Report 90by50 from the Urban Green Council

The recent 90by50 report from the Urban Green Council was an exceptionally well targeted feasibility study of the potential for drastic energy infrastructure change in New York City building stock. I already wrote about it on my green energy promotion blog. There is a lot to like about it, but it will also most likely be abused and bastardized in the process and the potential never realized. We seem to be a long way away from the kind of concerted action that is really needed, although the feasibility can no longer be in doubt.

While the report identifies clearly that things like New York's PlaNYC2030 were too conservative, and doomed to produce failure because it merely tinkers at the margins, this plan is too high level to be actionable as such, and therefore it may end up being its own worst enemy if we're not careful. Such a high level view has merits, but becomes tricky when it is combined with other high level views such as macro-economists are wont to produce and administrative institutions are wont to consume, so together they can make the high level nonsense that goes for energy policy, and worse, incentives.

However, the helpful implications are the fact that since reducing carbon emissions is definitely of primary importance, the sorts of marginal improvements that PlaNYC2030 envisaged were insignificant, if not counter-productive. There is great need to be more drastic than that. This was one of the reasons why, with my consulting company DaBx Demand Side Solutions, we issued a report 2 years ago, DaBx PlaNYC2020, to make the point that there was at least one class of buildings in New York that was capable of much faster and more drastic change in energy infrastructure, and achieve an 80-90% reduction in CO2 emissions in short order, with today's technology.

PlaNYC2020 alternatives, in relation to 90by50

In one way, I would consider our DaBx PlaNYC2020, of which Mayor Bloomberg was given a complimentary copy on July 4th, 2011 (which we dubbed 'energy independence day' for the occasion) to be a special case under the 90by50 approach, and in a way perhaps the low hanging fruit, although the technology path implied there is quite a bit different from the 90by50 model.

What the 90by50 report identified correctly, and one of the reasons why it chose a 37 year implementation period, is that the economically optimal way of achieving this transition would be to tie in as much as possible with the normal infrastructural overhauls that buildings need periodically. In our report we had argued that same point. For example, the program to phase out #6 oil and use natural gas or either #2 or #4 oil instead forces the issue and even provides subsidies to encourage such conversions, and thereby it preserves the carbon economy without any attempt to asses if renewable energy alternatives might be within reach. Clearly, if we could achieve substantial reductions in CO2 emissions, and at the same time improve long term building values by decoupling buildings from energy price hikes, not to mention any potential future CO2 assessments that would be desirable.

In short, there are certain building types that could make the transition to a low carbon lifestyle quicker than others, but that's being stopped by Soviet-style top-down twenty year plans and incentives to switch to Natural Gas. What we really need is grandfather provisions for buildings that commit to a renewable energy transition, but would be forced not to do so by the present deadlines for the conversion. Here is yet another example of how 'one size fits all' does not work for this problem, since there is such a wide range of structural potential and problems in different groups of buildings.

Methodology for Achieving the Green Energy future sooner

Bottom-up, not top-down

The risk of both the City's PlaNYC2030 and the 90by50 report is that they tend to steer towards a top-down approach. Much of this is predicated on how planners get their data. Planners are fed macro-economic pablum, which in the area of energy typically means an argument that by far energy efficiency gives us the best bang for the buck, and renewable energy is still mostly uncompetitive on the margin. And based on all that wonderful stuff, the administration then establishes policies accordingly.

Nobody seems to notice that in the process, the existing energy infrastructure is being taken for granted and treated as an unstated assumption, for the existing programs are typically geared towards energy efficiency, with the occasional cameo role for renewable technology. In other words, we start right away by optimizing for a secondary objective, efficiency, while skipping the initial make/or buy decision which should come first. It tends to be done correctly for new developments, but for existing buildings, this step is being overlooked. The further mistake that is implicitly made, is that renewables are evaluated in roles that are traditionally defined by the carbon energy model, and rarely do we see a systematic attempt to figure out what you can do differently with renewable technology, because of its unique properties, so that possibly you can pick up design advantages as compared to plugging renewable technology into a carbon based energy distribution model.

The first part of the insight into the potential of renewable technology is the extent to which it can be installed locally, so that a building in whole or in part supplies its own energy. A good example is sometimes provided by solar thermal. It is an often overlooked technology, yet it is 95-98% efficient compared to Solar PV at 15-20% efficiency. The question is, is there a practical way to integrate it into an existing building infrastructure. The cost of integration may kill the idea. However, it should evidently be tried, and be part of an evaluation.

CAPM, CAPM and more CAPM - the Capital Asset Pricing Model

In short, buildings should really begin to be looked at as potential energy producers, that can become partially independent from the grid. Net-zero is not a feasible objective in most cases for an existing structure, but enormous advances are feasible with today's technology. And such transitions can be incorporated in long term capital plans that take into account a 20-30 year equipment life cycle. Besides good engineering, the most critical piece is really  financial: a rigorous application of the Capital Asset Pricing Model should be the standard. If this is done, a far greater use of renewable energy technology is possible compared to what is being done today, and many existing incentives are counter productive at least some of the time, because the favor vendors of equipment and or the energy companies themselves, at the expense of the long term economic interests of the building owners.

There are also some regulatory hurdles that will need to be addressed. The famous split-incentive problem between landlords and tenants will have to be addressed. In low income housing there are rules that are promulgated by HPD and CPC, which prevent the highly necessary redesigning of energy infrastructure in building rehabilitations. And again, many incentive programs and tax abatements tend to steer property owners in the wrong direction. All of this is misguided policy, driven by the same macro-economic assessment that is erroneously applied to micro-economic planning at the building level, and it produces government sponsored capital destruction.

So again, we need to start working as if we were a capitalist society, from the viewpoint of the buildings as an asset, not with top-down soviet-style 20 year plans, that shove the macro-economic square peg, in the micro-economic round hole. Too many decisions are made driven by the latest incentive, instead of on a sound long-term economic basis, which would accrue to improved building values. An accelerated conversion to renewable energy would be more constructive to building preservation than the current regime of moving the deckchairs on the Titanic, and switching to natural gas as the "less dirty" carbon fuel. The vaunted role of natural gas as a "bridge fuel" is really a very destructive postponement, if it forestalls renewable energy in applications where it is economical today. Present HPD/CPC policies are merely creating the slums of the future, with real estate values held for ransom by energy prices, and landlords that are beholden to these rules are like lemmings waiting for the next energy crisis.

How to Stop Government Sponsored Capital Destruction

The indiscriminate push for energy efficiency over energy independence based on Renewable Energy results in a growing number of cases in missed opportunities for developing renewable infrastructure, which could have a wide range of beneficial effects in the long run, not least of which is the greater profitability of buildings, and their long term economic viability, and thus also building preservation.

We declared July 4th, 2011 Energy Independence day, by publishing our report DaBx PlaNYC2020 as a partial alternative to the PlaNYC2030 which the City has proposed, and we offered our report to the Mayor. Aside from that I felt that it was appropriate to also write to the Secretary of Energy, since ultimately many of the relevant policies originate at the federal level.

Whenever Energy Efficiency is pursued first, without examining the Energy Independence/Renewable Energy alternative first, some unfortunate outcomes result which are to the detriment of real estate values in the long run. In essence it is particularly the city's older apartment buildings which often offer the right economies of scale for the alternative, and there are very likely plenty of investors to be found who are interested in serious Green investments that produce long term steady income, so even if current owners are not interested, different investors could come into the market.

In order to get attention for the policy changes that are needed, we wrote to the Secretary of Energy:

quote

August 13, 2011

U.S. Dept. of Energy
Attn. Dr. Steven Chu,
Secretary of Energy
1000 Independence Avenue SW
Washington, DC 20585

Dear Mr. Chu

Re: DaBx PlaNYC2020 – A Paradigm Change

Attached we are sending you a copy of our alternative plan for energy independence in multi-family housing in NY, which was published on July 4^th, 2011 – Energy Independence Day, as I like to think of it.

We have provided the plan to NYC, and to Mayor Bloomberg specifically as a partial alternative to the PlanYC2030, which is now in its second generation. We are hopeful eventually to find both existing building owners and investors who see the opportunity. This is an area rife with opportunity for private/public partnership, and there are plenty of funds that would be interested in financing buildings that implement renewable energy, and reduce fossil fuel use in all forms by 60-80% as we think is possible.

In the meantime however, as a nation we are suffering a terrible case of group think, and it is driving us all, and this class of buildings in particular, straight off the cliff into the next energy crisis, not to mention that it's aggravating a long list of infrastructural risks and liabilities which could be solved by going the renewable energy route directly instead.

The point is this: there is a very large group of buildings in NY – the same no doubt applies for many other cities – which offer the right economies of scale for a holistic, integrated approach to renewable energy, where it can be economical today, not twenty years from now, and which will result in a massive improvement in the economics of those buildings, and the economic competitiveness of the cities. With that we will see asset values rise, and Freddie Mac and Fanny Mae, and FHA should all become supportive, once they understand the value adding capability of this radical investment strategy.

All the building blocks to the methodologies we propose are available today, and the only significant obstacles are government policies that prevent it from happening, some minor regulatory hurdles that could be improved, and the fact that all current official guidance, programs, incentives, seem to be based on the pat assumption that renewable energy is not (yet) economical, and thus it is never given serious thought, causing an indefinite postponement instead.

The whole situation is a classic example of a paradigm shift, the major problem is that by and large the unexamined assumptions that cause the present conundrum are based on evaluations of renewable energy in a fossil fuel driven context. Contrary to that, what is needed to make renewables pay is a strategy of complete re-engineering and rethinking the energy infrastructure of existing buildings, and since in NY there is already a program on the books for eliminating high viscosity fuels, there is a tremendous opportunity to do that extra step and do renewable energy now, not later.

Given that there is a group of buildings where renewable energy would be economical now, present practices, which are only becoming more and more entrenched, amount to nothing else but massive case of capital destruction with taxpayer money, or if you would, a government sponsored customer retention program for the oil and utility industry, at the expense of real estate values. Often it boils down to short term fixes financed with long term money, insuring that buildings will be under water again at the merest sign of the next energy crisis. Taken together, current policies also create an energy monoculture around natural gas, and a huge and growing threat to national security.

Our alternative plan, which we've published under a Creative Commons-Attribution-NonCommercial-ShareAlike 3.0 Unported License in furtherance of public discourse, proposes essentially that once the engineering integration is understood, renewable energy projects which individually might not be attractive investments, could generate compound returns, and thus taken together could be highly attractive, and result in rapidly increasing building values. Simply put, the same building that might be 30% more efficient with today's best practices in energy efficiency, could reduce fossil fuel use by 75%, and be off the grid for common areas, as well as supplying car charging station, or some of their tenants. Current energy efficiency programs are fighting the last war, when the winning insight was that a dollar spent on demand reduction was worth more than a dollar spent on increasing supply.

To make it even clearer, because there is no second act in energy efficiency investments, due to arithmetically diminishing returns to a limit that is well above 50% of usage, the currently dominant regime of energy efficiency to the detriment of energy independence also will lead to slum formation on a large scale, as it will massively erode the economic viability of buildings within the next 20 years. Following our design strategies, many old buildings could reduce fossil fuel usage by 60-80%, and be commercially viable for the next 50 years.

Because the two investment strategies – energy efficiency vs. energy independence - are mutually exclusive, the current practice of plunging into energy efficiency investments without thorough examination of the energy independence alternative, condemns buildings to what may be a sub-optimal strategy, if they would have been capable of significantly utilizing renewable energy.

Meanwhile, this country's infrastructure crisis is such that e.g. here in NY the Transportation and Delivery portion of energy bills is already 65%, and rising ahead of inflation indefinitely, and the renewable strategies we are advocating could speed the way towards the smart grid, not to mention accommodate electrical cars without causing congestion on the grid. Thus transportation and delivery cost are the real issue in the renewable energy strategies on the demand side which we are proposing.

Lastly, we emphasize that our multi-dimensional strategy recommendation (looking again at NYC, our home market) includes strong beneficial impacts in a wide range of related areas that are frequently overlooked:

• Clean Air: short route for NYC to meet Clean Air Act standards
• National Security: reduction of dependence on foreign oil, diversification of energy inputs: these buildings will stay lit in the next blackout
• Transition to the smart grid: these strategies provide an accelerated transition to a smart grid, by evolving micro-grids that will be semi-independent.
• Public Safety: Buildings staying lit in a blackout, survivable in case of failure of the gas grid, and can provide unlimited backup for cell towers.
• Public Health: Better indoor air quality in the Asthma capital of the world, a.k.a. the South Bronx.
• Defense: The emerging Natural Gas monoculture is a huge new liability, diversification should have high priority.
• Economic competitiveness: Thousands of old apartment buildings could be upgraded into some of the most Green and energy efficient modes of city living. The outer boroughs would benefit most. In the near term it means jobs.

Because of the importance of these issues at this critical junction in our nation's energy policy and future, I am sending you this letter as an open letter, which will be published on my blog at http://nycgreenapple.blogspot.com, as well as copies being sent to a number of relevant officials and business people.

Yours sincerely,

Rogier Fentener van Vlissingen

unquote

DaBx PlaNYC2020 Draft

Finally I have brought together the whole integrated vision for a renewable infrastructure, as an alternative, but also complimentary approach to the city's PlaNYC2030.

It is the city's old line apartment buildings, those grand old buildings of 5-6 stories that made the glory days of the Grand Concourse etc, which are the richest target of opportunity for what the city apparently calls Deep Energy Change - a radical shift to a renewable base of energy production. It is these grand old buildings which are there in their hundreds and thousands, that potentially are the proverbial low hanging fruit for an energy revolution that will accomplish deep energy change.

These buildings offer the right scale, large enough but not too large (as skyscrapers would be), to be able to make them substantially energy independent with today's technology. Simply put with the combination of a modicum of grounds around the building, usually plenty of available space in the basement, a flat roof, and few shading problems, usually all or most of the available conditions are in place to accomplish a substantially feasible program of conversion to renewable technologies today.

The prevailing framework of policies and incentives focuses on energy efficiency before energy independence perversely  provides the indefinite postponement of energy independence with government subsidies. It promotes shallow energy change and in the process effectively prevents deep energy change from ever happening. For a building owner, if they are not planning for energy independence now, and develop long term plans to get there, they will never get there. Failing to plan definitely is planning to fail. To the extent that owners are following the current framework of energy efficiency oriented upgrades, they are digging their own graves, in the form of a collective next energy cirisis, moreover, this is often financed with long term money, ensuring that buildings will be under water again in the next energy crisis when it comes. Thus the present model is building the slums of tomorrow, and practicing capital destruction.

Any owners who have done nothing, and are still operating with the old steam boiler and hot water from a coil in the boiler, are actually potentially in better shape than the ones who have followed the prevailing energy efficiency regime, because every dollar they invested in making a fossil fuel infrastructure more efficient, becomes an obstacle for the economic justification of a switch to the energy independence program.

Very evidently, the administration is talking about "deep energy change,"  without much clarity that the current policy framework is an effective deterrent for its accomplishments. We can only hope that the administration can find ways to encourage a shift. There are a number of ways in which law makers and regulators can effectively make these changes possible, and even speed up adoption.

We are publishing the report in two forms, for $99 as an open-ended subscription to the report and all major revisions, and $25 for one time copies.
The subscription version can be found here: http://www.dabxdemandsidesolutions.com/Services.html
and one time copies can be ordered here: http://www.scribd.com/doc/58761637/DaBx-PlaNYC2020-Draft

PlaNYC2020 and the NYC Energy Conservation Code

OK. So Version 2.0 of PlaNYC2030 came out, and it is full of helpful research as well as wonderful initiatives and plans, and the question will be if this is going to be just like the yesterdays's infamous Soviet 5-year plans and 10-and 20-year plans - top down planning that does not work, or is it going to become a practical reality? Better yet, are some going to see the opportunities to get ahead of the crowd and cash in on the inevitable?

NYC seems to be ahead of much of the world, and most cities, in terms of planning and good intentions, and occasionally in some far-sighted action as well, but nevertheless there remains widespread room for improvement, and some of that comes in the form of opportunity. One of the most important insights of recent years is how disproportionate is the contribution of buildings to energy waste and the associated environmental problems in the city, and with all the brave plans we now have, some of which have already become reality, such as the new energy efficiency codes which the City adopted last year, this is starting to be addressed.

This new code is already a very important step, but the question remains how many owners will see money in exceeding it... that's where the music is. The logic of the code is to deal with new buildings and alterations of existing buildings, but we all know that if the problem with cars was that they live 10 years, building have even more obnoxious longevity habits, and can be around for many decades or even centuries. Meanwhile it is only buildings over 50,000 square feet, who must complete their benchmarking by August of this year. So the question is: what war was ever won by attacking the enemy where he is strongest? Or in this case by attacking the problem where it is the biggest? Granted, there is some underlying logic to this approach, but it is important to ask why we are not attacking the enemy where he is weakest. Namely: are there any targets of opportunity, which are being missed?

The answer is yes, and if these targets of opportunity could be addressed properly, the City's energy future, air pollution problems etc., could be improved both more and faster than in PlaNYC2030 as it stands now, which is why I'd like to suggest an alternative PlaNYC2020. Stronger yet, much of the current policy framework incentivizes short term, shallow, and incremental improvements in efficiency, which implicitly causes the indefinite postponement of deep energy change.

The City is full of older apartment buildings (I live in a reasonably decent old D-Class building). What it will take is owners who look at the long term future and realize that a building substantially without energy bills is going to be worth more than the identical building next door with very high energy bills. For comparison, I mention the fact that in my native Holland neighborhoods are already being planned from the standpoint that if they did not do anything, energy costs would eventually outstrip rents. That kind of view point is a big motivator for creative thinking. The current class of property owners very well may not have the mindset, and the NYC Dept of Housing Preservation and Development is no help in the matter either. They talk about putting the emphasis on Building Preservation (many of these old buildings could be quite viable), but their de-facto policies fly in the face of their pronouncements about building preservation. The emphasis on Energy Conservation over Renewable Energy and Energy Independence is by nature a path of diminishing returns, and bound to breed slums in the future, for when buildings are committed to the path of energy efficiency they eventually will be just as much at the whim of energy costs as they always were.

Older apartment buildings offer a scale which facilitates renewable energy even with today's technology, but it is not done, and the most important reason that it is not done may well be in the fact that existing incentive programs to encourage energy conservation, actually incrementally prevent the serious development of energy independence for the future. Many of the existing subsidies, and incentives, including things like NYSERDA's MPP (Multi-Family Performance Program), are geared to maximizing energy efficiency at a point in time. The worst problem from that viewpoint is the Energy Star program - for all its evident merits, from the standpoint of a building system it is anathema, for it suboptimally allocates resources (capital) at the component level, and thereby prevents other decisions which could have been more effective. The NYSERDA MPP program is an improvement to a degree, but it still misses the point because it only looks at thermal efficiency at the building level at one point in time, and ignores long term integration potential.

The critical observation here is that in an existing building, the two options, energy efficiency and energy independence are divergent investment paths. The former is really a customer retention program for your local utility and your oil dealer, whereas the latter is truly an investment in increasing building values in the future, as it produces compounding returns. Equally important, energy efficiency is by definition an investment with diminishing returns: every successive percentage point of improvement becomes rapidly more expensive as you approach the limit of what can be done, and so you might have reduced energy spending by 30 or 40%, or even 50% but then you hit the limit, and you are still buying subscription energy, and only waiting for prices to increase enough to do... what else? Then you may finally have to look at renewable energy seriously. Typically the first efficiency measures show paybacks under 18 months, but pretty soon you start running out, as paybacks for incremental improvements become explosively more expensive.

The alternative path, towards Energy Independence Now! is the plan towards PlaNYC2020... and it starts in a less attractive way, probably with 5-7 year paybacks, but it gets better after that, as you get the benefit of compounding returns. To choose the energy independence strategy now requires careful planning and a long term view. Speculative owners need not apply. Owners looking for a long term income property should explore this path, and in fact are stealing from themselves if they don't, for the more money you spend on energy conservation or energy efficiency without examining the alternatives thoroughly, that is capital down the drain that will make switching to the other track increasingly difficult. It is not that energy efficiency is not a factor in the energy independence path, but inevitably different efficiency measures would be prioritized under an energy independence plan.

In this context failing to plan is definitely planning to fail, for if you invest in the more efficient burning of gas, as in my all time favorite oxymoron of Energy Star rated gas hot water heaters, then you will never think of looking at other sources for heating water, and their economies, such as geothermal or solar. Nor will you think about the radically different energy infrastructure you will need to develop for your building to exploit these opportunities in the future. Because of engineering interdependencies, the critical choice is which of these technologies to deploy first, which will vary building by building. If that implementation sequence is done right, with at least a 10 year horizon, then the result will be a building that has eliminated 85% of their fossil fuel based energy bills, versus the same building next door which went the efficiency route, marching politely at the hands of NYSERDA and other authorities, and will be down to 60% of of their erstwhile energy bills. So again ask yourself, which building will be worth more in 2020, the one with 60% of the 2011 bills, or the identical one next door with 15% of 2011 bills, if the oil prices are $250/bbl, and NatGas is at $2/therm plus the ever rising delivery costs? For the grid costs are bound to rise ahead of inflation as far as the eye can see, for both gas and electric.

This is the real question. It is the difference between PlaNYC2030 and PlaNYC2020, and the crucial point is, that if you do not plan to get to the 2020 plan today, but you follow the rules for the 2030 plan, you will make absolutely sure that you will not get there in 2030 either, and a fortune of money will have been lost in the process. This amounts to pure capital destruction on a societal level, and the premature and exclusive focus on energy conservation over energy independence is to blame. Energy efficiency does NOT cumulatively add up to energy independence, and if it is prioritized without examining the alternative, the pursuit of it will postpone an energy independent future indefinitely, and PlaNYC2030 will not live up to its promise, though the potential is there today to exceed its targets by a landslide. Yet the majority of the market place is either doing nothing at all, or at best following some of the elements of the 2030, and thus collectively ensuring the postponement of energy independence, and the continuation of the maximum allowable levels of pollution in our urban environment.