Rising energy costs in a warming climate add to pressure on businesses

ATLANTA — Dakota Conner doesn’t regret the $15,000 his family spent on new air conditioning and other improvements to their restaurant in Atlanta’s Grant Park neighborhood, Dakota Blue, despite the cost and challenge of working on the 100-year-old building they lease.

“Being here for 20 years, we’ve been doing things the same way for a long time,” said Conner, who can be found behind the bar most nights. “These past two or three summers, the way it’s just gotten hotter and hotter, it’s just been definitely a lot more trying to figure out how we can stay cool.”

Restaurants are among the most energy-intensive businesses, on a square-foot basis. They need to refrigerate food, cook it at high temperatures and keep diners comfortable while accommodating a constant flow of people and deliveries in and out of the building.

But restaurants are not the only businesses grappling with rising temperatures and energy costs. Businesses large and small across all industries are facing tough choices when it comes to adapting to climate change, and the cost of cooling is just one factor. With more people working from home, some of those costs have shifted from employers to workers.

In addition to longer, hotter summers, high interest rates, new federal incentives, regulations, and corporate climate commitments are also shifting the math when it comes to investing in buildings to make them more efficient and resilient.

“As the cost of electricity goes up, you’ve got a quicker payback,” said Jonathan Rodbell, a co-founder of Atlanta Property Group, which has added solar panels and other efficiency improvements to its office buildings. “I’m not rooting for that, but at the end of the day, that does provide some incentive for people to act.”

Hot in here

From 1979 to 2022, longer, hotter summers have resulted in a 71% increase in “cooling degree days” in the United States, according to the U.S. Energy Information Administration, increasing the demand on cooling systems. The agency’s forecast for this summer assumes a 5% increase over 2023 — globally the hottest year on record.

At the same time, the cost of electricity used to cool buildings is increasing. The national average retail price of electricity measured in cents per kilowatt-hour (kwh) rose 17% from 2019 to 2023, with residential and nonindustrial commercial customers paying the most, according to the EIA.

The U.S. Environmental Protection Agency says the energy used by commercial buildings is responsible for 16% of the nation’s greenhouse gas emissions and costs more than $190 billion per year.

In Georgia, the largest electricity provider, Georgia Power, has recently introduced a series of rate hikes. The utility also charges fixed fees and applies higher rates in the summer.

Georgia Power’s prices and profit margins are set by elected regulators on the Public Service Commission. Dozens of smaller electricity cooperatives and municipal utilities serving rural areas set their own rates.

The Georgia Power rate hikes vary, with residential customers — including many people who work from home — paying the biggest increases: about $38 a month more. Georgia Power offers different rate plans for businesses.

Georgia Power has said the increases are needed to invest in decarbonizing and strengthening the grid. A spokesman also pointed to two company programs that offer rebates or direct installation of energy efficient lights and appliances for commercial customers.

But Alan Conner, Dakota Conner’s father and the owner of Dakota Blue and Thinking Man’s Tavern in Decatur, said he tried to take advantage of those programs and even had a Georgia Power assessor come out, only to learn afterward that he didn’t qualify. He described the process as “exceedingly cumbersome.”

“I’ve tried to do it a couple of times and it just did not work in my example,” Conner said.

So Conner paid out-of-pocket for new LED lights, air conditioning and other improvements. In the meantime, he said his power bills are going up.

He’s not alone. Joe Sorbet, an engineer who manages several large office and research buildings in Atlanta, estimated one of his buildings has seen about a 12% increase in the cost per unit of electricity over the past 14 months.

“That’s outpacing inflation for sure,” he said. He added that his buildings have garnered efficiency rebates from Georgia Power over the years to the tune of about $300,000.

Sorbet said he’s been collecting weather data as part of overall building monitoring since 2007, not least so that he can justify himself to the accountants when they ask why electricity bills spiked in a certain month.

“In terms of trending weather, weather in general, we’re seeing hotter temperatures,” Sorbet said. “What’s far more important to us as operators is to keep operating expenses low.”

Carrots and sticks

Energy efficiency standards for new buildings are set by state and local building codes. Some places also have energy performance standards that apply to existing buildings.

Georgia has relatively lax rules based on a professional standard from 2015. Some cities, like Atlanta and Decatur, have adopted higher standards with permission from the state. Atlanta, in particular, has distinguished itself by the number of buildings that have received special certification from the federal government for their energy efficiency.

But Maggie Kelley Riggins of the Southeast Energy Efficiency Alliance said many of those state-of-the-art buildings are not representative, and adopting more modern building codes would save the state money and reduce greenhouse gas emissions in the longterm.

“We see a lot of commercial buildings being built above [code] just because it becomes industry standard and there’s a lot of incentives for them,” Kelley Riggins said. But she added those builders are “not necessarily your mom and pop developers.”

The federal government under Biden has adopted a slew of measures intended to prod buildings toward greater energy efficiency through both incentives and regulation. Some of these incentives are aimed at consumers and include tax credits and rebates for things like new insulation and windows. Others are designed for local governments, states and nonprofits to overhaul building codes.

On the regulatory side, the Department of Energy has issued this year a number of new efficiency requirements for appliances, including commercial rooftop heating and cooling units.

Some of these new environmental regulations have faced pushback from affected industries. Among the most closely watched is a new rule issued by the U.S. Securities and Exchange Commission, currently on hold pending legal challenges, requiring public companies to report their strategies for managing risks posed by climate change — including rising temperatures.

“That’s going to be used as part of investment decision-making,” said Joe Rozza, the chief sustainability officer for Ryan Companies, a large commercial real estate development and management company. “That’s a big deal.”