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.


Clean Break

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.

6 thoughts on “PACE financing for commercial buildings has “irreversible momentum,” says Carbon War Room chief Jigar Shah”

  1. Very interesting, these last two articles. I do see some problems with this type of financing at the home-dweller level- the perception of higher property taxes than the house for sale next door may give some people pause. But the concept is very good, and such longer-term savings will be more palatable for businesses and their buildings. This is just another example you have highlighted to display the low-hanging fruit in efforts to save energy/reduce emissions. This type of approach is not sexy, but effective nonetheless. Well done!

  2. I fully agree with Paul. It is a bold attempt for a low hanging fruit. At the same time though the two levels of insurance described in this model does increase the overall cost of each retrofit project. Kudos to the technology vendor for being able to convince financial institutions for 10-15 years of gestation, but a further reduction of technology risks will be essential for catching a strong momentum. I do believe Toronto now has the opportunity to improvise on its Tower Renewal Project based on the insight from Shah’s experiment. Thanks Tyler for bringing this important piece of news to us.

  3. I believe the savings exist and are worth pursuing.

    The problems I see in the described consortium model are the division of tasks and the layers of insurance. Having one entity calculate savings and execute projects is somewaht like a trader also acting as risk manager. Also, each layer of insurance adds cost and takes away from the economic benefit.

    An impartial arbiter would help to solve the first problem. Not sure about the second — having a third-party cost and one that is borne by the building owner may be required and more costly but still more appropriate than government backing.

  4. Bruce, the re-insurance layer isn’t ideal, and Shah acknowledged this. However, he said it is necessary for the first phase of deployment so that the model can build a track record. If they can prove the Miami-Sacramento model works then the re-insurance will eventually not be needed and the cost of the single layer of insurance will fall. The point being that even with all these layers — needed to satisfy a big financial institution like Barclays — the economics still work. The upside is that program costs will fall over time as the model is replicated.

  5. “Canada’s hydropower industry has plans to invest up to $70 billion on hydro-electric projects across the country in the next 10 to 15 years, increasing its hydro-electric resources – to a truly staggering 88,500 MW…..Quebec is building another 4,570 MW, British Columbia: 3,341 MW, Labrador: 3,074 MW and Manitoba: 2,380 MW.”
    Source: Clean Technica (
    How can these hydro projects minimize their impact on fish populations? The Alden Turbine
    “Until now, fish mortality and energy production have been mutually exclusive. Traditional, highly efficient hydro power killed or maimed fish, but more fish-friendy projects were less efficient at making electricity, losing 8,500 megawatt-hours of production a year operating separate bypasses to allow fish through unharmed.
    The primary challenge for this project was to complete the requisite engineering necessary to convert a conceptual turbine design into a design that could be built and be commercially competitive with existing hydropower turbine designs. It had to be both efficient, and fish-friendly. The resulting turbine achieves this, combining converting 94% of the water’s energy into electricity, with 98% survival of fish.
    How government funding helped:
    The Energy Department’s (USA) hydropower division ( had initially started working with engineers and scientists at Alden Laboratories to design a fish-friendly turbine in 1995, and conceptually, it worked. Early testing at Alden’s research facility had been extremely promising, and suggested that survival rates could near 100%, and for 40,000 species of fish…..
    The difference essentially is size and speed. Most conventional hydropower turbines have between five and 18 fast-spinning blades, separated by gaps. The blades can strike and injure fish, and the gaps can trap them. The Alden turbine, by contrast, has three blades, no gaps, is bigger and rotates more slowly. These measures significantly reduce the danger of trauma or death to fish passing through, yet the turbine’s larger size and other design considerations are optimized to preserve high efficiency and energy production.”

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