The Carbon War Room today launched a new consortium that aims to cut through the Gordian knot of barriers that has made it tough to finance commercial building retrofits. In the process, the groups involved hope to pick off billions of dollars worth of the lowest-hanging fruit of building energy efficiency.
The Carbon War Room's approach opens the door to zero-upfront-cost deals for mid- and small-scale retrofits, where in the past only a limited group of larger projects could land financing for such deals.
To turn this trick, the new plan upgrades an existing financing model known as PACE. It also relies on private capital, rather than public subsidies.
"This is game changing. It has the potential to solve the problem of the commercial retrofit market that has lingered for 35 years," said Jigar Shah, CEO of The Carbon War Room at the BusinessClimate 2011 event today in New York City.
Across the country, older buildings are ripe with some of our economy's largest concentrations of energy waste, and thus offer some of the least-costly fixes. Improving the world's building stock offers the opportunity to save 5 gigatonnes of greenhouse gas emissions per year, and amounts to a $2.5 trillion investment opportunity, said Shah.
Dubbed PACE Commercial Consortium, or PCC, the approach brings into alignment the interests of a series of players that in the past have failed to find the right profit motives, risk levels, or technologies to get beyond one-off, complex deals to finance major green commercial retrofits.
For commercial building owners, the PCC offers a turnkey model that delivers financing, the building upgrade and deal insurance, all paid through a increased tax assessment that is more than offset by reduced energy costs.
The players debuting today with the PCC's first round of deals are:
• Lockheed Martin (Bethesda, Md.) will provide building technology and services to audit, install and authenticate efficiency gains.
• Energi (Peabody, Mass.) insures the deals, using proprietary energy engineering underwriting standards, to help guarantee the savings promised by Lockheed. As a reinsurer, Hannover Re will back Energi's policies.
• Barclays Capital will raise the capital to finance these deals and Ygrene Energy Fund (Santa Rosa, Calif.) will administer the financing.
The new program builds on an older model of retrofit financing known as the property-assessed clean energy program, or PACE. As pioneered in California in 2008, PACE legislation enables property owners to accept a voluntary tax assessment as a means of repaying upfront financing of energy efficiency and renewable energy improvements. Twenty-six states in the United States have enacted legislation enabling the secure and scalable financing PACE structure.
Because they are repaid alongside tax assessments, PACE assessments are already considered a very low risk financing option. The PCC goes further in a number of ways, according to Murat Armbruster, a senior advisor who led the Carbon War Room's involvement.