The American Council for an Energy Efficient Economy (ACEEE) Summer Study on Energy Efficiency in Buildings is held every other year in Asilomar State Park near Monterey, California. “Energy nerds” from across North America gather among the foggy dunes and cypress trees to share best practices and discuss the future of efficiency.
This year, Urban Green’s research team, Sean Brennan and Anna Weingord, traveled to the conference to present findings from our 2017 report on NYC’s energy and water use. But there were also topics that went beyond technology and data, and many sessions focused on issues related to resiliency and finance.
It is now essential for cities to prepare for the worst effects of climate change. Our upcoming 2018 Conference, Weathering the Storm will further explore what it means to quantify resiliency in New York City.
Below, we’ve outlined several sessions from ACEEE’s Summer Study program that built (pun intended) on these ideas and presented smart, replicable solutions.
Weingord and Brennan at ACEEE Summer Study.
ENERGY COSTS IMPACT MORTGAGE RISK
Building engineers and real estate lenders speak different languages. Engineers are focused on energy efficiency and reliability, whereas mortgage defaults keep commercial lenders up at night. But what if there was a connection between mortgage default risk and energy use? That might get the finance industry’s attention, incorporate energy cost into the underwriting process and drive investment in energy efficiency.
Measuring Energy Impact on the Risk of Default
Paul Matthew and Nancy Wallace have been leading a team of researchers from the Department of Energy, UC Berkeley and Lawrence Berkeley National Lab to find that connection. Their work examined building benchmarking data nationwide to measure the impact of energy costs on commercial mortgage-backed securities (CMBS) loans. Using this real-world energy and financial data, they found a statistically significant link between source energy use intensity (EUI) and default risk. That means that the properties that had higher energy costs also carried higher yet unaccounted financial risk.
What Does That Mean for Specific Building Loans?
The team modeled energy costs and default risk ranges for various commercial properties in Denver, San Francisco and San Jose. The models tested the effect of operational changes on the source EUI in these buildings. System startup times, temperature setpoints and other changes that buildings could implement without major equipment upgrades were examined.
They found that differences in source EUI could drive default rates above the Trepp average by up to 40 percent in offices and 10 percent for hotels and multifamily buildings. Needless to say, their results caught the attention of lenders in those regions.
Jordanna Rubin, Director of Resiliency Solutions at APTIM, discussed how cities across the country are incorporating data analytics into operations and programs to create more resilent cities. Rubin explained that resilience measures help cities not only withstand acute shocks, such as natural disasters, but also withstand chronic stresses, like high unemployement.
Incentivizing Resiliency Retrofits
Take, for example, super storm Sandy: After Sandy hit in 2012, coastal homeowners and property managers in NYC were confronted with the impending reality of chronic flooding and increased flood insurance costs. The Residential Technical Assistance Pilot Program (RTAPP) was developed to help mitigate these risks and acknowledge that they are especially burdensome for vulnerable populations such as low- to moderate- income property owners.
RTAPP administers resiliency audits and offers educational tools for residents on resiliency construction, planning and financial literacy issues. The program also provides resiliency retrofit recommendations; if building owners retrofit their properties based on the resiliency audit recommendation, they may qualify for lower flood insurance premium rates.
Equitable Disaster Recovery
Plenary speaker Colette Pichon Battle, founder of the Gulf Coast Center for Law & Policy, highlighted the need for equitable resiliency planning and natural disaster recovery. She emphasized that transitioning toward resilient, energy-efficient communities will require that we take accountability for the historic inequity that has occurred during risk mitigation.
Moving forward, she said, marginalized communities must be included in the conceptualization, not just affirmation, of resiliency plans: “It [equity] has to be at the core of a planning process.”
Summer Study 2018 offered many perspectives on how to develop resilient buildings and communities while working within the existing system of financial incentives and challenges. To continue the discussion about the costs and benfits of resiliency on a large scale, register for Urban Green’s upcoming conference, Weathering The Storm: The Intersection of Finance and Resilience.
 Building benchmarking data came from Boston, Chicago, Minneapolis, New York City, Philadelphia and Washington, DC. Loans between 2000 and 2012 were matched to those same buildings using mortgage data from Trepp LLC.