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Economics of Energy EfficiencyENGS 44 Sustainable Design | Dara Goldberg ‘08, LEED AP BD+C

experience

economics of efficiency

case studies

Economics of Energy Efficiency Dara Goldberg ‘08 | 3

Experience

EDUCATIONHong Kong University (2015)

MSc in Urban Planning

Ecosa InstituteCertificate in Sustainable & Ecological Design

Dartmouth Major: Engineering Science mod. Studio ArtMinor: Digital Arts

PROFESSIONALHR&A Advisors

Research Analyst, Analyst

Kohn Pedersen FoxArchitect I, Sustainability Analyst


Kohn Pedersen Fox, Associates

• One of the world’s pre-eminent architecture firms

• Corporate, hospitality, residential, academic, civic, transportation, mixed-use, & master plan

• Projects in over 35 countries

• 6 global offices; 500+ staff

Image courtesy of KPF



Horizontal Fin

200mm

Rotating Fin

500mm 600mm

S N

Image courtesy of KPF

E/W



Water: Gray/black water recyclingStorm water management

Density: Transportation designNeighborhood planningFAR

Solar: Residential exposure mandatesPublic spaces, green roofs

Energy: Distributed generationInnovative technologies

Images courtesy of KPF


Ecosa Institute

5-month semester program in Prescott, AZ: Climate responsive design

Natural & recycled building materials

Passive technologies

Permaculture and xeriscaping


HR&A Advisors

Real Estate Advisory

Economic Development

Energy Efficiency

High Line ParkPhoto: Iwan Baan 2009


HR&A Advisors: Services

Economic and fiscal impact analysis

Market and financial feasibility analysis

Economic revitalization strategy

Energy efficiency program design & administration

Public-private development

Open space strategy

Transit-oriented development

Retail revitalization strategy

Affordable housing strategy

Master plan support

Capital planning for building energy performance

Public policy analysis

Managing and securing development approvals

Military base reuse planning

Organizational Implementation

Anacostia Waterfrontwww.hraadvisors.com

Brooklyn Bridge Parkwww.hraadvisors.com


HR&A Advisors: Select Project Experience

New York City Housing Authority Performed an economic and fiscal impact

analysis of annual operations

Analyzing cost of building rehabilitation vs. cost of replacement across the portfolio


HR&A Advisors: Select Project Experience

New York City Housing Authority Performed an economic and fiscal impact

analysis of annual operations

Analyzing cost of building rehabilitation vs. cost of replacement across the portfolio

Destination Bayfront, Corpus Christi TX Assessed regional economic conditions

Supported development of park program

Created capital & operations funding plan and implementation strategy


HR&A Advisors: Energy Efficiency

Identify market barriers and opportunities

Examine past, existing, and planned programs

Craft policy and strategic incentive frameworks

Build diagnostic tools

Design outreach strategies that generate demand

experience


case studies


Energy efficiency in buildings

Two primary categories for energy efficiency:

the reduction of consumption as an input to a system

the reduction of consumption as the outcome of services and goods

Residential Retrofits

22%

Commercial Retrofits

29%

Energy Efficient

Appliances and

Electronics49%

Nationwide Investment in Building-Related Energy Efficiency, 2004

$179 billion total

Sources: Energy Information Administration 2011Ehrhardt‐Martinez, Karen and John “Skip” Laitner, The Size of the U.S. Energy Efficiency Market: Generating a More Complete Picture, American Council for an Energy Efficient Economy (ACEEE), 2008.


A variety of stakeholders impact buildings’ energy use.

• Developers• Owners• Facilities staff• Tenants• Occupants

• Architects• Engineers• Auditors• Contractors• Retro-

commissioning Agents

• Federal, State, Municipal regulators

• Policy-makers• Appraisers

• ESCOs• Lenders• Utilities/RTOs• Brokers• Lawyers• Manufacturers

Building Specific

Design & Implementation Regulation Services


Efficiency decisions are driven by a range of motivations.

“Because I want to” “Because I have to”

Improved marketability, branding

Financially beneficial• ROI• Compensation• Reduced costs• Accrued savings

Professional development and training

Necessary capital upgrades

Compliancewith more stringent codes and mandates

Social Systems Technical Systems


Demand is the key impediment to uptake of efficiency.

Tenants

Owner

Facilities Managers

Example: Understanding commercial office stakeholders’ motivations

NOIImage

Mandates

Incentives/C-Suite Relationship

Metering Configuration

Employee AttractionSenior Engagement

Relative Cost


Communicating the value of efficiency is critical.

Understand local market conditionsUnderstand local market conditions

Enable or incentivize key decision makersEnable or incentivize key decision makers

Illustrate the broad economic and social benefits of investments in efficiency

Illustrate the broad economic and social benefits of investments in efficiency

experience


case studies


Case Studies: Communicating the Value of Energy Efficiency

• Energy efficiency program design and broad outreach strategy: Connecticut and Los Angeles County PACE Financing

• Commercial office consumption reduction and behavioral change:Duke Energy: Smart Energy Now℠

• Designing a “green services” company for multifamily buildings:Enterprise and SAHF NewCo

• Underwriting against energy savings projections to catalyze an energy and water efficiency retrofit market:Deutsche Bank/Living Cities Study and NYCEEC

CASE STUDYConnecticut and Los Angeles PACE Financing


What is PACE?

• Property Assessed Clean Energy is an innovative way to finance energy efficiency upgrades and renewables.

• How it works:

– Property owners receive 100%, up-front financing for efficiency improvements

– Loan is repaid as a property tax assessment for up to 20 years.

– Repayment obligations could be transferred to a new owner upon sale.


Though PACE legislation has passed in 28 states since 2008, less than half have established programs.

Passed legislationEstablished program


Our goal was to help CT and LA County to:

• Segment the market to determine ownership and geographic concentration.

• Identify opportunity targets based on physical characteristics and financial health.

• Triage opportunities and design an outreach strategy that helps nascent programs with limited capacity market financial products to most likely participants.

• Create a searchable database of target properties and relative characteristics.


Good candidates for PACE financing are:

Properties in good financial health

Owners that use 3rd party financing

Owners that make capital investment decisions locally (and borrow locally)

Owners willing to borrow at or above market rate

Owners that pay property taxes

Large tenants with interest in reducing operating expenses


Size Medium to large properties tend to have more sophisticated owners, who are more likely to be convinced of the benefits of EE investment.

Owner Owners of large portfolios or those more likely to use 3rd party financing to upgrade a number of properties.

Mgmt Self-managed properties are usually better incentivized to invest in EE.

Age Owners of aging buildings in need of capital repair might already be contemplating investment, upon which EE financing could be piggy-backed.

Vacancy In a price-sensitive market, EE improvements might be marketed as a cost effective means to reduce vacancy.

RE experience-based rules of thumb helped to further sort for target owners and properties.


Office• Class A • Class B• Class C

Industrial Retail

Hospitality Healthcare

Commercial & Industrial Subsectors Examined


Market Segmentation

Subsector Total SF Total Bldgs Total Unique Owners*(minimum)

LA CT LA CT LA CT

Office

Class A 180 M 53 M 1,000 310 520 190

Class B 142 M 68 M 4,900 2,200 4,200 1,720

Class C 82 M 48 M 9,700 6,100 9,200 5,030

Industrial 903 M 282 M 31,800 7,500 24,500 5,475

Retail 392 M 198 M 38,500 18,000 32,000 12,760

Hospitality 67 M 21 M 1,300 400 1,110 315

Healthcare 44 M n/a 710 n/a 580 n/a

* Represents the buildings for which data was available, which in all cases was the vast majority but not all, thus this is a minimum number of unique owners.


We identified the following preliminary targets that merited near-term action within priority subsectors.

1. In LA County, owners/large tenants in class A or class B office properties, especially those that are owner-occupied and/or self-managed with high building vacancy.

2. Local or national owners/tenants of large retail properties in need of repair, for which EE financing could serve as part of an asset-repositioning capital stack or costs can be passed through as OpEx.

3. Hotel owners in competitive geographic submarkets, especially for properties needing capital reinvestment.

4. Owners of large industrial properties, especially those that are owner-occupied and/or self-managed.


Owners’ four key motivations for efficiency.

1. Increase rent and decrease vacancy• Capital improvement attract new tenants

2. Decrease operating costs• Energy expenses are nearly 30% of total expenses in commercial and

residential (inclusive of water costs)

3. Enhance “green” image• Improve marketability

4. Comply with impending government mandates• Benchmarking, retro-commissioning & retrofits


Thinking about the pitch: Points of intervention

Mid-LeaseRetrofit

LeaseTurnover

PublicPolicyInitiative

AcquisitionorRefinance


Thinking about the “pitch:” a highly price-sensitive Office sector

Note: NYC represents midtown Manhattan, Chicago represents total CBDSource: CoStar December 2012; CBRE Q1 2012, Q4 2011; Kidder Matthews Q1 2012; Grubb & Ellis Q4 2011; Colliers Q3 2012, Cushman & Wakefield Q4 2011

Sector

Vacancy Rate

LA County

CT NYCSan Fran

Boston Chicago U.S.

Class A 15% 18% 8% 12% 12% 15% 13%

Class B 9% 11% 9% 14% 15% 13% 16%

Class C 5% 7% 8% 5% 18% 14% 18%

Industrial 4% 7% n/a 3% 17% 10% 13%

Retail 8% 5% 4% 3% 4% 8% n/a


Thinking about the “pitch:” Messaging to office owners/tenantsAv

erag

e W

eigh

ted

Rent

($

/sf/

year

)

Vaca

ncy

Downtown LA Office, Rent Spreads vs. Vacancy

0%2%4%6%8%10%12%14%16%18%

$0$5

$10$15$20$25$30$35$40$45

Class A Class B

38 M sf21% of total county RBA

20 M sf14% of total county RBA

Source: CoStar December 2012


Thinking about the “pitch:” Working with retail owners and tenants

Consider viability of large-scale retail owners as pass-through vehicles for financing to large, national tenants with complex processes for securing capital funds.

Devise messaging that is sensitive to nature of space conditioning, lease structure and energy use cost sharing in malls vs. strip-centers vs. freestanding structures.

Identify financial thresholds at which owners (or large tenants) would be interesting in participating in PACE program

Communicate prerequisites for collaboration with a start-up public program, e.g., regarding transparency of decision-making, timing of receipt funds, simplicity of application, etc.

CASE STUDYDuke Energy: Smart Energy Now℠


Envision Charlotte and Smart Energy Now℠

“A first-of-its-kind collaborative partnership in Charlotte’s center city to create the most environmentally sustainable urban core in the nation.”

Announced Sept ’10 at Clinton Global Initiative


Smart Energy Now℠ Overview

• 20% electric consumption reduction in Uptown offices by 2016

• 5% due to information sharing and behavioral changes

Goal

• All buildings over 10,000 SF office space

• ~67 buildings, 20M SFLogistics


Task: design a community engagement strategy.

Develop community engagement strategy to reach 75,000 workers

Design lobby display and web content

Create energy champions program

Achieve 5% energy savings


Lobby displays are an essential part, but can’t do it all.

Messaging Strategy Facilitated by display?

Senior-level engagement

Duke leading by example

Access to capital incentives

Education/technical support

Information feedback

Energy champions

Actionable tips

Commitments and recognition

Social norm messaging


The office market is dominated by Class A buildings.

Source: CB Richard Ellis, MarketView Q1 2011; CoStar

Class A

Class B

Class C

Office Building Class by Percentage Square Footage

Class A

Class B

Class C

Class A

Class B/C

36.9M TOTAL SF

Uptown CharlotteManhattanBoston CBD

15.6M TOTAL SF539.2M TOTAL SF


Electric use is more intensive than the nation and region.

Source: Duke Energy; EIA 2003 Commercial Buildings Energy Consumption Survey, 2006

25.6

16.8 17.3

12.0 14.0 16.0 18.0 20.0 22.0 24.0 26.0 28.0

Uptown CharlotteParticipant Average

Climate ZoneAverage

National Average

Electricity Use Intensity Uptown Charlotte vs. Regional and National Averages

kWh

per

squa

re f

oot

Note: Uptown Charlotte average was taken for 61 participating buildings for which data was available. Climate Zone and National Averages are taken for commercial office; Charlotte’s Climate Zone is defined by the EIA as having less than 2,000 Cooling Degree Days and less than 4,000 Heating Degree Days.

Uptown Charlotte Participant Average


Identify spaces with the greatest opportunity to meet goals.

The 20 largest office buildings participating in Smart Energy Now℠ represent nearly 90% of the total Uptown commercial office square footage.

Prioritize Outreach to Achieve Reduction Targets

Opportunity:Building and tenant size/ concentration

Opportunity:Electric Use

Intensity (EUI)

Opportunity: Interest in

sustainability

Opportunity:Building and tenant size/ concentration


Charlotte: Third-party managed class A market

Source: Duke Energy; Charlotte Center City Partners

Government

Multi-TenantOwner

Occupied, Single Tenant

Owner Occupied,

Multi-Tenant

Buildings by Ownership TypeUptown Charlotte

15.6M TOTAL SF

70% of SFowned or managed by

four private companies and the City and County

government


Charlotte: Breakdown of Energy Use & Cost

Base Building

Tenant Space

70% of Energy Use

30% of Energy Use

Landlord pays full building cost (master‐metered)

Energy cost included in tenant rent


Source: CBRE Q3 2011 Charlotte Office Market Report

1. Increase rent and decrease vacancy

2. Decrease operating costs

3. Enhance “green” image

4. Comply with impending government mandates

High vacancy rates– 18% vacancy in Charlotte market (vs. 7% vacancy

in NYC office market)

Very low utility costs ($.06 - $.08/ kWh)

Limited tenant knowledge of consumption

Community-driven economic development effort

Market-driven motivations for efficiency: Charlotte


Recommendations for achieving 5% consumption reduction

Three-track engagement strategy for working with:

• Work individually with largest stakeholders• Low/no cost improvement campaign• “This is an economic development initiative”

C-Suite (owners and

large tenants)

C-Suite (owners and

large tenants)

• Form third-party partnerships• Training and education• Rewards and recognition campaign

Facilities ManagersFacilities

Managers

• Fresh content for displays and web• Energy champions program• Constant marketing of program: campaigns and activities

OccupantsOccupants


Additional Consideration: Green leases for commercial tenants

Create a set of principles for lease negotiations and other recommendations for making existing leases more energy efficient.

• Environmental performance objective clauses

• Gross lease rent structure and addressing “split incentive”

• A fixed per square foot energy allowance for tenants

• Objective building performance standards;

• An annual building performance reporting requirement

• Provisions related to green cleaning and recycling, building rules and regulations, and tenant fit-out guidelines.

CASE STUDYEnterprise and SAHF NewCo Green Services


Our task: Create a green services company

• Assist two of the nation’s largest owners/developers of affordable housing to develop a “green services company”

• Serve current portfolio of 200,000 multifamily units in all 50 states (plus D.C. and Puerto Rico), then scale to broader marketplace

Create opportunities for low- and moderate-income households through provision of affordable housing in diverse, thriving communities

Stable, affordable housing is critically important in the lives of U.S. Citizens, and can enable working families to retain jobs, grow earnings, and build a better future for their children.


Six criteria for assessment of potential services

Mission Compatible with organizational services and core purpose

Market Demand

• Demonstrable, quantifiable demand driven by regulation or owner interest• Associated transaction costs, risk, and complexity don’t impede

Market Supply

• Few entities and limited near-term growth• May be limited to niche markets or particular locality• Existing providers are under-capitalized, though may be providing high

quality services

Profitability Can be reasonably expected to generate profit within 3 to 5 years

Scalability • Large share of existing units in Enterprise/SAHF portfolio• Potential to implement in markets throughout the country (e.g., permitted

by concentration, regulation, utility structures)

Capacity to Implement

• Potential to hire or acquire/partner with existing businesses• Does not require significant vetting, and acquiring appropriate capacity

and staff expertise does not require complex procurement process


Evaluated 9 services and selected 4 for further analysis

1. Project Manager, Emerging Technologies

2. Green Capital Needs Assessment (CNA)3. Broker/Own Green Power

4. Utility Bill Review5. Resident Education and Engagement6. Staff Energy Efficiency Training7. Aggregate Owners’ Energy Procurement

8. Demand Aggregation Opportunities

9. Utility Program Design


Service Area Opportunity: Aggregation of Attributes

• Retrofits and renewable energy installations create “byproducts” with their own value, i.e., CO2 emission reductions, peak electric load reductions, White Tags (certificates ensuring energy savings) and renewable energy credits (RECs).

• These attributes are severable and tradable commodities.

• NewCo would aggregate attributes resulting from recent energy capital investments and sell into voluntary and compliance markets.


How would it work?

1. Find multifamily units where there is significant energy efficiency retrofit and renewable activity.

2. Review regulatory and other market impediments in targeted geographic areas.

3. Reach out to owners, selling the benefits of aggregating attributes

4. If interested, provide NewCo with utility bills and measured annual cost savings post-retrofit, find a third-party entity to validate the savings.

5. Upon validation, determine the most appropriate buyer

6. Assuming attributes are sold, verify savings on an annual basis and provide ongoing verification to entities that have purchased the attributes.


Demand

State regulation creates place-specific compliance markets

• State regulation creates place-specific compliance markets

• Regulation and baseline EE standard has thus far hindered participation

• Commitment to “green” drives the voluntary market.

Benefits to Multifamily Owners

• Little to no additional cost (in most cases).

• Revenue can be shared with owners.

• Participating owners benefit from ongoing data tracking and management


Supply

Competition

• Peak load reduction: A large share of sophisticated curtailment service providers, which provide access to end-use retail customers, qualified as “agents” by RTOs

• RECs: Essentially all developers of renewables sell credits to regional market to support project financing.

• Carbon emissions reduction: In voluntary markets, few active “brokers ”given the nascence and volatility of the industry

Service Area Challenges

• “Additionality”

• Past failure to generate demand and revenue

• Market lacks belief in results

• Strong geographic limitation hinders ability to grow markets


Marketing and Delivery

Key Geographic Markets | Portfolio Concentration (Units)

MA NJ PA MD DC VA NC IL IN OH CA

Enterprise 200 2,000 2,000 7,200 2,200 2,300 2,300 1,600 1,000 4,700 11,600

SAHF 7,000 2,200 3,400 3,200 700 2,400 1,100 4,500 2,500 6,200 21,700

Total 7,200 4,200 7,200 10,400 2,900 4,700 3,400 6,100 3,500 10,900 33,300

*Note: Includes target areas with 1,000 units or more

• Limited to select geographic markets, but other utilities may make deals for peak load reduction: MA, NJ, PA, MD, DC, VA, NC, IL, IN, OH, CA

• Carbon trading should focus on strong voluntary markets with political/cultural support for community-based environmental initiatives

• SREC markets vary widely with low-price voluntary market, not a Year 1 target


Financial Framework: Revenue Assumptions

Year One (At Start Up), focus exclusively on aggregating carbon emissions reduction attributes:

• Market share: 2,000 units per year, 10 to 100 owners

• Each unit reduces consumption by 20%, or1.5 MWh + 100 therms of gas/oil

• CO2 emissions saved is 2 tons per year saved per unit.

• Price per ton is at its lowest (“floor”) prices due to the economy, trading at $2 to $3 per ton

• The cost of M&V is approximately $2 to $4 per unit per year.

• [2 tons/year] * [5 to 10 years] * [$10/ton] – [M&V cost/unit] discounted, yields around $100 per unit of present value.

Year 2 (Ramp Up), add aggregation of peak load reduction attributes, assuming:

• A minimum of 3,000 units aggregated in eligible utility areas.

• Implemented EE generate peak load reductions.

• Auction clearing prices in the range of $100-$300 per MW per day, but is location-specific (i.e. depends on transmission congestion and retirement of old plants).


Year 1 Year 2 Year 3 Year 4 Year 5Earned RevenueCarbon Emissions Reduction Net Proceeds*

NPV per unit $100 $110 $120 $130 $140Number of Subscribers Aggregated (Units) 2,000 4,000 8,000 16,000 21,000 Subtotal Net Carbon Proceeds $200,000 $440,000 $960,000 $2,080,000 $2,940,000

Load Reduction Net Proceeds*NPV per unit $150 $150 $150 $150 $150Number of Subscribers Aggregated (Units) - 3,000 6,000 12,000 24,000 Subtotal Load Reduction Proceeds $0 $450,000 $900,000 $1,800,000 $2,340,000

Capitalization Needs $ - $ - $ - $ - $ -

Total Cash In $200,000 $890,000 $1.86M $3.88M $5.28M

Operating ExpensesStaff costs** $200,000 $300,000 $300,000 $369,000 $387,000 Other direct costs*** $200,000 $115,000 $115,000 $90,000 $95,000 Overhead*** $100,000 $110,000 $110,000 $120,000 $126,000

Total Expenses $500,000 $525,000 $525,000 $579,000 $608,000

Projected NOI $(300,000) $365,000 $1.34 M $3.30 M $4.67 M

*Net proceeds assumes the costs of measurement and verification are subtracted from total proceeds generated by sale of attributes, on a per unit basis.*Assumes Project Manager with 1 to 3 FTE support, with additional staff added in Year 4.***Other direct costs and overhead include consulting, travel, marketing, accounting and legal, and office/insurance costs, respectively.

Proforma


Summary

Reasons to Pursue• Provides additional financial

benefit to Enterprise’s and SAHF’s owners

• Does not require large permanent staff commitment, nor substantial upfront capitalization

• Earns significant net revenue

• Can leverage partnerships with existing multifamily incentive programs

Reasons Not to Pursue• Baseline efficiency standards are

rigorous, making “additionality” a significant hurdle in today’s carbon market

• Markets are volatile and untested, particularly carbon.

• A largely unregulated market complicates ownership claims.

• Staffing expertise requires sophisticated skills and experience

CASE STUDY

Illustrating the Benefits of Energy Efficiency in Multifamily UnderwritingDeutsche Bank Americas Foundation | Living Cities


$16 billionestimated energy savings potential in

U.S. multifamily buildings

McKinsey, 2009 adapted

Opportunity


chicken

upfront capital required to unlock savings potential

egg

savings could help support capital,

if only credited in lending process

Challenge


A paucity of data concerning the efficacy of energy retrofits

Lack of interaction between the worlds of building science & finance

Initiative overview

challenge


Initiative overview

1. Assess trends in pre- & post-retrofit building performance

2. Analyze the reliability of savings projections

3. Utilize findings to frame approach for incorporating energy savings projections into underwriting

Build a set of reliable data to:response


Approach

231 projects

21,022 units

Electric Only43%

Fuel Only10%

Electric + Fuel47%

Breakdown of Dataset by End Use Data Availability


Methodology: data collection & analysis process

Obtain Process Organize Analyze Translate


Data collection & analysis process

Obtain Process Organize Analyze Translate

actual savings / projected savings = realization rate


Central Findings

1. Building retrofits save energy

Portfolio-wide savings

Saved 19%

electric: Saved 7%

fuel:


Central Findings


2. Fuel measures save more than electric measures

average savings per unit

Saved $ 240

electric: Saved $ 50

fuel:


Central Findings



…and fuel savings projections are more reliable.


Central Findings



3. Actual savings are strongly correlated with pre-retrofit fuel usage


The relationship between pre- and post-

Building characteristics• vintage• number of units• low rise vs. high rise• total square footage• pre-retrofit energy use

intensity• fuel system type• fuel type

Retrofit Scope/Fuel Measures• boiler replacement• heating controls and/or

distribution improvements• window replacement• air sealing• DHW/low flow fixtures• training• other


-20

0

20

40

60

80

100

0 20 40 60 80 100 120 140 160 180 200

1 PS Oil

1 PS Gas

Pre-war 2 PS

Pre-war HW

Post-war 2 PS

Post-war HW

Post-war DS

actu

al f

uel s

avin

gs(k

BTU

/squ

are

foot

)

pre-retrofit fuel use intensity(kBTU/square foot)

Savings = 0.51*(Pre-retrofit EUI) – 30.66

Higher pre-retrofit intensity indicates greater savings potential


116103 95

8273

0

20

40

60

80

100

120

140

1 PS Oil (n=37) 1 PS Gas (n=29) Pre-war HW(n=26)

Post-war 2 PS(n=5)

Post-war HW(n=20)

pre-

retro

fit e

nerg

y us

e in

tens

ity

(kBT

U/s

quar

e fo

ot)

Heating system & age are good proxies for EUI

1-Pipe Steam, Oil

(n=37)

1-Pipe Steam, Gas

(n=29)

Pre-war Hot Water(n=26)

Post-war2-Pipe Steam

(n=5)

Post-war Hot Water

(n=20)


Central Findings



3. Actual savings are strongly correlated with pre-retrofit fuel usage

4. Strategically capping projections can vastly improve a portfolio’s realization rate

78

Fuel portfolio-wide realization rate: 61% ± 14%

-$200

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$0 $500 $1,000

projected fuel savings per unit

1 PS Oil1 PS GasPre-war 2 PSPre-war HWPost-war 2 PSPost-war HWPost-war DS

Realization Rate = 100%

actu

alfu

el s

avin

gs p

er u

nit


-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0 100 200 300 400

1 PS Oil

1 PS Gas

Pre-war 2 PS

Pre-war HW

Post-war 2 PS

Post-war HW

Post-war DS

67% of projects

Auditors usually project 25% – 50% savings…pr

ojec

ted

fue

l sav

ings

units per project


-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0 100 200 300 400

1 PS Oil

1 PS Gas

Pre-war 2 PS

Pre-war HW

Post-war 2 PS

Post-war HW

Post-war DS

69% of projects

but most fuel measures save 10% – 40%. ac

tual

fuel

sav

ings

units per project


-20

0

20

40

60

80

100

0 20 40 60 80 100 120 140 160 180 200

Total kBTU/SF Pre-retrofit

1 PS Oil

1 PS Gas

Pre-war 2 PS

Pre-war HW

Post-war 2 PS

Post-war HW

Post-war DS

actu

alfu

el s

avin

gs(k

BTU

/squ

are

foot

)


Apply the trend line derived from actual savings…

Savings = 0.51*(Pre-retrofit EUI) – 30.66


-20

0

20

40

60

80

100

0 20 40 60 80 100 120 140 160 180 200

1 PS Oil

1 PS Gas

Pre-war 2 PS

Pre-war HW

Post-war 2 PS

Post-war HW

Post-war DSproj

ecte

d fu

el s

avin

gs(k

BTU

/squ

are

foot

)


to projected savings to establish a conservative threshold.

86/100 projections over threshold


-20

0

20

40

60

80

100

0 20 40 60 80 100 120 140 160 180 200

1 PS Oil1 PS GasPre-war 2 PSPre-war HWPost-war 2 PSPost-war HWPost-war DS

Projections above the threshold are adjusted downward.ca

pped

pro

ject

ed f

uel s

avin

gs(k

BTU

/squ

are

foot

)



-$200

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$- $200 $400 $600 $800 $1,000 $1,200 $1,400

1 PS Oil

1 PS Gas

Pre-war 2 PS

Pre-war HW

Post-war 2 PS

Post-war HW

Post-war DS

Capping fuel savings projections improves theportfolio-wide realization rate from 61% to 117%.

Realization Rate = 100%Portfolio-wide: 117% ± 21%

actu

alfu

el s

avin

gs p

er u

nit

projected fuel savings per unit


Comparative Portfolio Analysis

DBLC fuel dataset

with pre-, projected & post-retrofit data

85

100 projects

8,100 units


Opportunities to finance multifamily efficiency upgrades

• Increase existing loan size for broader capital improvements to incorporate efficiency upgrades

First Mortgage

• Take out subordinate debt for efficiency improvements

Second Mortgage

• Take out a loan exclusively for efficiency improvements

Add-on Financing


Energy savings loan increment

Additional loan increment due to savings projections

Loan based on traditional underwriting practices

our focus


Lending per audit projections, unadjusted

$(2,000)

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$0 $5,000 $10,000

audit projected savings

actu

al s

avin

gs

1:1debt supported per unit

project


Lending per “capping” methodology

$(2,000)

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000

audit projected savings, “capped”

actu

al s

avin

gs

1:1debt supported per unit

project


Loan performance

30-year amortizationAudit projection,

unadjusted“Capping”

methodology

Debt supported by actual savings

$ 19,116,000 $ 19,116,000

Debt estimated per projection

$ 31,339,000 $ 15,713,000

Difference $ (12,223,000) $ 3,403,000

Realization rate 61% 117%


Loans where cash needed to service > savings

Audit projection,unadjusted

“Capping” methodology

Loans where cash needed to service > savings

71% 35%

Annual repayment shortfall(portfolio)

$ (1,103,000) $ (205,000)

Median annual shortfall (per unit)

$ (153) $ (110)


Retrofit cost

loan supportsfull fuel retrofit costs in

50% of projects


Improving performance

Protocols for:

• Energy data collection

• Standardized audit reporting

• Owner best practices

• Energy monitoring & verification

Benchmarking Auditing Installation Verification Monitoring


Proof of concept: A key step in market transformation

Opportunity

• DBLC dataset & findings

• NYCEEC credit enhancement

• Living Cities grant

Objectives

• Refine underwriting methodology

• Pilot transactions in NYC

• Prove out concept

• Inform future scale-up


What is NYCEEC?

Public-private partnership to support NYC’s energy and climate action goals by catalyzing an energy efficiency retrofit financing market for private building owners.

Incorporated by NYC as a non-profit, independent corporation

$37.5M+ initial capital from ARRA funds & philanthropy

Pioneering: first municipally-formed energy financing corporation in the U.S.

Credit: NYC Mayor’s Office of Long‐term Planning and Sustainability


What is NYCEEC?

Provides three financial products to support retrofits:

Mortgage-Based Products

Energy Services Agreements (ESAs)

Partially Secured and Unsecured Lending

Credit: NYC Mayor’s Office of Long‐term Planning and Sustainability


Fannie Mae and NYCEEC M-PIRE Loan Product

Overview: Loan product available to NYC multifamily property owners to support refinancing/acquisition or a supplemental loan for water and energy efficiency improvements.

Goals: Create a financing product that helps to:• Incentivize owners to invest in efficiency measures

• Improve the physical condition of NYC housing stock

• Increase multifamily owners’ NOI

• Reduce loan risk

• Assist with NYC local law compliance as part of Greener, Greater Buildings Plan

• Support rebuilding and resiliency post-Superstorm Sandy

• Reduce energy costs for tenants

• Preserve quality of affordable and workforce housing


M-PIRE: Underwriting Against Projected Savings

• Fannie Mae incorporates up to 50% of projected energy and water cost savings into owner’s underwritten NOI

• NYCEEC credit enhances the incremental loan share associated with retrofit work

• NYCEEC assumes up to 50% of the loss associated with retrofit work, Fannie Mae and lender assume remaining loss


ESAs offer a promising approach for implementing energy efficiency capital work, but the model is new and generally untested in both commercial & multifamily.

ESA Transactions

Need

Concept

Potential Applications

Target Sectors

NYCEEC provides credit enhancement to participating lenders or debt to ESA Special Purpose Entities (SPEs).


ESA Transactions

Need

Concept


Target Sectors

NYCEEC

Building Owner

SPE Borrower

ESA Project Developer

Equity Preferred Return

Energy Services

ESA Payment

Loan

Debt Service

Direct Loan Structure


ESA Transactions

Need

Concept


Target Sectors

Senior Lender

Building Owner

SPE Borrower

ESA Project Developer

Equity Preferred Return

Energy Services

ESA Payment

Loan

Debt Service

Credit Enhancement Structure NYCEEC

Credit Enhancement

Fees


In process and completed transactions

Current pipeline represents interest of approximately $14M of NYCEEC capital (approx. 8-10 deals)

All Products

Mortgage-Based Products

In discussion with organizations such as Fannie Mae, HPD, HDC, commercial lenders and CDFIs

ESA Transactions

Closed transaction at 125 Maiden Lane, 320,000 SF class B commercial condo

Second transaction in advanced discussions, and shortlist of discrete transactions

Partially Secured/

Unsecured Lending Products

Term sheet negotiations underway for $8-10M lending facility

Shortlist of discrete opportunities

Questions?

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