Who doesn’t love a “smart building.” We’ve talked a lot in the past about the idea of retrofitting existing structures so that energy resources are used more intelligently and efficiently (www.distributedenergy.com/blogs/de-editors-blog/retro-smart-61583.aspx,www.distributedenergy.com/blogs/de-editors-blog/give-me-smart-shelter-60039.aspx). Switching out old lighting fixtures, upgrading outdated HVAC systems, improving insulation and building envelopes—all these tactics can help property managers and business owners decrease their energy demand, while also positively impacting their bottom line. And now a new plan to capitalize on the tax benefits of turning old buildings “green” is being implemented throughout the country.
As reported in the New York Times, “a business consortium that includes Lockheed Martin and Barclays bank plans to invest as much as $650 million over the next few years to slash energy consumption of buildings in the Miami and Sacramento area.” The plan is to use this massive influx of cash to “jump start” the national market for energy efficiency upgrades and retrofits.
The business consortium—led by Ygrene Energy Fund and created by the Carbon War Room, a nonprofit environmental group set up by Sir Richard Branson—is basing its investment decision on the ability to exploit a new tax plan that allows property owners to defer payments related to the upfront costs of a retrofit for five to 20 years through property-tax surcharges. Known as “PACE” (Property Assessed Clean Energy), the tax plan is part of “a bipartisan local government initiative that allows property owners to finance energy efficiency and renewable energy projects” through “an assessment on their property taxes for up to 20 years.”
Ygrene Energy Fund has won an exclusive contract to manage these retrofit programs for six communities in and around Miami and is also finishing up a similar contract with Sacramento. The hope is that this property tax surcharge plan will encourage owners of older, power-hungry properties to upgrade their facilities by easing the pain of costly upfront costs. State and local officials hope that the elimination of financing obstacles will spur an impetus to improve building performance, which could result in the neat hat trick of improving energy efficiency, saving local businesses and creating thousands of new jobs—all without any federal funding.
Short-term loans provided by Barclays will be used to pay for the upgrades, which will include everything from windows to insulation to lighting and even onsite renewable energy. Contractors hired to perform the upgrades will be required to warranty that the energy savings promised by the utility will “actually materialize,” and those warranties will—in turn—be backed up by insurance underwriter Energi and further supported by Hannover Re, “one of the world’s largest reinsurance companies.”
While similar tax-deferral programs have existed in the past, they’ve primarily focused on residential owners. The plan to expand the program to commercial properties promises is based on the notion that businesses owners tend to be the big energy users in any given community, meaning a bigger bang for the energy efficiency buck. Additionally, commercial property owners are often better informed about renovations and retrofits, and are better able to handle the permitting process and all the other hoops that must be jumped through in order to initiate building improvements.
James D. Marston, head of energy programs for the Environmental Defense Fund is quoted in the New York Times as saying, “It’s a big deal . . . we’re talking about tens of billions of dollars in investments, and energy savings that are 10 times that amount. If you do this correctly, you would be able to shut down a third of the coal plants in the country.”
So what do you think? Will these deferred payments make property owners more likely to invest in retrofits and upgrades at a time when economic uncertainty has lead to belt tightening and conservative spending? Can the promise of energy and cost savings via retrofits overcome the trepidation some business owners will have regarding what amounts to yet another loan? And is the PACE program an example of what can be done if energy efficiency efforts are, in effect, “decentralized” and handled locally rather than at a national level?