Efficiency for all: How lower energy bills open new markets

Efficiency for all: How lower energy bills open new markets

energy efficient light
ShutterstockAlix Kreil
A range of new programs aim to hone new models for energy efficiency financing.

Energy costs can impose a harsh burden on low-income families. Energy Efficiency for All (EEFA) seeks to combat this adversity in 12 states with a combination of private and public funds. It is building up from a base of nonprofit commitment to create more partnerships, expand its work and reach a large population of tenants and property owners.

EEFA is an initiative specifically designed to help low-income families in multifamily buildings lower their energy bills through energy efficiency.

"One of EEFA’s missions is to point out where the challenges are and try to address them in those programs. We want to make sure these programs allow for greater participation of building owners in the affordable multifamily housing sector," said Cai Steger, project director of EEFA at Natural Resources Defense Council (NRDC).

A 2009 survey by Energy Information Administration (EIA) revealed that families living below the poverty line were paying 27 percent more on their energy bills per square foot when compared to families whose income is above 150 percent of the poverty line. 

The potential savings is significant for most low-income multifamily rental buildings. But unfortunately, there hasn’t been much support in the United States for targeting this market. 

To optimize its impact, EEFA has to overcome several challenges — including engaging multifamily building owners, leveraging financing and rebate programs, and securing policy support.           

Why is it essential to retrofit low-income multifamily buildings?

When renters’ energy bills are unnecessarily high, this wastes money that they could use for housing, education, transportation, food and health care.

A variety of studies have documented that financial stress adversely affects the health and resilience of low-income communities. Reducing this financial stress most likely would lead to better health outcomes for low-income renters. It also would improve their quality of life and make it easier for them to set and meet financial and career goals. 

On average, according to EIA’s 2009 data sheets, low-income families spend $28 billion on their energy bills annually. Eighty-two percent of residents living in multifamily buildings are renters.

Multifamily building residents are spending 46 percent more than single-family home residents on their energy bills per square foot. United States multifamily building residents spend $1.39 per square foot and an average of $1,290 annually on energy.

According to the United States Bureau of Labor Statistics (PDF), in 2014, families with incomes in the lowest 20 percent of the population spent about double the percentage of their income on heating and electricity than families in the highest 20 percent of the population did. Even compared to an average family, this number is still 50 percent higher.

A study (PDF) done by Gary Pivo, professor of urban planning at the University of Arizona, shows that a combination of poor insulation and a lack of energy-efficient appliances is the main reason for these elevated energy bills.   

What programs and incentives currently support energy upgrades for this market?

In the past few years, attention has been drawn to low-income families’ energy equity issues. A good example is the Low Income Multi Family Program, initiated in Massachusetts by the Low-Income Energy Affordability Network with funding support from the state’s electric and gas utilities. This program targets low-income multifamily properties owned by public housing authorities, nonprofits and businesses. 

There is also a nationwide group of programs and projects geared toward multifamily buildings across the board — without a low-income emphasis.

The Multifamily Energy Savings Project has been carried out by American Council for an Energy-Efficient Economy (ACEEE) since 2012. The goal of this project is to provide technical assistance and research and facilitate peer exchange for the utilities that are inclined to start or increase their funding for multifamily energy efficiency programs. So far, this project successfully has built up a multifamily-utility working group, which has grown from 15 utilities to 40. 

"Our working group of utility-program administrators interested in developing or improving their multifamily programs has tripled. This indicates an increased interest in the sector among utilities. They know there are lots of savings and that current programs could do more to serve their multifamily customers. However, we still have a ways to go," said Lauren Ross, manager of local policy at ACEEE. 

Other initiatives include a multifamily retrofit program offered by Puget Sound Energy  in Washington, Multifamily Performance Program for Existing Buildings in New York  and Energy Savers in Illinois. 

A good example of an effective financial model is the Public Service Enterprise Group’s (PSEG) Residential Multifamily Housing Efficiency Program. The program provides upfront payments to home owners and charge a monthly installment fee on top of their utility bills. The program successfully has involved more than 500 buildings and over 16,000 apartments.

What is EEFA seeking to accomplish?

EEFA is working on building partnerships and drawing attention from the private and public sectors. 

As a partnership among the Energy Foundation, Elevate Energy, National Housing Trust and NRDC with funding support from the JPB Foundation, EEFA will help low-income renters gain access to $170 million in new public resources for energy efficiency in affordable multifamily housing.

EEFA’s mission includes making multifamily homes healthy and affordable for low-income renters; helping utility companies achieve their energy efficiency goals and reduce greenhouse gas emissions; and assisting states in earning extra credit and achieving their emission reduction targets under the Clean Power Plan. 

In order to achieve these goals, the initiative will strive to build collaboration between homeowners, utilities, nonprofits, investors and local governments.  

"Coordinating these sectors to make them work together is very important to address some of the challenges and ensure that the low-income communities can take advantages of clean energy," Steger said.

Low-income renters and multifamily owners often don’t have access for information on incentives and programs such as EEFA and don’t know how to get involved or proceed.  

By making the process easy and accessible, EEFA is planning to provide a "one-stop shop" with integrated services and resources. It will allow property owners to gain access to lenders, contractors and utility companies and work with them to finalize the improvement plan tailored to their needs.

Why do some property owners lack interest in energy-efficiency retrofits?

The first challenge for implementing energy retrofits is outreach to the building owners, who may be reluctant or unable to invest money — especially if the savings are perceived to benefit the renters. 

These so-called split incentives result in little or no investment in improving these properties. As the buildings deteriorate over time, the situation may worsen.

How can we counter this lack of motivation for energy-efficiency retrofits?

"One of the pieces we are looking into is figuring out how to help increase building owner demand," said Jennifer Somers, senior program manager at the Energy Foundation, who works on affordable multifamily energy efficiency and manages the EEFA portfolio of funded partners.

"One of the challenges has been the project stage that the buildings might be in. If they are in the stage of recapitalization or refinancing a project, it makes sense to take advantage of the rebates available as a result of regulatory efforts. Building owners, as always, are trying to work out how capitalize on energy-efficiency incentives in a timely manner to achieve the deepest savings possible."

What financing model is most effective to encourage the engagement of the owners?

Another challenge is project finance, which is key. Finance can come in many forms — including rebates, loans, contracts and grants.

If EEFA relied solely on private financing, it would have to look more closely at its return on investment. A study released in 2015, "Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program (PDF)," which led to extensive debate, showed that the upfront investment costs of one low-income energy efficiency program were about twice the actual savings.

This study was based on data from 600 low-income families who participated in the Weatherization Assistance Program. However, as EEFA is planning to combine private and public financing, this issue is not central to the success of the initiative. Optimizing the return on investment is beneficial, but is not a show-stopping consideration.

On-bill financing, one tool that programs such as this might draw upon, is an effective way to finance energy retrofits for affordable multifamily properties. In this case, the energy savings can cover the loan payments. Previous credit scores and utility bill payment records are usually used to determine eligibility.    

Through EEFA, owners can access an integrated program of services — including energy-usage information, incentives and funding supports. 

"We are trying to look from a policy perspective. How can we better seize opportunities to bring in multiple forms of funding to maximize the benefits of energy-efficiency retrofits for low-income families," Somers said. 

EEFA is putting in a great deal of effort in identifying partners and incentives in the market that can finance energy retrofit for affordable multifamily properties. The more financing options are available, the more property owners will be attracted to participate. Furthermore, because many parties have been involved in this initiative, it will require a well-designed program and well-coordinated implementation to make the EEFA initiative achieve its goal.

Because of the different energy costs, climate, policies and consumption structures in different states, finding an efficient solution will require collaborative efforts, long-term commitments, adequate funding, policy supports and expertise to make the implementation model adaptable and successful in different local circumstances.

What additional benefits can these retrofits deliver?

"There is increasing evidence that energy-efficient measures in multifamily buildings increase property value, make tenants more satisfied with their units and create healthier housing," Ross said.

Reduced drafts and improved respiratory health also can result from weatherization.

In addition, states can cut carbon dioxide emissions significantly and achieve their emission targets by investing in energy efficiency in low-income communities through the Clean Energy Incentive Program, created to coordinate with the federal Clean Power Plan. The Clean Power Plan provides a great opportunity for accelerating energy upgrades for affordable multifamily buildings.   

Recently, a study (PDF) by EEFA based on data from eight sample states indicated that increased efficiency in multifamily affordable buildings could cut this sector’s electricity usage by 26 percent.

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