Buildings use a lot of energy–about 40 percent of all energy used worldwide. According to the Washington, D.C.-based U.S. Environmental Protection Agency, currently existing technologies could reduce that usage 41 percent by the year 2050. In the U.S. alone, energy-efficiency upgrades could save building owners more than $1 trillion over 10 years. So why isn’t every building or facility owner jumping on the opportunity to save that kind of money?
Each year the Institute for Building Efficiency, an initiative sponsored by Milwaukee-based Johnson Controls that provides information and analysis of technologies, policies and practices for efficient, high-performance buildings and smart energy systems around the world, conducts a survey of building owners and managers. In 2013, the institute asked 3,500 facility- and energy-management executives in 10 countries to identify the top barriers they face when investing in energy efficiency. The feedback included a lack of awareness and technical expertise, uncertainty about the savings and the inability to meet required investment criteria of their organization. But the No. 1 reason given worldwide was a lack of funding. The inability to get financing or the upfront funds for energy-efficiency projects and retrofits simply stops many businesses from pursuing them.
It’s a tough problem and ironic considering the long-term savings energy-efficiency upgrades can bring to the table for building and facility owners. They save energy and money, create better work environments, decrease carbon pollution and stimulate the economy by creating jobs. Energy improvements benefit not only property owners, but also the surrounding community. Therefore, some regional and local governments have developed financing tools that are making it easier for property owners to move forward with energy-saving improvements. One approach is the use of innovative loan repayment plans involving repayment through utility bills or taxes.
PACE, or Property Assessed Clean Energy, programs fall into the tax repayment category and are becoming increasingly popular in the U.S. PACE ties repayment of an energy upgrade loan to the building or facility’s property taxes for up to 20 years. It can be attractive to building owners who don’t have the available upfront funds and don’t know how long they will own a property. With PACE, if the property is sold, the loan transfers to the new owner through the property taxes. To date, PACE legislation has been enacted in 31 states and the District of Columbia with pending programs in many other regions. (Determine whether PACE is available in your area.)
PACE Examples
The first PACE program was started in Berkeley, Calif., in 2008 as part of the Berkeley-FIRST climate program. Since then, the state has embraced the program as a way to meet its climate and environmental goals, save energy and money, and increase property values. In fact, California leads in this innovative financing with the CaliforniaFIRST Program, a PACE finance program for non-residential properties. More than 14 counties and 126 cities participate in the program. Two successful examples of PACE in action are located very close to PACE’s birthplace in Northern California.
The first project is the historic San Francisco Pier 1, built in 1918 and used in the 1930s to warehouse and ship C&H Sugar across the U.S. Owned by the Port of San Francisco, it was later turned into office space and today is corporate headquarters for Prologis, a worldwide owner, operator and developer of industrial real estate. After 10 years as tenants in the building, the company began to look for ways to become more sustainable and efficient. Prologis had some specific goals: improve overall building performance and comfort, reduce energy use by at least 30 percent, pass energy savings along to subtenants and improve cash flow.
Prologis chose PACE to fund energy-efficiency and renewable-energy upgrades. The Pier 1 financing was the first for the San Francisco GreenFinanceSF commercial PACE program, a program started by the city of San Francisco in partnership with the Clinton Climate Initiative and the San Francisco Department of Environment. Its purpose is to provide 100 percent financing for qualifying commercial energy-efficiency projects in San Francisco. Some of the specific advantages for the Prologis project included the need for zero upfront cash investment, immediate positive cash flow, long-term financing and the ability to pass payments through to tenants.
Prologis worked with an experienced, global energy service company to identify and implement the necessary upgrades at the 151,000-square-foot facility. Only a few companies have the expertise and background to complete these extensive upgrades, and municipalities and investment firms recommend them to property owners. The ESCO provided a holistic solution that encompassed retrocommissioning of heating and cooling systems, comprehensive interior lighting upgrades (the addition of 15,000 new lighting fixtures) and a 200-kilowatt rooftop solar-electric array. The project resulted in a 32 percent reduction in purchased
energy and an annual savings of $98,000, or 400,000 kW of energy. The rooftop solar is projected to produce more than 245,000 kW a year. The solar array met all of Prologis’ criteria without any increase in operating expenses.