Alexandria Real Estate Equities, Inc. (ARE) is a best-in-class, mission-driven life science real estate investment trust (REIT) that owns, operates, and develops collaborative life science, agtech, and advanced technology campuses in AAA innovation cluster locations across North America. Their geographic footprint spans 75.6 million square feet of life science and tech office space across Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland and the Research Triangle. Having carved a niche for themselves in 1994, they’re the trusted partner to over 850 tenants predominantly in the pharmaceutical and biotech space that includes Eli Lilly, Novartis and Moderna to name a few. The company's in-demand, mission-critical lab space assets typically located in high-barrier-to-entry markets continue to create significant value. This value is the result of a disciplined focus on creating highly sought-after mega campuses in markets that solidify its dominance in the new collaborative life science submarket. All of this makes ARE a highly respected REIT that continues to generate strong financial returns. They match that respect in the life science space with their innovative and lofty sustainability efforts.
In pursuit of their sustainability goals, ARE works to significantly reduce their Scope 2 emissions and not only to stay on top of the life sciences, lab tech space, but also to change the grid and meet tenant demands.
As an overarching principle “we believe that doing well in our business and doing good for society are inherently linked endeavors, and this belief has shaped our differentiated business model and supports our industry-leading ESG platform” said Dean A. Shigenaga, President and CFO. In terms of executing on those principles Eleni Reed, SVP, Head of Sustainability, added that “our strategy, which includes reducing emissions from the operation of our state-of-the-art facilities through electrification, energy efficiency and renewable electricity, is closely aligned with the sustainability goals of many of our innovative tenants.
The need to meet growing tenant demand for sustainable lab and life science office space is well articulated in ARE’s 2021 ESG report - “ 35% of tenants submitted or received approval for their near-term science-based targets, and the majority set targets aligned with capping temperature rise at 1.5°C; and 55% set targets to prioritize the procurement of renewable energy.”
More recently in a tenant survey noted in ARE's 2022 ESG report released on June 29th of this year - 90% of Alexandria’s top 20 tenants (by annual rental revenue) have set net zero carbon and/or carbon neutrality goals. Thus, the theme clearly remains consistent as ARE's tenants continue to prioritize sustainability attributes such as green building certifications and renewable energy. These trends present an opportunity for ARE to enhance the environmental performance of its buildings and deepen their tenant relationships by aligning tenant strategic sustainability goals with their own. To meet this demand and reach its goal of sourcing 100% renewable electricity, ARE plans to increase its procurement of renewable energy by focussing on both on-site and off-site renewable power procurement. But the most impactful approach with significant results on both the grid’s transition to renewables and the growing tenant demand starts with a new, large-scale, solar power purchase agreement (PPA) set to take effect in the Greater Boston region in 2024. With this solar farm connected to the New England grid, they estimate that 39% of the electricity consumed across their operating assets in the region will be from an expected 210 MWh of renewable electricity annually, assuming 2022 levels. In other markets outside of Greater Boston, ARE will continue to procure off-site renewable electricity through renewable energy supply contracts and community solar programs. However, even with these efforts, according to ARE’s 2021 ESG report which also highlighted the solar PPA, these renewable power procurement strategies will only address 53% of ARE’s total consumed electricity. It begs the question of - how could they fill the gap?
The Impact of RECs with Additionality
While ARE's commitment to eventually sourcing 100% renewable electricity is commendable, the company's strategy could be improved by including renewable energy certificates (RECs) with additionality. RECs with additionality would provide several benefits, including:
Accelerating the grid's transition to renewable energy: By supporting new renewable energy projects, RECs with additionality contribute to the growth of renewable energy capacity on the grid, ultimately speeding up the shift towards cleaner energy sources.
Mitigating long-term costs: As tenant demand continues to grow, there's a risk that the cost of procuring renewable energy will increase if the grid transition to renewables fails to keep pace. By investing in RECs with additionality, ARE can potentially reduce the costs associated with continued renewable energy procurement, as these certificates support projects that would not have been developed without the additional financial support.
Strengthening marketing claims: Traditional unbundled RECs don't subsidize new renewable energy projects. On the other hand RECs with additionality would come from net new projects prior to the operation date. This would allow ARE to make a more impactful sustainability claim for the power not supplied by their PPA or other green procurement strategies. ARE would effectively be continuing their present strategy more holistically by demonstrating a direct contribution to the growth of renewable energy capacity.
Scaling emission reduction strategies: As ARE continues to grow, evaluating PPAs along with searching for viable community solar projects and green retail contracts can be risky, difficult and time consuming. Incorporating RECs with additionality in their plan can help the company scale its emission reduction strategies to cover increased electricity consumption.
In conclusion, ARE has made remarkable strides in sustainability, particularly in its efforts to achieve 100% renewable electricity procurement. Knowing that ARE’s efforts to procure off-site renewables will only address 53% of their operational electricity, incorporating RECs with additionality into their strategy would allow them to address the remaining 47% without having to take on the heavy lift of PAAs, community solar and green retail contracts. This approach would allow ARE to further enhance its positive impact on the environment and solidify its position as a leader in sustainable real estate development.
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