Energy Conservation
Owners, residents, and the federal government are wasting huge sums on building energy and water bills in affordable multifamily housing. HUD alone spends more than $6.8 billion a year on those costs in public and assisted housing, and the bills are borne directly by owners and residents in the 16 or so million unassisted apartments, many of which are affordable without subsidy. Meanwhile, 21% of carbon emissions are attributable to residential use.
SAHF has taken on the challenge of developing a model to reduce utility consumption in affordable rental properties. On the principle that owners cannot manage what they do not know and that policy makers cannot set sensible policy without data, SAHF first concentrated its efforts on sophisticated data collection and analysis.
Working with its contractor Bright Power/ EnergyScoreCards, SAHF built a database of 700 properties nationally, to which another 500 have been added, a database that to our knowledge is the deepest in the field. Sophisticated analysis of the data it contains enables SAHF and its members to benchmark properties against one another, target those most likely to benefit from retrofits and the measures most likely to make a difference, track savings achieved by retrofits, and enable owners to manage utility consumption on an ongoing basis. SAHF continues to build that database with properties of state housing finance agencies and other owners, but is also actively making use of funds provided under the American Recovery and Reinvestment Act of 2009. Most importantly, SAHF is putting in place a follow-on program designed to enable energy conservation retrofits to get to scale by relying principally not on grant funds but on borrowed funds to be repaid from savings on utility bills.
SAHF is grateful for the critical financial and strategic support for this work that it is receiving from the John D. and Catherine T. MacArthur Foundation, The Kresge Foundation, The New York Community Trust, and the Doris Duke Charitable Foundation.
GREEN RETROFIT PROGRAM
Under the American Recovery and Reinvestment Act of 2009, HUD was authorized to grant or loan $250 million for energy retrofitting of the HUD and USDA assisted portfolios. Approximately 200 properties were targeted this program. We worked with SAHF members to ensure that they made the most of the opportunity. Ultimately, 27 properties owned by SAHF members were successful in acquiring an average of $13,000 per unit in order to undertake energy efficiency measures, replace existing materials with greener, more sustainable replacements and in some cases to install renewable energy generation. We are very pleased with this outcome as it enabled our members to get a larger than anticipated portion of the available funds. Since we have collected utility consumption data on the properties prior to the retrofits, we will be able to measure the benefits after the measures are installed, using EnergyScoreCards. These data should be helpful for the affordable housing field in support of the underwriting of energy retrofit loans.
DOE WEATHERIZATION INNOVATION PILOT PROGRAM
In August 2010, SAHF received a $2.59 million grant from the Department of Energy's Weatherization Innovation Pilot Program to demonstrate the effectiveness of Energy Performance Contracting for privately-assisted affordable multifamily housing. Using an energy service company (ESCO), SAHF intends to retrofit 2,500 units of member-owned housing. If successful, we believe this program will show that financing energy retrofits to affordable multifamily housing is practical. Financing of this type is critical if we are to create programs that are replicable and have large-scale applicability. We are in the final stages of negotiating the actual award contract with DOE, which we hope to have in place by the end of January, 2011. Some of the key points in the demonstration will include:
- The first use at-scale of an ESCO and SAHF's Energy Performance Contracting concept for privately-owned affordable multifamily housing.
- $1.25 million in grant funds available for SAHF members who participate, to be used to reduce the costs of financing.
- Innovative, low-cost long-term financing made available as a result of the guarantee of reduction of energy consumption provided by the ESCO.
- Resident education to ensure that the retrofits are used and maintained to maximize their potential.
- Measurement and verification of the savings from the energy efficiency measures using EnergyScoreCards.
- Evaluation of the effectiveness of resident education on maintaining an energy retrofitted unit.
Upon completion of this demonstration, it is our intent to expand the ESCO program using funds to make it available to as many of our member properties as are interested.
POLICY PROPOSALS FOR FINANCING IN THE POST ARRA WORLD
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In a post-ARRA world, we will need new financing tools. The proportion of debt should increase gradually over time, but new debt products alone will not produce scaled retrofitting any time soon. Financing requires rich data, energy and water literacy, strong intermediaries, and policy reform. Equity, grants, public benefit charges, and, later, sales of energy attributes should be available to pay part of the cost, at least until we have a robust debt market.
One source of funding can be found in so-called “public benefit charge” (PBC) funds. Half or so of the states now add a small charge to each utility bill. The utilities or special nonprofits are then directed to use the money for energy efficiency and conservation measures. Though PBC funds have been spent for a wide variety of energy efficiency measures, they rarely produce a well-integrated strategy to help a property overall. States could make these funds more effective by allowing more input from owners and other affected parties on how they are used. They could also encourage the funds to be combined with funds from other sources to go beyond piecemeal measures. Widespread use of such funds would both stimulate retrofits and ease the funding pressure on the federal government.
Regular utility cost and consumption data are essential for management, policy, and financing. Either voluntarily or by public utility commission order, all utilities should put bills on the internet so that they can be “scraped” at little or no expense and should provide free smart meters and audits where appropriate after data analysis. Owners could then organize at scale to sell carbon credits and other “attributes” as those markets develop.
Another tool could be an energy-efficiency tax credit equal to a percentage, say 30%, of the cost of qualifying retrofits, placing conservation on a par with renewables and the new home energy efficiency credit. The credit would be monetizable, drawing in capital from a range of sources. But unlike the LIHTC, the new credit would not be tied to new construction or substantial rehabilitation. Instead, the energy-efficiency improvements would be treated as a separate “bundle” of property, which could be independently financed and later reincorporated into the property’s ownership structure through options. The credit would incentivize owners to act now rather than wait a decade or more until a property undergoes substantial rehabilitation.
Finally, to source most of the capital, we need to jump-start the lending effort. To stimulate lending in the early stages, HUD, DOE, or Treasury could provide partial loan guarantees on pools of energy retrofit loans, with fees that make the program budget neutral. Pooling would minimize the transaction costs for the small-scale loans needed to make our sector energy efficient. Rather than approve each individual loan, the government could approve to originate the loans. Providing partial guarantees would drive down interest rates and spur lending while private capital grows more comfortable with the cost savings realized through energy and water efficiency investments. As that happens, the role of the federal guarantee could be scaled back over time.
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