PACE financing for commercial buildings has “irreversible momentum,” says Carbon War Room chief Jigar Shah
My Clean Break column this week is kind of a Part II to last week’s column about the need for creating financing programs, such as Property-Assessed Clean Energy (PACE) or Property-Assessed Payments for Energy Retrofits (PAPER) programs, to get the energy-conservation ball rolling in Ontario. Last week I focused on residential retrofits. This week the spotlight is on commercial and multi-tenant buildings, with a look at some early successes by a consortium led by the Richard Branson-backed Carbon War Room and the potential of Toronto’s Tower Renewal program, which like the residential opportunity has been held back because the Ontario government has been slow to make the required regulatory amendments.
By Tyler Hamilton
Jigar Shah thinks large when it comes to battling climate change.
That’s a good thing, because reducing humanity’s global greenhouse-gas emissions to a manageable level is a titanic problem needing equally enormous solutions.
Shah is the chief executive of Carbon War Room, a Washington, D.C.-based non-profit enterprise co-founded and funded by British-born billionaire Richard Branson.
His mission, as the organization’s name makes clear, is to wage a war against carbon emissions by harnessing the power of markets and entrepreneurs. The trick is to get massive amounts of private capital to flow in the right direction.
Government policy is nice and has a role to play, but in Shah’s words the real action we need will only come about “using greed as a force for good.” And incremental steps won’t cut it. In a world that tends to measure greenhouse-gas emissions by megatons, Carbon War Room is only interested in tackling gigatons.
In other words, go big and move fast or lose the war.
Time appears to be running out – and it’s not environmentalists issuing the warning these days. Fatih Birol, chief economist at the International Energy Agency, said this week “the door is closing” on our ability as a society to keep global emissions and temperatures to within manageable levels.
We already know that temperatures are on course to rise 2 degrees C no matter what we do. We have about five years, said Birol, to put the world on a course that will keep the thermometer from rising much further. “I am very worried,” the economist told the U.K.’s Guardian newspaper.
One area where Carbon War Room is moving fast and aiming at a large target is energy efficiency in buildings, which accounts for about 20 per cent of global CO2-equivalent emissions.
For example, Shah and his team helped bring together a consortium that is aiming to spend $650 million (U.S.), to start, on energy-efficiency retrofits in commercial buildings scattered throughout Miami, Fl. and Sacramento, Calif.
Their approach, revealed in September, builds on the creative financing model I wrote about in last week’s Clean Break column, only in this case it’s focused on commercial real estate.
The consortium is led by Ygrene Energy Fund, which reviews retrofit proposals and then passes them off to technology and engineering giant Lockheed Martin. Lockheed does the building audits, calculates the energy savings that could come from a retrofit, and provides all technology and services required to achieve those energy savings.
Energi Insurance Services reviews what Lockheed promises and insures the deal. To add an extra layer of security, HannoverRe further backs Energi’s insurance policy. The idea is that risk has been reduced so much that Barclays Capital, the financing partner in the consortium, is more than happy to fund it all.
Barclay’s gets paid back through a charge on the building owner’s property taxes that is collected by the municipalities over 15 or 20 years. If done right, that charge is less than the energy savings achieved through the retrofit. And it’s all done off-balance sheet, meaning it doesn’t add to a building owner’s debt load.
Miami and Sacramento love it, too. “They are going to generate 17,000 jobs, and they will see city revenues increase from a jump in building permit fees and sales tax revenues,” says Shah, in Toronto last week to speak at an industry conference.
Carbon War Room’s target is to see $300 billion (U.S.) in capital deployed in this way by 2020, and Shah is convinced a tipping point has already been reached.
“We have 65 cities on three continents begging us to deploy (this model) in their cities right now, and we’re moving as fast as we can,” says Shah, adding that pension funds and big institutional investors, having seen Barclays take the lead, are now coming to the table.
“There’s nothing anyone can do to stop it. It has irreversible momentum,” Shah says. “I’m ecstatic about it.”
That’s the power of aggregation, scale and thinking large. It can tap into massive pools of capital that one-off projects can’t touch.
Toronto has its own program in the works called Tower Renewal, which is aiming to see 1,200 residential apartment buildings in the GTA retrofitted at a cost of about $6 billion over 20 years.
The plan is to create an arms-length entity called Tower Renewal Corporation that would manage the program and arrange all financing. Project director Eleanor McAteer says the potential for energy savings, emissions-reduction and job creation is huge.
“Our approach would be very similar to what we’re reading about in Sacramento and Miami,” she says.
“We’ve had some general discussions with the financing marketplace and yes, there is a great deal of interest, but we need to have regulatory approval from the province before we can enter into any serious discussions.”
The city asked the province to make those regulatory changes in summer 2010. As the end of 2011 fast approaches there’s still no word from Queen’s Park.
So as momentum around the world for this kind of climate solution builds, Toronto is sitting and waiting for a simple action from the province that will come at no cost to taxpayers or ratepayers.
What’s the holdup Premier McGuinty?
Tyler Hamilton, author of Mad Like Tesla, writes weekly about green energy and clean technologies.