Real estate owners have traditionally treated energy upgrades as a nice-to-have line item: do them when capital was cheap, incentives were rich, and occupancy was stable enough to tolerate disruption.
In 2026, three forces are colliding in a way that changes how you plan capital:
- Building Performance Standards (BPS) are turning energy performance into a compliance timeline with real penalties and public reporting in many states and cities.
- The grid is tightening with demand growth, reliability concerns, and interconnection backlogs showing up as real project risk. There are thousands of projects, and enormous volumes of generation and storage still waiting to connect.
- Energy availability is becoming a leasing and capex constraint, especially in regions seeing large-load growth (data centers, advanced manufacturing), where grid operators are changing connection rules and requiring curtailment or self-supply.
The goal isn’t decarbonize at any cost, the goal is protecting net operating income (NOI) and asset viability by sequencing capital to reduce penalties, reduce energy volatility, and avoid getting stuck mid-project because power is unavailable.
The new definition of cost-negative
To date, cost-negative has meant simple efficiency measures such as LEDs, thermostats, insulation, and heat pumps pay for themselves.
In 2026, the definition of cost-negative is broader and more practical:
- Compliance-negative: lowering your BPS penalty exposure and compliance risk (often with fast payback).
- Volatility-negative: cutting peak demand and smoothing energy spend when wholesale markets spike (especially under extreme weather).
- Constraint-negative: ensuring your electrification plan doesn’t stall because the grid can’t deliver capacity on your timeline.
Smart capital planning prioritizes early investments that protect NOI and create options, before locking in larger mechanical and electrification capital with confidence.
A sequenced capital stack that works in 2026
BPS isn’t only a sustainability problem, it’s an operating and governance problem: data, accountability, and timing.
Many owners still don’t know — by building — three basic things:
- What’s required in each jurisdiction we operate in?
- What’s our exposure under the first enforcement period?
- Which buildings can get compliant with low-disruption measures vs needing major systems work?
And because BPS rules are proliferating, the portfolio problem is getting harder, not easier. Trackers show a growing patchwork of requirements and targets across U.S. jurisdictions.
What smart looks like
Build a portfolio-level BPS map with deadlines, reporting needs, penalty exposure, and likely pathways – operational fixes, moderate retrofit, major retrofit, or alternative compliance pathway- where available.
Even if you do nothing else this year, getting this map right prevents a common failure mode: spending capital on green upgrades that don’t materially reduce compliance exposure.
Step 2: Win the low disruption operating moves first
This is the part most owners recognize – and it still matters. But update the lens: the fastest wins now aren’t just kWh savings; they’re kW and peak-shaving wins.
Why? Because price volatility and congestion are increasingly visible, and peak demand often drives disproportionate cost. The EIA has pointed to continued electricity price pressure in its short-term outlook and related reporting.
High-confidence, low-regret moves (and often fast payback):
- Lighting upgrades and controls optimization
- Scheduling, setpoint rationalization, and after-hours controls
- Continuous commissioning/fault detection to stop energy drift
- Submetering and tenant alignment
- Targeted envelope improvements where they reduce peak HVAC load
These measures are often the cheapest way to reduce BPS exposure while improving NOI, because they lower energy spend and improve your compliance posture.
Step 3: Build flexibility before you electrify aggressively
Electrification can be the right path, but in today’s environment it’s not enough to ask, “Will heat pumps save money?” You also need to ask:
- Can the building’s electrical infrastructure handle it?
- Can the utility reliably serve it on our timeline?
- What happens to our peak demand charges and capacity exposure?
- Do we have a curtailment plan during grid stress events?
Grid operators are now openly signaling that new large loads may need to bring their own solutions – self-supply, curtailment, or managed connection. Grid operator PJM’s “connect and manage” direction is a practical example of the new stance: integrate load reliably by requiring flexibility.
Flexibility investments can include:
- Smarter building automation and load management
- Thermal storage
- Demand response readiness and curtailment playbooks
- Backup strategies aligned with tenant needs and jurisdictional rules
This is also where anticipating the grid becomes real: you’re not guessing about the grid’s future, you’re building optionality into your asset.
Step 4: Electrify with a power availability plan (not a hope)
If you plan electrification as replacing equipment with electric equivalents, you can end up with a project that is technically correct and operationally impossible because capacity upgrades, transformers, feeder work, and interconnection timelines don’t match your leasing and capex calendar.
Interconnection backlogs are no longer a niche issue. Berkeley National Laboratory queue data shows the sheer volume of projects seeking grid access — a clear signal of how constrained the system has become.
That reality means electrification planning now has to include a few hard, practical questions:
Be clear on how you’ll buy power and manage price volatility, so energy costs don’t undermine your operating model.
Engage the utility early to understand available capacity, potential upgrade requirements, and how long those upgrades will take.
Lay out a phased electrification plan by building type and location, rather than trying to do everything at once.
Evaluate on-site generation and storage where it actually makes sense, to add resilience and reduce exposure to grid constraints.
This is also where grid forecasting becomes part of underwriting. U.S. Energy Information Administration projects continued growth in U.S. electricity demand, driven largely by commercial and industrial users.
Step 5: Treat “energy availability” as an asset attribute
Owners are used to listing assets by square footage, location, and tenant mix. In 2026, you should add another attribute:
Power readiness and reliability.
Data centers are the obvious driver, but they’re also the clearest signal of where the system is going. Multiple credible estimates show data centers were about 4% of U.S. electricity use in 2024, with demand expected to more than double by 2030.
That growth doesn’t stay isolated. It tightens regional grids, pushes capacity and transmission upgrades, and can raise costs for everyone in the same market.
What this means for your 2026 capital plan
Plan capital like a risk program:
- Build the BPS exposure map
- Lock in operating and control wins
- Invest in flexibility that buys you time and optionality
- Electrify where the grid, economics, and tenant profile support it.
That’s how cost-negative survives 2026; a disciplined sequence that reduces penalty exposure, limits energy-price shocks, and keeps projects moving even when grid capacity becomes the constraint.
Our people
Andrew Alesbury
Partner, Washington DC
With a background spanning both urban planning and private real estate development in the United States and Middle East, Andrew supports real estate investors and other firms with large portfolios of physical assets to create sustainable strategies which integrate resilience and sustainable risk management into their business models and investment processes.
Ben Vatterott
Partner, San Francisco
Ben has led sustainability and growth strategy projects for clients across the real estate ecosystem, including investment firms, construction materials manufacturers, PropTech companies, and more. He supports clients on a number of strategic topics such as setting net zero targets, embedding sustainability and emissions reduction into capital deployment, and capturing sustainable growth opportunities.
Diego Bernstein
Manager, Miami
Diego is a seasoned consultant with focus in business strategy, environmental sustainability, and data science.
Diego’s experience includes leading the implementation of the Net Zero strategy for a Fortune 500 Real Estate company and supporting a S&P 500 REIT to embed climate risk in its investment decision processes.
