy demands, whether it’s because of timing or cost or the lack of capacity,” Ostermick told Bisnow. “There’s a whole host of factors that simply didn’t exist five years ago.”

One issue that seems to be driving the struggles is the supply chain, Ostermick said. Common electrical gear like switchgears, transformers and circuit breakers have been in short supply since Russia invaded Ukraine in 2021, ProBuilder.com reported.

These components are necessary to control and protect the electrical load sent to a given property. In a normal market, these parts typically can take between two and four months to acquire. However, they have taken almost a year to arrive since the war began, according to ProBuilder. 

The extended lead time for these parts is causing some industrial business owners to rethink their energy strategies, Ostermick said. She added that some businesses have forgone signing new leases because of the added costs associated with upgrading a building’s power equipment. 

While some electrical system equipment is taking longer to arrive on-site, industrial property owners are also paying more for power in Colorado compared to the nationwide average. In June, the Energy Information Administration found industrial power in Colorado costs just about 9 cents per kilowatt-hour compared to the national average of 8 cents per kWh. 

“Power used to be something everybody just assumed they could get whether or not they needed an upgrade, or they had a pretty modest requirement,” Ostermick said. “And I think that due diligence item needs to be verified and assessed way earlier in the process.”

These cost and supply chain challenges come as extreme weather conditions like wildfires and flooding are putting more stress on Colorado’s energy grid, Colorado Energy Office Executive Director Will Toor said in a press release.

To that end, the state was awarded $17.2M from the Department of Energy to support projects that make the state’s energy grid more resilient, including a microgrid project to spread the state’s energy load across multiple distributed energy centers. 

Colorado isn’t the only state where industrial developers say they are concerned about the power grid. In May, industrial developers from California told Bisnow that local utility company Pacific Gas and Electric was the “primary cause” of construction delays, which were often associated with lower internal rates of return for investors. 

For developers who are bullish on electric vehicles, the power shortages can be even more costly. One challenge that Greenspeed Energy Solutions President Paul Williams has run into is adding electric vehicle charging ports to existing buildings. Williams told Bisnow in September that most existing “electrical rooms are not designed for it, the power is not designed for it, the conduits in the slab are not designed for it.” This makes the prospect of adding electric car charging amenities difficult, if not impossible, to pencil out. 

“A lot of markets have really ambitious renewable energy goals and regulations that they’re pursuing, and that’s driving demand for new energy sources like solar power or battery storage,” Ostermick said. 

Colorado is also pushing ahead with plans to expand clean energy technology usage, which could further test the state’s grid. Colorado Energy Office spokesperson Ari Rosenblum told Bisnow in an email that the state has been working with utility providers like Xcel Energy to make the appropriate upgrades to support increased energy demand. Xcel received a $20M grant from the Department of Energy and plans to spend $10M to upgrade its battery storage system in Colorado, according to a press release.

“As increased electrification occurs, the State is also focusing on energy efficiency and demand flexibility to reduce overall energy use in both new and existing buildings,” Rosenblum wrote. “High efficiency electric appliances, alongside energy efficiency measures, will ensure that electricity use in buildings is optimized. Building efficiency and electrification measures also bring comfort, safety and resilience benefits to households and businesses.”

Going forward, Ostermick said industrial property owners will need to pay closer attention to the grid in order to find properties that meet their business needs. 

“This is an area of study and expertise that benefits all of us to learn more about as the needs of industrial users become more sophisticated and power intensive,” Ostermick said.