Green Financing for Capital Improvements: Difficult But Not Impossible
May 15, 2012 — Traditionally, a lack of reliable data documenting savings from efficiency improvements hampered efforts to convince owners, managers, and residents that such an investment makes financial sense. Even no, in Habitat's 30th year, a lack of reliable data is still impeding these efforts.
Deutsche Bank Americas Foundation, in conjunction with Living Cities, recently issued a report (Recognizing the Benefits of Energy Efficiency in Multifamily Underwriting) that analyzed documented energy savings in over 230 properties. Surprisingly, this study is the first of its kind and represents the largest database of before-and-after energy consumption in apartment buildings, all of which are rentals and virtually all of which are affordable housing.
The study lays the foundation for continuing analysis of energy improvements. The data confirm that energy savings are achievable but also reveal some anomalies that may make financing based on projected savings unlikely, at least until more information is accumulated and analyzed.
The major findings are:
(1) Building retrofits save energy.
(2) Gas and oil savings are greater and more reliable than electricity savings.
(3) High fuel use before the retrofit is a reliable indicator of greater savings post-retrofit.
(4) Adjusting projections based on original consumption data yields more reliable savings projections.
Savings, Yes. But...
It is the fourth conclusion that reveals the tricky part for lenders. The data indicated that, while retrofits are effective, the actual energy savings, even when adjusted for cost and weather conditions, were often significantly less than the amount projected by an energy audit.
Audit experts don't find this surprising. Andy Padian, vice president for energy efficiency at the Community Preservation Corporation (CPC) and a certified auditor, points out that changes to retrofit scope, equipment substitution, poor installation techniques, and management failures can all contribute to a fall-off in the degree of savings.
To address this concern, Deutsche Bank suggests that the projected audit savings be adjusted based on the property's base energy consumption. Doing so vastly increases the reliability of the data, according to its analysis.
Still, any major changes will be driven by market demand, and the market ain't demanding just now. CPC saw little interest on its green financing program. (Full disclosure: we didn't determine loan amounts on projected savings either, and given the recently released Deutsche Bank/Living Cities study, that was apparently the right decision.) Apartment building owners resented the additional requirements and fees (audits cost money), and the concept of spending money to save money is a hard sell, as always.
Borrowing to install energy-efficiency improvements requires the same kind of commitment that is usually applied to redecorating the lobby, including the understanding that it sometimes makes sense to spend money to make (or save) money, as well as a healthy skepticism about the advice you get from your heating contractor. The real value of an audit, then, may not be to tell you that replacing your building's 60-year-old boiler will reduce fuel consumption, but which boiler will reduce consumption the most. And make sure your super will be trained to keep it at peak efficiency — that's where the real savings come in.
So where does this leave us? Unfortunately, pretty much the same place we've always been. Reducing energy costs requires a little investment of time, energy (pardon the pun), and a whole lot of common sense.
Mary A. Brennan, former assistant commissioner for energy at the New York City Department of Housing Preservation and Development, was also the director of field offices at the Community Preservation Corporation.
From Habitat May 2012. For more, join our Archive >>