Clean Energy Financing Insights: Why Green Retrofits Offer Better Bang for the Buck

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It is understandably challenging for cost-constrained multifamily affordable housing (MFAH) property owners and managers to spend their carefully budgeted dollars on unfamiliar green tech (e.g., heat pump-based HVAC) vs. familiar technologies with lower upfront costs. While “going green” can be expensive, traditional or “business as usual” retrofits have limited benefits. They may solve an immediate problem (e.g., addressing/replacing failed HVAC systems), but they provide no long-term, ongoing savings. Upgrades for mechanical systems (HVAC and hot water), lighting (electrical), appliances, shell (windows, insulation, air and duct sealing), and plumbing (low flow devices) improve the property’s functioning and extend its lifetime. As reported by Abe Mamet (a writer for the Tax Credit Advisor magazine) following a conversation with ICAST’s President Ravi Malhotra, green retrofits reduce utility bills, improve indoor air quality, and increase residents’ comfort, health, and safety, and continue to do so for the lifetime of the installed equipment. In other words, a green retrofit may save x lbs. of carbon emissions and $y in energy costs annually, but those benefits continue over the 15-20-year life of the upgrades, resulting in $20y of savings and 20x carbon emissions reduction. Green retrofits improve property value and net operating income by reducing operations and maintenance costs, improving occupancy, and reducing tenant turns. However, the best way to realize all possible benefits is to ensure that the retrofits are designed to incorporate whatever green solutions are best for the property. Poorly designed/installed solutions can increase utility bills, create negative experiences with the upgrades, and create problems for maintenance staff.

It is also important to note that there is a wide range of financing options available to offset upfront costs. They can come from federal, state, local, and/or utility programs, and can come in the form of tax credits, tax deductions, depreciation, cash rebates, lower financing costs (green loans), little- to no-cost services from programs such as U.S. Dept. of Energy’s Weatherization Assistance Program, etc. Some incentives are tied to the energy savings achieved, some are ‘prescriptive,’ i.e., they depend on the solutions implemented, and some are tied to the scope of work. Some incentives are available to all, e.g., utility rebates that are available to everyone as ratepayers to the utility system. Some incentives are tied to qualification based on tenants’ income. Others are tied to applying for the incentive with no guarantee of receiving them. Braiding different financial resources into a capital stack can significantly reduce upfront costs for projects. Further, the Bipartisan Infrastructure Law and Inflation Reduction Act are making it more feasible than ever to pursue energy- and cost-saving green solutions. ICAST and TBL Fund (its affiliated community development financial institution) work to help property owners and managers navigate their funding options to make the best decisions for their properties. TBL Fund can also provide gap loans when incentives and rebates are not enough to cover the cost of all renovations, or to cover costs until rebate funding has been received. See ICAST and TBL Fund case studies and success stories.

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