ESG

What can hotels do about soaring energy costs?

Insight Comment
As a way to combat higher energy prices, on-site renewable energy can be challenging for hotels to implement. But advances in technology now mean that there are several other solutions that can significantly reduce hotel energy expenditure.

Rising energy costs are having an impact on hotel businesses and the travel industry across the world. A recent survey of UK hospitality businesses, for instance, revealed average energy prices had doubled, resulting in some businesses deciding to cut trading hours and/or raise prices.

With the cost of oil and gas expected to stay high for the foreseeable future, businesses that can generate their own energy from renewable sources would appear to be in an enviable position.

In 2019, Chaminade Resort & Spa in Santa Cruz invested $1m in a field of around 1,000 solar panels. But even with such a significant investment, the solar power is only covering one third of the property’s energy needs. Nevertheless, owners the Pebblebrook Hotel Trust REIT, judged the investment a success that has yielded a capitalisation rate of 8.5%, an internal rate of return of 16.5%, and an average cash-on-cash return of 12.9%

In Halifax, Canada,  new Marriott Autograph Collection hotel Muir uses sea water from the harbour to heat and cool the building. The owners, the Armour Group, qualified for a $450,000 incentive from a local utility firm by embedding energy efficiency into the design of the wider mixed-use waterfront district that the hotel is part of, resulting in an expected $350,000 reduction in annual energy expenditure.

In Norway, a new luxury resort called Svart is planning on being entirely self-sufficient with the aid of solar power, a fish farm and a greenhouse to grow fruit and vegetables.

However, spare land, a coastal position, or a pristine Scandinavian environment, are not available to everyone. In a global survey of 5,500 hotels conducted by Greenview only one in five had implemented on-site renewable energy.

Olivia Ruggles-Brise, director of Greenview, a provider of sustainability and ESG programmes for the hospitality and tourism sector, said: “Onsite renewables are challenging because of the high capital investment involved. If you look at solar, you need pretty good storage to store the energy from when it’s generated to when it’s needed because the sun shines during the day but hotels tend to be full of people at night. So technology is getting better, for sure, but there are many considerations. Where do you put your solar panels? A couple on the roof is not going to do it, so you need space.”

David Tarsh strategy and communications advisor at the Energy & Environmental Alliance, a not-for-profit coalition of hospitality leaders, added that businesses should be wary of greenwash – people proposing ideas that look green but are not green.

He said: “There is nothing clever about having an electric car if the electricity to power it comes from fossil fuels. It’s really important that initiatives are scientifically or intellectually rigorous and commercially sustainable. There is no point in going for really expensive renewables that handicap the economics of your business.”

If on-site renewables are not practical or possible for many hotels, what other options are there?

First, hotels can seek to purchase energy more competitively; second, find ways to limit the amount of energy coming into the property in the first place; and thirdly, measure how much energy they are using and take focused action to reduce it.

On the first point, Tarsh said: “Energy brokers will help you buy energy more competitively because they can access wholesale rates that you may not be able to access on your own.”

In the UK, Businesswise Solutions is a specialist in green energy procurement. Hotel and serviced apartment clients can choose between a fixed contract for budget certainty, or a risk managed flexible energy contract or flexible energy basket.

Tarsh added: “The cost of certain renewables is now properly competitive with fossil fuels which is a very exciting development.”

The second step businesses can take is voltage optimisation, which is a form of voltage management technology.  A supplier conducts a survey of your business and your use of electricity and then installs an intelligent device where the mains supply enters the property that alters the voltage depending on demand.

In the UK, for example, the National Grid supplies electricity at 230 volts but there are plenty of appliances that work perfectly well, if not better, at a lower voltage. Some suppliers claim that voltage optimisation can reduce bills by up to 19%. Voltage optimisation solutions also qualify for 100% tax relief so instalment costs can be offset against corporation tax.

Advancements in technology mean that several more new energy-efficiency innovations are available to hospitality businesses.

Iconic London hotel Claridges installed a ventilation and extraction system in its kitchens that reduced energy costs by 30%. The intelligent system, supplied by Quintex, moderates its output or switches off depending on the conditions in the kitchen and saved the hotel £10,000 ($13,200) a year with a payback on the initial investment after 1.8 years.

Other Quintex clients include CenterParcs (payback on investment 2 years) and Radisson Blu Edwardian hotels (payback on investment 1.4 years).

City Air Technology is a company that uses potted plants fitted with moisture strips, fans and filters to purify indoor air. The technology also reduces energy costs because the plants naturally moderate the temperature.

Several hotels and groups, including Marriott’s Westin brand, feature living green walls or vertical gardens, which naturally purify the air, and create a cooler and more pleasant temperature during the summer, cutting air conditioning costs by 30%.

A low-cost easy win, as highlighted by the American Hotel & Lodging Association (AHLA), is to retro-fit existing sun-facing windows with energy-saving film.

The AHLA said: “Energy-saving window film offers hoteliers a great return on their investment due to the combination of reduced solar heat gain and a low material/installation cost of $3.00-$5.00 per square foot. Across all four US climate zones, studies have shown that energy-saving window film provides greater energy cost savings than total window replacement with new low-E windows.”

What gets measured gets managed. Ruggles-Brise said that sub-metering was an essential practice: “Process comes before technology. You need to have a really robust monitoring, tracking and management process and staff training that sits behind any kind of efficiency capital investment. If you are not regularly metering and tracking your consumption in every part of the building you will find it hard to be more efficient.”

A significant development in the last couple of years has been that green investment and ESG finance are now firmly mainstream.

In Europe, parts of the Sustainable Finance Action Plan came into force in March 2021. The plan applies to asset managers and pension funds and aims to manage financial risks stemming from climate change and environmental degradation.

For medium and large organisations, the reporting and auditing of ESG policies is set to become mandatory. Large investment organisations with significant hotel portfolios, such as BlackRock and Blackstone, now publicly declare the imperative for green investments.

Ruggles-Brise observed that previously construction on a hotel would start and then a brand might come in and start talking about sustainability when it was too late. Now, sustainable design is a requirement to secure funding from the start.

“It’s risk mitigation on behalf of the investors. Like any due diligence this is environmental due diligence, but it’s also managing future risk. Will your money be safe in this investment?” she said.

Also, integrating ESG into the entire lifecycle of a hotel project means a higher asset value on exit.

“The financial community is looking at how to enhance the value of an investment by being more sustainable, with more efficient practices, more integration with the community, and better social practices. When they come to sell the property, there is value in that.”