Do more with less …. Green Scene Financing

April 5, 2010

Energy efficiency means using less energy to provide the same level of service. Using less to do the same or more is a mindset among business and eco-minded leaders, as it makes both economic and environmental sense.

According to the USGBC, “buildings in the US account for: 72% of electricity consumption, 39% of energy use, and 38% of all carbon dioxide (CO2) emissions.”

McGraw-Hill Construction’s latest SmartMarket Report, Green Building Retrofit & Renovation: Rapidly Expanding Market Opportunities Through Existing Buildings underscores the multi-billion dollar potential in the retrofit marketplace. “It is critically important that 20-30% of all retrofit and renovation activity will be green in five years because 98% of our buildings already exist, and they represent some of our most inefficient buildings,” said Harvey Bernstein, vice president of global thought leadership and business development, McGraw-Hill Construction.

Given the lackluster economy, new construction is predicted to remain slow at best. Therefore it makes sense to focus on retrofitting existing commercial building and residential housing stock as a way to improve energy efficiency–and to put a significant number of people back to work.

Energy efficiency does require an initial investment, whether looking at a commercial or residential project. The old adage rings true–spend money to make money, but in this case it is to save money, reduce energy use, and benefit the environment. Municipalities and communities can step in to help with the upfront costs of investing in energy efficiency, as many property owners want to do the right thing but are behaving very conservatively with respect to their own cash flow.

One innovative structure for financing these projects is called PACE, Property Assessed Clean Energy. As noted by PACE NOW this is a bond program “where the proceeds are lent to commercial and residential property owners to finance energy retrofits (efficiency measures and small renewable energy systems) and who then repay their loans over 20 years via an annual assessment on their property tax bill. PACE bonds can be issued by municipal financing districts or finance companies and the proceeds can be typically used to retrofit both commercial and residential properties. “

The program’s benefits include significant job creation for retrofit contractors and materials suppliers, acceleration of energy efficiency on existing buildings and homes, and a reduction in greenhouse gas emissions. In addition, substantial reduction of upfront costs for energy retrofits improves the project’s return on investment (ROI). With lower energy bills, mortgage borrowers can also illustrate improvements in cash flow and their credit profiles to qualify for mortgage or home enhancement financing, and an increase in property value from greener energy / home performance upgrades. There has been some push-back from banks and finance companies, as they fear the subordination of their rights as mortgage holders (since property tax liens are senior to mortgage debt).

So far, at least a dozen states have pushed forward and signed up to be a part of this program, which was originally approved in the progressive town of Berkeley, California (for additional insights on establishing your own program – check out this helpful site, http://rael.berkeley.edu/financing/resources).

Washington State is not currently a part of the program but I bet some environmentally progressive municipalities are working on this issue or a similar form of creative financing. Regional utility companies are also driving energy productivity as they provide significant incentives to their customers in support of their energy efficiency initiatives. If you know of a good program, please share it with our audience by providing a link to it in our Comments section.

Thanks for your energy in reading this post.
–alex

Filed under: Energy efficiency,green marketing

Tags: Energy efficiency, greening of existing buildings, retrofits