2022 Multifamily Trends: Utility Management Challenged By Energy Volatility
The U.S. energy market is easing into 2022 on the heels of a roller coaster ride, and while pricing is stabilizing the outlook continues to present challenges for multifamily utility management.
Most eyes remain on natural gas: storage capacity has dramatically fluctuated since 2019 and this year more peaks and valleys are forecast. The build-back from depleted stock early in the pandemic along with other factors are adversely affecting storage, although inventories leveled somewhat by the end of 2021.
For much of the year, weekly injections into storage fell below expectations. This trend is expected to continue into 2022, according to U.S. Energy Information Administration forecast. Natural gas inventories are projected to fall 2% below the 2017-21 average from November 2021 to March.
As often is the case, weather is affecting storage supplies. Less natural gas was stockpiled last summer than during the previous five years on average due to high consumption in June resulting from hot weather. As of December, the U.S. sat about at 8% below 2020 storage, and 3% below the five-year average.
Another wrinkle is high export demand from Europe, China and other nations who are rebuilding their supplies and tapping into North American inventories.
As a result, natural gas pricing has been on a bull run and prices could crack the $100 mark during a frigid winter. However, the 2022 winter forecast is for generally warmer weather, which should shrink demand and bring some relief to natural gas pricing.
The uncertainty is challenging for energy contracts as they come due this year. RealPage Utility Management leaders suggest that apartment operators should lean on the expertise of qualified energy brokers to build a pricing strategy that will secure the best deals.
Tek Chung, RealPage Director of Energy Procurement, says building more lead time into securing energy contracts will help properties better control their utility management spends.
“Typically in the past, it was two to three months prior to your contract ending (for renewal) but now with the market being so volatile, it's something you need to be paying attention to all the time,” Chung said during RealPage’s year-end energy outlook webcast.
Chung joined RealPage Vice President of Energy Management Dimitris Kapsis in December to discuss how to develop a holistic buying strategy based on understanding current energy rates and identifying best-fit suppliers for markets and rental properties. Kapsis, a long-time veteran of the energy sector, shared about how to execute new contracts, including renewable energy options, and manage contract renewals to better reduce risk.
Identifying the best energy supplier fit
Chung says pursuing an energy contract at least six months in advance of renewal or start date will help buffer properties from volatile price hikes. Early in the pandemic, RealPage Utility Management helped clients take advantage of historically low market rates by locking as much as 12-13 months before contract expiration.
The strategy paid off as rates surged.
“You definitely want to work with a broker because you want that expertise and that ear to the market, knowing what's going on, knowing when the best time to execute is, as well as being able to negotiate contract terms with strong supplier relationships,” Chung says.
Part of what an energy broker does is analyze current contracts and work with utilities to get the program that best fits the property or portfolio.
“You want to identify the best fit suppliers (because) not every supplier is created equally,” says Chung. “Some are stronger in some markets, while others in other markets. But there are also contract terms that you want to think about. And that's again something that your broker will be very familiar with because they work with a large pool of suppliers.”
Renewables help reduce multifamily utility management costs
Kapsis says property owners and operators are wise to look into a rapidly growing renewables market to lower energy costs while building a reputation as a sustainable multifamily operation. Today’s apartment residents desire sustainability and green living, which means it makes sense for operators to pursue renewables such as community solar.
Through today’s community solar programs, operators and residents can take advantage of reduced rates without significant upfront capital. Electricity is drawn from solar farms nearby and priced on multiyear contracts at lower rates than conventional utility power.
Property management operators can claim usage as part of sustainability reporting toward earning green certifications that appeal to apartment residents who want to live in eco-friendly communities.
“Community solar, which is not a new concept, is a very viable option for a lot of our clients for their common area house accounts and also for allowing residents to take advantage of renewable energy,” says Kapsis.
For more on the 2022 energy market outlook, please watch the video. RealPage Utility Management helps operators take control of energy conservation and billing. Visit Realpage Utility Management Solutions.