Energy procurement for commercial real estate portfolios is a specialty discipline that determines how much the property pays for electricity and natural gas — often the largest single operating expense line after real estate taxes. The options available to a building depend heavily on jurisdiction. In deregulated markets (most of Texas, Pennsylvania, New York, parts of Ohio and Illinois, Alberta, and a growing portion of Europe), the building owner can choose from competing retail electricity providers on negotiated contracts. In regulated markets (most of Canada, most western US states, much of the southeastern US), the building buys from the monopoly utility at tariff rates, with limited or no ability to shop for alternatives. Understanding which regime applies is the first step in any procurement strategy.
In deregulated markets, the core procurement decision is fixed versus indexed pricing. A fixed-price contract locks in a specific rate per kilowatt-hour for a defined term (typically 12-36 months), providing budget certainty but eliminating the upside if spot prices fall. An indexed contract prices each month based on the wholesale market, providing upside in soft markets but exposing the building to volatile bills when spot prices spike. Many institutional owners use blended contracts that fix a portion of the load (the baseline consumption the building will use regardless) and leave the variable portion to index pricing, effectively hedging without giving up all the upside. The RFP process for selecting a retail provider is often run through a specialist energy advisor who aggregates demand across multiple properties to negotiate better pricing than any single building could obtain alone.
Renewable energy procurement has become increasingly important as corporate tenants demand green power to meet their own sustainability commitments, and as GRESB, TCFD, and similar disclosure frameworks require owners to report on their energy mix. The main procurement vehicles are utility green tariffs (where available), renewable energy certificates purchased separately from the underlying electricity (the least expensive option but the most controversial for greenwashing concerns), on-site solar installations with a power purchase agreement structure, and virtual power purchase agreements (VPPAs) with off-site wind or solar farms. VPPAs are the most complex but offer the strongest claim to additionality — the building is directly contracting with a specific new renewable generation asset rather than buying offsets from the general pool. Each structure has different cost, risk, and credibility characteristics, and institutional portfolios increasingly use a blended approach.
Demand response participation is a lesser-known but meaningful revenue opportunity for buildings with flexible loads. Utilities and grid operators pay commercial customers to reduce electricity consumption during peak demand events — typically summer afternoons when the grid is stressed. A building can participate by agreeing to pre-cool its spaces in the morning, shed some lighting during peak hours, or cycle chillers off for short periods. The payment is typically a combination of capacity payments (paid year-round for committing to be available) and energy payments (paid per kilowatt-hour of actual reduction during events). For large office and industrial properties, demand response revenue can run into the tens of thousands of dollars per year with minimal tenant disruption — one of the few property-level income streams that is genuinely additive rather than a reallocation of existing cash flows.
Open a learning-mode session biased toward this topic and closely related concepts. No timer, instant feedback after each answer, and a deeper explanation on any question you want to explore further.
Start the quiz →