Speaker 1:
This is The Real Pulse, a podcast series where RBC Capital Markets experts share their insights on the latest trends and opportunities in commercial real estate.
Nurit Altman:
Welcome to the real pulse. I'm your host, Nurit Altman. The energy transition is expected to impact all facets of the global economy, as most of the world's largest economies have set targets of reaching net zero carbon emissions in the next 30 to 40 years. The pathways for Canada to reach net zero will involve new approaches to producing and consuming energy, heating buildings, moving people and goods, and producing the goods and services that drive of Canada's economy. For those in the commercial real estate industry, a host of new opportunities and challenges present themselves as we transition to a greener future. Today, I'm joined by Rob Nicholson, managing director Canadian Power, Utilities, & Infrastructure at RBC Capital Markets, and we're here to talk about the energy transition and how real estate owners and operators can capitalize on the opportunities it presents. Rob, thanks for joining us today.
Rob Nicholson:
Well, thank you for having me, Nurit.
Nurit Altman:
Rob, we've been talking about green technologies, and in my industry green buildings, for quite some time, but it feels like today the need to transition to a green economy has become more acute. Why is now the time for energy transition?
Rob Nicholson:
Yeah, listen, great question. I put it in two different real main reasons. One, the social imperative is there today. And we see that in a number of different ways, but let me give you a couple examples. If we think about climate change, for example, it's really much more tangible, and whether we're talking about extreme weather events, floods and fires and droughts and all the things that we've seen, that is a much more tangible thing for people than talking about a one or two degree temperature increase. So I think first off, people are seeing it. And also, maybe the pandemic through COVID has helped people sort of reflect on things, and maybe think a little bit about the fragility of where they are and what they're doing. So I think number one reason is certainly the social imperative.
Rob Nicholson:
We hear it from people really voting for it. And I think the other major item, which is much more economic-focused, is that now that there's a price for carbon emissions. Whether that's a carbon tax here in Canada, or whether it's more of a cap and trade system, which is probably the way the US goes, you now have a situation where for a producer of emissions, there's now a real cost, whereas previously there wasn't. So that adds to the cost of your goods sold. And then the other corollary, and I think the important side of this and very interesting side that we're focused on, is it's also a revenue stream. So all of a sudden, we have many companies that were focused on solving climate issues. You could call them clean tech companies, if you like, really now having a revenue stream that's tangible, that they can illustrate to investors.
Rob Nicholson:
And as a result, we're seeing a lot more activity in the space that's now become economic. And maybe just one example there. 15 years ago, a wind farm would sell electrons to the power grid, and they had to compete against coal and gas and hydro and everything else. And today, a wind farm has two revenue streams. They still sell the same electrons to the grid, and they still compete against those same technologies, but they also now are able to sell their green attributes. And people are paying for those, whether they're offsetting their own emissions, or whether they're retiring them and utilizing them in a different manner. But if you think about that, it's really changed the economic equation for many of these technology companies and opportunities.
Nurit Altman:
And we're going to dig into those revenue streams a bit further in just a moment, but I'm going to back up to a more simplistic question. So for someone like me, who isn't an expert in the space, can you explain... When someone says "energy transition," what does that actually mean?
Rob Nicholson:
I'd say it means different things to different people, but I think if you look at the sum of it, think about... It's the decarbonization of our energy resources. For quite some time, people focused on renewable energy, because there was concern about the world running out of available energy. That's less of a focus, still important, but less of a focus, and I think people are more focused today on not emitting energies so we're not exhausting greenhouse gases and causing additions to climate change. So I think if we very simplistically think about it, it really is a decarbonization of our energy sources. And remember that energy is ubiquitous. It impacts every industry, certainly the real estate industry without a doubt, but also metals and mining, consumer industrials, my business, the power business, the energy business. So if we think about energy, it really is utilized everywhere, and I think that just is a really fundamental change, is this concept of really trying to find non-emitting resources.
Rob Nicholson:
Let me give you maybe just one example there. If you think of natural gas... So natural gas, as you know, is sort of a mined product. You drill a well and you pump, and you get gas. Well, there is something that's gaining traction these days, renewable natural gas. And what that is... Think about a farmer with cattle and manure, and instead of the methane from the manure being emitted into the air, you're capturing that methane and utilize... It can be captured and utilized as really a substitute for natural gas. So all of a sudden, you're one, not emitting into the air, and then two, you're replacing a product that you were going to mine with something that's sort of now naturally occurring. And so we IPO'd a renewable natural gas company earlier this year. And look, I think there's all kinds of examples like this. So again, simplistically, think about it as a decarbonization of energy sources.
Nurit Altman:
I know many listeners are probably listening and thinking about this transition and thinking, "This is going to cost me a lot of money," but I believe there's an opportunity in the real estate sector to make money from the energy transition. We talked about revenue streams earlier. What do you see as the specific revenue streams for real estate owners?
Rob Nicholson:
I mean, you can look at it as glass half empty, but hopefully will people look at more as glass half full and real opportunities. So again, let's use some examples. I think of the liquid fuel delivery system. So what I mean by that is you think about your car. And across this country and all around the globe, there are gas stations, and those have been fueling petrochemical cars for a long period of time. Well, along comes the battery car, the electric vehicle, and all of a sudden they're going to need some kind of fueling system as well. Just that alone, think about the opportunity associated with new stations. Are the EV charging stations going to be at the same location as your typical gas station? Well, maybe, but also maybe not.
Rob Nicholson:
One of the things about EV and charging is that as opposed to a liquid fuel system, which probably takes minutes to charge, EVs don't charge that quickly. I mean, you're talking about half an hour to an hour. And so here's a real opportunity to locate, I'll call it refueling situations, maybe next to other services that are going to capture people's attention. So rather than just sit in your car for half an hour while your battery charges up, they're going to go into a restaurant or a convenience store, or maybe do some shopping. So if we think about that, there's a massive opportunity. I'd say that's one example, but the other example, just sticking with of the EV theme, is if we think about my house... I happen to be quite lucky in the sense that I own a home, but there's a lot of people who live in apartment buildings, condominiums, and they're going to want to drive EVs, and they're going to need a place to charge.
Rob Nicholson:
And so does the parking lot at the condominium all of a sudden become a revenue stream for the condominium board, in the sense that those people are going to need charging stations at the condominium, and there's a real opportunity there to install them and get a revenue stream out of them? So look, this is just one example of the EV business, but I think if we really dig into the real estate, there's going to be an awful lot of opportunity that's going to be locational-dependent. It's going to be different than it was. I haven't touched on building efficiency or any of those things, but I would just sort of say it really is a revolution. It's a revolutionary change that we're going to be going through here, and what's really exciting about it is the quantum of people who are focused on it and producing new ideas is just fantastic.
Rob Nicholson:
And so I think the biggest challenge for real estate folks is going to be to sort through what works best for their particular situation, but it's not going to be a lack of opportunity. I think it's really out there, and those that capture those opportunities are going to be the more successful folks.
Nurit Altman:
Rob, there are many listening who own real estate in the province of Alberta. With a transition away from oil and gas as the backdrop of this discussion, what do you see for the future of that province?
Rob Nicholson:
That's a tough question for me, but I'll give you some views. Believe it or not, I took my first business trip last week, and I was out in Calgary, and what I'd tell you is economics do create opportunity. So no question, there's a significant amount of available office space in downtown Calgary, probably at prices that are more attractive certainly than Downtown Toronto or Vancouver. And I think what that's creating is a real interesting tech boom in Calgary, so we're seeing a lot of startups coming in. We're seeing a younger population who's more interested in the technology side than maybe the oil and gas side. And look, it's adoption, adaption. It's many different things, but I think Alberta's blessed with a real can-do attitude, and I think you see that in the pivot and the shift that people are making. And I would just sort of say I think there's a real opportunity for Calgary to play a big role in emerging technology plays, and we're seeing that in Calgary today.
Nurit Altman:
For those listening who want to learn more about how they can capitalize on the energy transition in their real estate businesses, how can RBC help?
Rob Nicholson:
If I were a real estate person and I had a connection to RBC, I'd certainly be encouraging you to reach out to your RBC banker, and asking them to share with you what knowledge inside RBC is there. We've had a number of conversations that have been very fruitful, I think, and I would just encourage people to open the dialogue. It's very much pervasive in our organization in thinking about this, and I think people really realize it's impacting all kinds of different parts of the industrial sector. And I think talking and communicating is the key, because there's a lot of sharing to be done.
Nurit Altman:
Well, thank for sharing your thoughts today, Rob. This is certainly a big topic, and probably not the last time that we'll have the chance to chat about it. But Rob, thanks for being on the call today.
Rob Nicholson:
Thanks very much, Nurit.
Nurit Altman:
I'm Nurit Altman, and this is The Real Pulse.
Speaker 1:
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