DaBx Renewable Energy Retrofit Portfolio Standard for Multi-family Buildings

DaBx Renewable Energy Retrofit Portfolio Standard for Multi-family Buildings - 06/12/13

Purpose: This document sets forth proposed criteria for existing multi-family buildings to transition to a renewable energy infrastructure and qualify for financial incentives such as might be proposed by financial institutions for green mortgages and special energy retrofit financing. It provides both consumer protection and assurance of asset appreciation of the property. It therefore assures the property owner of the soundness of their plan, and firm prospects of asset appreciation, and the underwriters of appreciation of their collateral.

Criteria – the building shall:

1. Initially, achieve a 25%-50% reduction in emissions, with 50% or more of the reduction coming from renewable generation.
2. Achieve a reduction of 50%-75% of total building emissions within 10 years, with 50% of the reduction coming from renewable energy generation.
3. Provide a comprehensive energy plan for 30 years on a net present value basis, comparing against the existing infrastructure, with commensurate efficiency enhancements, with the reference case from DOE for energy price inflation.

Notes for renewable energy conversion of multi-family buildings:

1. Financiers and lawmakers should target incentives for reductions in emissions, with a 50% renewable standard, in order to build asset appreciation in real estate. Energy efficiency is an operational savings, and when mistaken for primary design criteria leads to capital destruction. Renewable energy moves energy from liability to asset.
   * Relevant links: Renewable Energy and Asset Appreciation, Energy Efficiency and diminishing returns.
2. It is suggested that this standard be adopted as basis for exemptions from existing rules, such as the NYC Clean Heat Program, but also of the Energy Star requirements, and eventually tax incentives should be adjusted accordingly. Until that time, building owners must work around these counter-productive rules.
   * Relevant links: NYC Clean Heat, Energy Star counter productive.
3. If subsidies are on equipment, they benefit energy companies and manufacturers, not building owners. If subsidies are on buildings for achievements in emission reductions, they stimulate demand for equipment just the same, but will focus on asset appreciation, instead of risking capital destruction.
   * Relevant Links: compound returns from renewable energy,
4. Notice that within the bandwidth of each phase, incentives could be used to stimulate higher achievements in emission reductions.
5. Notice also that by providing up to a 10-year horizon for such a plan, things can be phased in on the back of normal replacement cycles in lieu of forcing uneconomical replacements. Typically this program would extend the economic life of the old boiler. Depending on the type of financing available and economic replacement cycles, the results can optionally be achieved all at once or spread over 10 years. Moreover newer technologies can be adopted, by allowing phased implementation.
   *Relevant links: Leveraging NYSERDA's MPP on behalf of renewable energy.
6. In the long-term Energy Star requirements for subsidized financing or tax incentives, should be abandoned as they can conflict with good design and economics. Longer term all incentives for specific technologies should be phased out in favor of incentives for renewables in buildings, i.e. also at the federal level (IRS). Only the results matter, not the technologies used.
   *Relevant links: Energy Star requirements giving false signals.
7. Note that also public safety is improved by buildings coming partially off the grid. Some buildings may even end up with an energy surplus. Indoor air quality will improve with the removal of combustion sources. Tenants will enjoy a higher quality of life and lower energy costs if buildings can generate energy at a competitive price level, while landlords get another revenue stream. The split incentives between landlords and tenants will be a thing of the past. Using energy in the building or even selling energy to tenants at retail is more attractive than selling it back to the grid at wholesale.

By focusing any improvement incentives on individual properties, with appropriate benchmarks, a far more rapid and wide scale adoption of renewable energy is assured, along with significant appreciation in real estate values.

NB In this document, references are included to posts on this blog to document the issues.

Conclusion

The portfolio standard proposed here, seeks to ensure asset appreciation from implementing renewable energy in multi-family properties. The proper focus for regulators is reducing GHG emissions. Solar energy, wind energy, geothermal energy, or any form of clean energy all have a role to play. Multi-family buildings provide the best opportunity for conversion to renewable energy with an assurance of asset appreciation, particularly the older, simpler buildings. When all types of renewable energy technologies can be brought to bear, the compound returns resulting from synergies among technologies will ensure asset appreciation.

Renewable energy delivers asset appreciation through compound returns from successive investments, and multi-family buildings have the capacity of providing better quality of life for tenants and better financial returns for landlords.

DaBx Renewable Energy Retrofit Portfolio Standard for Multifamily Buildings
by Rogier Fentener van Vlissingen is licensed under a
Creative Commons Attribution-NonCommercial 3.0 Unported License.
Based on a work at http://www.vliscony.com.
Permissions beyond the scope of this license may be available at http://www.dabxdemandsidesolutions.com.

NYC Clean Heat is regressive with respect to Clean Air Compliance

The NYC Clean Heat program is in effect strongly regressive, for at a time when it is completely viable for multifamily buildings to switch to green energy, the net effect of the way the present NYC Clean Heat program works is with NYC boiler conversions, and shifting buildings from oil to natural gas en mass. Evidently, natural gas burns cleaner than #6 or #4 oil, but nonetheless a more substantive shift to renewable energy is long since feasible, and moreover is economically more attractive for building owners, tenants and the city. NYC Clean Heat should put more emphasis on the shift to renewables. Most importantly, the shift to renewable energy would have far greater impact on the city's Clean Air profile, than practically forcing these buildings to commit to another 30 years of fossil fuel burning, even if the emissions per se are lower. In short, the net result is that this program in the way it is being practiced is strongly regressive from the point of view of achieving the vaunted improvements in Clean Air Act compliance.

The NYC Clean Heat Cookie Cutter Approach

By and large the program now is focused on prolonging the fossil fuel era as long as possible, because it focuses entirely on the adoption of clean fuels, and happily continuing to burn things, which will be for the most part natural gas and in a few cases either #2 oil or even biodiesel. In short, its impact on actually meeting Clean Air Act standards, will be absolutely minimal, and when one considers that it is possible to switch to far more renewable energy today, it is in effect strongly regressive. To be specific, we assume the reference building has an old-fashioned steam boiler, with hot water from a coil in the boiler. Further, natural gas does not have any particulate emissions, and between greater efficiency of a modern boiler and cleaner burning gas, we can expect perhaps a 50% reduction in CO2 emissions:

1. Building burns #6 oil and the base line CO2 emissions are 100, and particulates 100.
2. Building switches to Natural gas, CO2 goes to 50 and particulates to 0.
3. Over thirty years that means cumulative CO2 emissions of 30x50= 1500.

This path adds up to passing off the difference between the Titanic sinking in 10 minutes instead of 5 as an "investment" opportunity. If this option is anything, it is not an investment, but an operational expenditure. The problem gets compounded even further if businesses take on long-term debt for a short-term fix of this sort.

Clean Air and sustainability from renewables

Now the alternative, as proposed in DaBx PlaNYC2020:

1. Replace Domestic Hot Water (DHW) with a renewable solution, which eliminates 30-50% of fuel consumption (these are proven stats, DHW is year-round, heat only half the year) this reduces emissions by 30-50%, so both CO2 and particulates go to 50-70% of former number, I will use 50% for the example here. The choices are geothermal or solar thermal.
2. The economic life of the boiler is now extended, since the boiler gets a summer vacation from now on.
3. When boiler replacement becomes economically necessary, which we'll estimate is in 10 years, replace with either a solar thermal HVAC solution or individual heat pumps, (driven by solar PV or wind energy) or in the worst case a new natural gas boiler. Combine with better insulation, new windows as needed.
4. Results over 30 years now are: years 1-10: CO2 50, particulates 50, and years 10-30 CO2 0, particulates 0. Total CO2 10x50+20x0= 500, particulates 500, and particulate emissions would be limited to the winters, when smog is less of a problem.

Note: These numbers are obviously only schematic, and there are a lot of nuances there which we ignore for the sake of this example, such as the fact that gas may be cleaner burning, but the transportation losses also figure into the emissions, to say nothing of the fracking debate.

Sustainability is the only way to clean air

Sustainability is not just an idle thought, it is also economically very powerful. Properly analyzed, business sustainability follows directly from making the right decisions in this transition. Building preservation is enhanced by switching to renewables. Most importantly, since the sustainable technologies of sun, wind, water, geothermal all eliminate the need of burning things, except in some very limited backup functions, such installations are all enhancements to the asset value of the building.

Energy efficiency is of fossil fuel is mere life extension

Evidently, if no economical entry point can be found for a building to convert to renewable energy, and achieve sustainability, and a measure of independence from the grid, then efficiency measures for the existing plant are the only option. In the vast majority of buildings there are serious steps that can be taken towards sustainability. Whenever a building has any renewable option--free energy, after all--it should take it.

Nowhere on this site do we argue against energy efficiency, we merely point out it should never be the first objective. The first objective should be do we make or buy our energy, and if instead of energy efficiency, we take reducing emissions and achieving Clean Air standards as an objective, the building is then free to pursue that objective with whatever means is the most economically attractive, and that is how it should be. The 90by50 report from the Urban Green Council pointed out the top line feasibility of massive change, but meanwhile we are missing a huge opportunity for shifting to sustainability, and make significant progress towards Clean Air in 2013, 14, 15.

Conclusion

NYC Clean Heat is shifting buildings from #6 and #4 oil towards Natural Gas at the expense of Clean Air, and long-term sustainability of buildings, which goes against an interest in building preservation.