President Biden’s plan to reduce emissions from the U.S. building sector – responsible for nearly 30 percent of total U.S. carbon emissions – includes the modernization and retrofit of 4 million commercial buildings. It won’t be cheap, at least initially, to do this job, which includes replacing heating and cooling systems and adding lighting controls and automated systems. The US administration’s proposal for jobs, for example, would direct $ 213 billion toward the efficiency of commercial and residential buildings.
But the long-term savings justify the price several times. Mountains of research have indicated that every dollar spent on energy efficiency yields $ 2 or more in savings. But the initial costs are indeed an obstacle. This is a classic short-term or long-term problem. The long-term savings eclipse the short-term costs, but people live in the short term, while the long-term picture is hazy and uncertain.
Fortunately, we have a proven method of reducing uncertainty and overcoming that initial bump. Over the past decade or so, more than 2,500 commercial projects worth over $ 2 billion invested have funded their upfront costs and then slowly paid off that borrowing over time through their property tax assessments.
This approach, known as Evaluated Clean Energy Finance for Commercial Goods (C-PACE), has seen many successes. Across the country, C-PACE has been used to rehabilitate historic hotels, reduce energy use at a Major League Soccer stadium by 25%, and build multi-million dollar mixed-use developments. with the most efficient building systems available. In Michigan, a church in Detroit’s Palmer Park neighborhood recently used C-PACE to fund building improvements that are expected to generate more than half a million dollars in savings from lower energy bills over 20 years. , and a ski resort in northern Michigan used it for a planned project. save $ 3.3 million in energy waste reduction over 25 years.
In Michigan, this record of C-PACE was made possible by dozens of county and township governments that passed ordinances authorizing C-PACE. While Lean & Green Michigan, the state’s PACE administrator, has seen 45 projects with more than $ 89 million invested, many projects are still on hold. C-PACE has proven to be an effective tool, but here in Michigan we need to make it easier to use in order to go faster to meet the challenge of the day. This is why representatives of sponsors Yousef Rabhi and Felicia Brabec have just presented legislation to reform C-PACE in several ways.
In Michigan, there is currently a requirement that C-PACE funding can only be used for projects guaranteed by a contractor to save more money on energy upgrades than it costs to repay the funding on the lifetime of the project. At first glance, this seems reasonable. But in practice, this requirement actually makes it more difficult for companies to save energy.
For example: Suppose a commercial building needs a new HVAC system. Installing a new system similar to the previous one can cost $ 800,000. Or, the company could buy a more efficient system for $ 1 million. If the energy saved by the most efficient system covered the price difference of $ 200,000, then the project makes economic sense, but it could not receive C-PACE funding under the guarantee requirement of energy savings. It could only receive C-PACE funding if the energy savings covered the total price of $ 1.2 million. The result is that the homeowner chooses the less efficient option and loses the overall savings that could result from financing the more efficient HVAC system.
In addition, the energy savings guarantee requirement is a risky commitment for small businesses and many cannot afford to make such guarantees. Thus, the guarantee limits eligible projects and discourages small businesses from using C-PACE.
The legislation would allow landowners to forgo guaranteed energy savings. This would also allow C-PACE to be extended to more types of projects. The legislation allows funded projects to include cleaning up environmental hazards like lead or other toxic materials that may be discovered in the process of upgrading a facility with energy efficiency measures.
Finally, the legislation clarifies the treatment of the use of C-PACE for new construction projects. Previously, the process was complicated and prone to inaccuracies. The legislation abandons this process and simply requires that any new construction project using CPAC funding exceed Michigan’s Uniform Energy Code.
This would save more dollars and kilowatt hours. Brand new buildings with the latest emission-free heat pump technology could be built.
Importantly, Michigan could meet its emission reduction targets at a reasonable cost while continuing to grow its economy, as growth materializes through highly efficient, low-emission projects.
Don’t let the initial price put you off: energy efficiency is a massive investment that pays off. With C-PACE taken to the next level, we can launch these projects using private funds that are repaid over time. It’s a win-win for the parties involved all around.
Laura Sherman is president of the Michigan Energy Innovation Business Council.