For decades, solar panels have dominated the conversation about energy in commercial real estate. Rooftop photovoltaic (PV) arrays have become the gold standard, offering a tangible path to reducing operating expenses and achieving a greener brand profile. But solar is just the appetizer. The real, game-changing movement—one that tackles volatility and unlocks financial value in high-demand environments like the PJM territory—is happening at the utility interface, where power hits the meter. The next greatest arrival in energy management? The Battery Energy Storage System (BESS).
The introduction of large-scale on-site battery storage is fundamentally changing how major assets, like large buildings and campuses, interact with the electric grid. Massive battery packs, often housed in containers sitting discreetly in a parking lot or service yard, are designed for backup and strategic energy arbitrage (the practice of buying electricity when prices are low, storing it, and then selling or using it when prices are high to profit from the difference).
As the move toward decarbonization and electrification accelerates, buildings will continue to require and consume more energy, making the cost and reliability of that power supply a significant driver of net operating income (NOI). How, then, can building owners and operators save energy? The answer is control. BESS offers that control by enabling you to charge batteries overnight when the electric rate is low, then strategically discharge them during the high-cost, peak daytime hours. This simple strategy targets two of the biggest cost drivers on a commercial utility bill: time-of-use (TOU) charges and peak demand charges.
What a commercial BESS actually does
A battery energy storage system for a commercial facility consists of several highly engineered components, including:
- The battery cells themselves (typically lithium-ion).
- A battery management system (BMS) that monitors health and safety.
- An inverter/charger that converts grid AC power to battery DC power (and back again).
Smart energy management software, capable of making real-time decisions based on energy pricing, weather forecasts, and your building’s specific load profile, governs the entire system. But the true “magic” of commercial battery storage? Its ability to execute the following high-impact strategies.
Load shifting and energy arbitrage
This strategy is the simplest win. In many markets, utility rates fluctuate based on the time of day. TOU rates increase when electricity is consumed during a peak window—during the day or between 4 p.m. and 8 p.m.—but cost much less for electricity consumed in the middle of the night.
Load shifting uses the BESS to take advantage of the price difference, a practice known as energy arbitrage. You program the system to automatically charge during the inexpensive off-peak hours (when the grid has excess capacity and costs are lower). During peak hours, you can disconnect from the high-priced grid and run your building entirely on the stored battery power. This strategy is the financial equivalent of buying a commodity when it’s cheaper and selling it when it’s expensive, except in this case, you’re “selling” the commodity (energy) to yourself in the form of lower costs.
Peak shaving and demand charge management
While load shifting saves on the cost of energy you consume (kilowatt-hours or kWh), peak shaving saves on the cost of power you demand (kilowatts or kW). For CRE building owners and managers, you could garner significant savings, especially in major markets.
Commercial and industrial customers pay a hefty demand charge based on their single highest spike in power consumption, often a fleeting 15-minute interval, during the billing cycle. In the PJM territory, which includes New Jersey, these charges are particularly sensitive to the grid’s annual system-wide peak. By strategically discharging the battery during moments when your building’s electrical demand spikes, the BESS effectively shaves off the top of that peak.
This approach can significantly reduce your bill’s demand charge component, which often accounts for 30% to 70% of a large commercial facility’s total monthly utility expense. For buildings where electrification (the shift to electric heat pumps and greater overall electrical use) increases their power draw, a BESS becomes a necessary counterbalance.
Contributing to grid health for future discounts
The benefits of battery storage extend beyond a single building’s meter. In the PJM grid, which covers 13 states, including New Jersey, the system operator manages capacity auctions to ensure sufficient power is available during critical high-demand periods. A building’s peak usage contributes to its peak load contribution (PLC), which determines a significant portion of its annual capacity charges.
When your BESS actively shaves a building’s peak demand, you save money and relieve stress on the regional grid during its most volatile times. Utilities and regulators recognize the contributions buildings make over a year or two of consistently reducing their load.
This “good” behavior can lead to favorable adjustments or discounts to your future capacity and transmission charges because a utility sees you as a reliable partner who contributes to grid stability rather than stressing it. This indirect, long-term reward adds another layer to the BESS’s financial model, especially as capacity prices continue to rise rapidly in the region.
The value proposition: Pros and cons
Deploying a commercial BESS is a capital investment, so a balanced view of the benefits and drawbacks is essential for a CRE financial model.
The upside
- Maximized cost reduction. BESS attacks two major bill components: Energy charges (via load shifting/arbitrage) and demand charges (via peak shaving). This two-pronged attack yields the highest possible utility savings.
- Enhanced resilience and backup power. For critical facilities like data centers, hospitals, or cold storage, bESS provides instant, quiet, and emissions-free backup power during grid outages, ensuring business continuity.
- Solar optimization. When co-located with solar, a battery captures all excess power generated during the day, eliminating curtailment and ensuring the building uses 100% self-generated clean energy during the evening peak.
- Participation in grid services. In some markets, utilities will pay you to use your battery to help stabilize the grid on demand (demand response or ancillary services), creating a new revenue stream.
- Increased asset valuation. A building with a functional BESS and predictable, low operating costs is significantly more attractive to investors and buyers, increasing its market value and equity multiple.
The downside
- High upfront capital cost. Commercial BESS systems are a seven-figure investment. While costs are declining, the initial outlay is substantial and requires robust financing. To mitigate, aggressively seek federal and state tax incentives.
- Space requirement. Large BESS units require space; dedicated containers are often installed in parking lots or on rooftops. To mitigate, integrate space planning into the initial capital improvement budget and architectural design.
- The off-peak rate question. As more people adopt BESS, there’s a theoretical risk that the massive overnight charging load could eventually raise off-peak rates, eroding the arbitrage opportunity. The reality? The sheer scale of residential and data center loads is so great that commercial BESS adoption isn’t anywhere near the level required to significantly affect utility off-peak pricing trends.
- System complexity. Deploying a BESS is more complex than solar; it requires advanced software, real-time monitoring, and a deep understanding of your utility’s tariff structure to maximize the financial returns. To mitigate, partner with a specialized energy management group that offers a performance guarantee and handles the ongoing optimization.
Financial model and ROI of a BESS
Making a financial case for a BESS is driven by avoided costs. Typical payback periods for a commercial BESS project, especially in expensive energy markets with aggressive demand charges, run between 4 to 8 years, depending on:
- Size of the system
- Local utility tariff
- Available incentives
Battery energy storage systems have changed the original premise that utility bills are a fixed, non-negotiable operating expense. These systems empower property owners to become active managers of their energy consumption, decoupling building operations from grid volatility and the rising costs of capacity markets.
The future of CRE includes electrification and decarbonization, which will necessitate massive increases in power demand. Without a sophisticated tool like a BESS to manage that transition, rising utility costs will quickly erode NOI and depress asset values. In 2024, battery storage capacity was expected to double in the U.S. It’s a strategic investment that can turn a potential cost crisis into an opportunity for cost savings, revenue generation, and asset enhancement. It’s time to stop paying top dollar for peak power and start investing in your own energy bank.
Are you a commercial real estate investor or seeking a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United, an organization of CRE professionals from over 90 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
