How do affordable housing organizations lower operating costs while keeping tenants comfortable? The obvious solution: upgrade buildings to use less energy and water and deliver better comfort. But it’s not so easy to secure funds to pay for efficiency upgrades. Even with incentive funds that are available from utilities and the government, owners have to get creative. With the “Pay from Savings” financing model, owners can complete efficiency improvements when they are needed most, rather than waiting for refinancing or taking out a secondary loan.
Mercy Housing: A Case Study
In 2016, Mercy Housing, one of the largest affordable housing nonprofits in the country, sought out assistance in upgrading its California portfolio of nearly 100 properties and 6,500 units.
As Mercy Housing’s energy and water management partner, Bright Power first used EnergyScoreCards, our cloud-based energy analysis and benchmarking platform, to understand areas of waste and underperformance. Then, we completed comprehensive onsite energy audits to identify the best opportunities for improvement. Mercy Housing, Affordable Community Energy Services Company (ACE), and Bright Power prioritized phases of work based on factors including building performance, location, and available government and utility incentive programs like California’s Low Income Weatherization Program (LIWP). The first phase, which consists of six Mercy California properties, wrapped up the installation at the end of 2017.
The three organizations partnered on an innovative “pay from savings” financing approach, which gives Mercy Housing the ability to complete the upgrades and use project savings to pay for the upgrades over a 10-year period. In order to help finance the upfront cost of these projects, ACE recently secured funding through the Reinvestment Fund.
To ensure project returns, Bright Power will actively track and verify savings through EnergyScoreCards and engage with site staff to help optimize operations and maintenance. The efficiency upgrades being deployed across Mercy Housing’s California portfolio include new LED lighting in common areas and resident apartments, innovative heat pump hot water heating systems, low-flow fixtures on faucets and showerheads, domestic hot water controls, and pipe insulation.
Pay from Savings
ACE’s “pay from savings” approach is groundbreaking because it allows owners, like Mercy Housing, to take the savings generated from their energy and water efficiency upgrades and use them to pay for the upgrades over the next 10 years. That means while Mercy Housing is conducting business as usual, their efficiency upgrades will be paying for themselves.
Paying for the project in this way requires careful tracking of the energy and water savings pre- and post-retrofit. Bright Power’s EnergyScoreCards breaks down consumption and spend by end use to allow Bright Power, ACE, and Mercy Housing to monitor savings at the building and portfolio level. This rigorous monitoring was an important factor in securing the “pay from savings” financing for these projects.
Like all EnergyScoreCards clients, Mercy Housing is paired with a dedicated Energy Analyst to monitor their savings. Caleb Smeeth, Bright Power’s Energy Analyst for Mercy Housing said, “I pay close attention to the monthly performance of each project to ensure savings are consistently achieved. If the data begins to trend in a different direction, Bright Power has a hands-on approach to engage with the site staff to diagnose the issue remotely and deploy our California team for additional on-the-ground insights.”
Beyond tracking savings for financing purposes, Mercy Housing can also use this information to see which measures make the greatest impact. This allows Mercy Housing, Bright Power, ACE, and the Reinvestment Fund to forecast projects that will yield strong energy savings and maximize tenant comfort.
The Results from Phase I (6 Properties)
In just four months at 6 properties, Mercy Housing has seen:
- 29% decrease in gas usage
- 9% decrease in electric usage
- 4% decrease in water usage
- 7% decrease in carbon emissions
After Mercy Housing expands these upgrades to nearly 100 properties—representing the majority of their California portfolio—they will see impressive estimated annual consumption reduction:
- 2.1 million kWh electricity – equivalent to 234 homes’ annual electricity use
- 23,000 therms natural gas – equivalent to driving across the US over 111 times
- 32 million gallons of water – equivalent to over 48 Olympic sized swimming pools
“Combining the LIWP incentives with the ACE ‘Pay from Savings’ offering, we were able to achieve deep levels of retrofit at these properties in a way we could not have otherwise done. We hope to replicate this approach with more California incentive programs at other properties in our portfolio,” says Caitlin Rood, Mercy Housing’s Environmental Sustainability Director. “It’s a model in which everyone wins—investors, subsidized housing owners, ACE and its partners, and, ultimately, our residents.”
With a model like this, affordable housing organizations can secure funding to meet the needs of their residents, improve tenant comfort, and reduce their carbon footprint. Caitlin couldn’t be more right—everyone wins.
For more information on Affordable Community Energy Services Company (ACE), visit affordablecommunityenergyservices.com
For more information on Mercy Housing, visit mercyhousingblog.org
For more information on Reinvestment Fund, visit reinvestment.com
Many people are familiar with the iconic stone head sculptures which are perched on the shores of a remote island in the Pacific Ocean. At first glance, they appear to be evidence of a glorious civilization and a statement the prosperity which defined its golden age. But beneath this façade there lies a dark tale of disastrous proportions…
The tragic story and plight of Easter Island parallels the most glaring problem facing modern day society: climate change. In his book Collapse, Jared Diamond asserts that Easter Island is the “clearest example of a society that destroyed itself by overexploiting its own resources.” Diamond aptly labeled this self-destructive behavior “ecocide”.
Widespread deforestation, unsustainable farming practices and overhunting exhausted vital resources and the population began to die out, along with the island’s plant and animal life. A civil war emerged as tribes fought over remaining resources. Internal conflict and violence turned into anarchy.
By the time Easter Island’s people realized the trajectory of destruction, it was too late. At its peak, the island civilization supported a prosperous society of up to 30,000 people but by the time European explorers visited the island, the population had dwindled to a mere 700 people.
Tragedy of the Commons: Can We Learn From The Past?
The collapse of the Easter Island civilization can be described by a socio-economic phenomenon known as the “tragedy of the commons”.
“The phrase tragedy of the commons, first described by biologist Garrett Hardin in 1968, describes how shared environmental resources are overused and eventually depleted. He compared shared resources to a common grazing pasture; in this scenario, everyone with rights to the pasture grazes as many animals as possible, acting in self-interest for the greatest short-term personal gain. Eventually, they use up all the grass in the pasture; the shared resource is depleted and no longer useful.”
This same failure model applies to the carbon culture of today and the global climate change crisis. Today’s shared “resource” is the atmosphere, and we are exhausting it, just as the people of Easter Island did centuries ago to their terrain. The consequences of global self-interest become more and more real everyday.
Earth’s Climate: A Shared Resource
Our abuse of the climate is a global problem which transcends physical borders. At the heart of climate change is our thirst for fossil fuels and the resulting production of CO2 emissions, which pollute and diminish the shared atmosphere.
The people of Easter Island cut down acres of trees, stripped the soil of nutrients and hunted animal species to extinction. Today, we proceed to ravage the Earth for carbon-rich fossil fuels and spew their gaseous by-products into the atmosphere to bolster gross domestic product (GDP) and increase our (perceived) standard of living without any real consideration for the impact on the climate.
Self-interest motivates nations and individuals to skirt responsibility. Sustaining our current way of life (i.e. refusing to prioritize climate action) is simply too difficult, and often very profitable for those with the power to enact change. There is a resistance to any change that is perceived to be disruptive and painful, but as we’ve learned from Easter Island, without any disruptive preventative action or sweeping reforms, the demise of human civilization becomes a much more plausible scenario.
President Obama’s science and technology advisor, offered his thoughts on the future global climate landscape at the recent 2015 UNFCCC COP 21 in Paris:
“It is absolutely essential, if we want to avoid catastrophic impacts of climate change, that we turn this problem around starting now” – John Holdren
The consensus is overwhelming. It’s time to slam on the brakes of this freight train. It’s time to right this ship.
Carbon Efficiency: Fortune Of The Commons
The United States is positioned to lead the effort to curb climate change, though meaningful progress is slow. The TRUE cost of energy should account for the cost of the commodity itself and the cost of the environmental impact. Making carbon as visible and explicit as possible is essential to educate end users on their contribution to climate change. Although reducing carbon emissions can be accomplished in many ways, I propose a solution which applies to the building sector.
We all receive monthly utility bills which show energy usage, whether it be electricity, natural gas, oil, etc. Why not have an additional line item for carbon emissions with an associated fee? The end user would effectively be penalized proportionally to the size of their carbon footprint. The calculations of converting the energy usage to carbon emission equivalent are not terribly difficult.
The city of Boulder in Colorado has already implemented a “Climate Action Plan Tax”:
Historically, energy costs have been the main driver for energy efficiency efforts. As the costs of fuel and electricity have increased in the past, so has the push for renewables and energy conservation. But what happens when energy is cheap? The natural tendency is for people to revert back to their original consumer habits. Buy a bigger car. Run the air conditioner longer. Forgo putting solar panels on the roof.
Insulated from the price volatility of the fossil fuel markets, a carbon tax would effectively act as an unwavering financial penalty. In general, the pounds of carbon per kilowatt-hour of electricity or pounds of carbon per therm of natural gas or pounds of carbon per gallon of fuel oil are not dependent upon the monetary cost of the fossil fuel commodity. Thus during times of cheap energy costs, carbon would likely become a main driver for energy efficiency decisions.
Perhaps it’s time to start thinking about energy efficiency in terms of carbon efficiency.
Just as people respond to incentives, people respond to disincentives, possibly even more so. A carbon fee (assuming it is large enough) would provide constant feedback to end users about their contribution to climate change and would hopefully have a positive impact on their consumption behavior. The initial step for reducing carbon emissions and avoiding excessive carbon fees would be to use less fossil fuel by implementing energy conservation efforts. But ultimately a transition to carbon free energy would need to occur. The timing of that transition depends upon the progressive structure of the carbon tax (how much the tax rate increases each year) as well as the maturity and affordability of renewable technologies.
Regardless of the specifics, it would be in the users’ best interest to reduce the size of their carbon footprint and consequently save money. Thus, the “tragedy of the commons” becomes the “fortune of the commons”.
The very real tragedy of Easter Island offers us valuable insight into human behavior and self-interest as a motive. It offers us tangible evidence of the consequences associated with resource exploitation and environmental destruction. It gives us a jarring glimpse of what could be our very own fate. But most importantly it serves as a call to action to change our ways before it’s too late.