CHF Financing
The CHF MIST I finance program provided below‐market interest rates (0‐3 percent), 15‐year term loans to moderate‐income single‐family homeowners in CHF member and associate member counties and cities. CHF closed 1,043 loans for a total of more than $23.6 million in financed single‐family energy efficiency upgrades. These upgrades occurred in 33 counties and were done by 44 building contractors. Based on a sampling of upgrades, CHF estimates an average of 30 percent energy savings annually. The contract with CHF has been extended for five years for the next phase of the program (MIST II), which will include administering a revolving loan fund and a loan loss reserve fund.
Many things were learned from this successful ARRA program. Current energy efficiency mortgage products, such as the FHA 203(k) loan program that CHF intended to leverage extensively but could not, are unattractive to borrowers in the current real estate market. However, a whole‐house energy efficiency financing program with generous terms meets a clear market need. Building contractors are a key asset in developing and selling a whole‐house energy efficiency upgrade program. DOE requirements for the ARRA contracts were, at times, difficult for CHF and homeowners to comply with and caused project delays. Utility rebate
leveraging was problematic, and CHF received numerous calls from homeowners about rebate
delays of up to four months or more. Energy savings verification through the utility data was sporadic or did not occur at all, even with the homeowner’s approval for the release of the data. Flexible and generous underwriting of loans (including no reliance on credit scores) helped the program successfully upgrade many homes; however, this may present a challenge for the ongoing finance program as loan terms will likely change with a higher interest rates as lenders rely heavily on credit scores to determine risk.
PACE Financing
The Local Government Commission contract included four PACE financing pilot programs,
some of which have been extended until 2017, including a residential program in Sonoma
County (Sonoma County Energy Independence Program) and commercial PACE pilots in the
city of Los Angeles, City/County of San Francisco, and Placer County.
The PACE pilot team tested its program models in each modeled regions to use lessons learned and best practices to create a replication plan that can be used by other local governments interested in PACE, demonstrated how PACE addresses the financial barriers traditionally faced by property owners seeking to fund upgrade projects, and allay the concerns raised by the FHFA and Office of the Comptroller of the Currency (OCC).
The cities of Los Angeles and San Francisco designed and launched the first two owner‐
arranged commercial PACE programs in the nation, including development of program
documents and outreach materials130. The programs instituted a number of different
mechanisms aimed at increasing awareness and driving demand for PACE financing in their respective regions. Los Angeles funded energy audits to assess potential energy savings and spark interest in the program. Both Los Angeles and San Francisco established debt service reserve funds (DSRFs) that decrease risk to participating lenders, by covering delinquent
assessment payments. Placer successfully transitioned from a treasury‐funded, residential‐only PACE program to a treasury funded commercial PACE program. In addition, because of Sonoma County’s hugely successful SCEIP program, it served as the residential PACE model,
while also incorporating and expanding upon its commercial program. Sonoma County
supported marketplace expansion for HERS Whole‐House Home Energy Raters/Building
Performance Contractor‐funded energy audits, transformed its Web portal, and conducted the first ever PACE pooled bond and alternative financing strategy feasibility analysis. Each of these programs worked to align their programs with the Energy Upgrade California guidelines, transformed its program website and integrated its local resources into the statewide Energy Upgrade California Web portal.
Together, the four pilot programs contributed to the creation of a PACE Replication Kit as a long term resource for those jurisdictions considering the adoption of PACE programs to reduce barriers to adoption of energy efficiency, water efficiency and renewable energy generation system installations.
Affordable Multifamily Retrofit Initiative
The San Francisco Mayor’s Office of Housing’s (SFMOH) Bay Area Multifamily (BAM) Fund provided loans for energy efficiency upgrades to affordable multifamily projects in the Bay Area. The BAM Fund completed 18 multifamily audits and originated four loans totaling about $200,000 in ARRA funds to three borrowers for six buildings with a total of 529 units. SFMOH estimates the average annual energy savings for these retrofits is 16 percent. This contract with SFMOH has been extended for one year for the ongoing administration of the existing loans.
Several barriers were encountered when attempting to achieve their goals to recruit highly risk‐ averse affordable housing developers to take advantage of the program, including a lack of preprogram data on the value of energy savings in retrofit applications in large multifamily affordable housing projects; a lack of capacity among the developers to deal with the
complexity of whole‐building energy efficiency retrofits; and difficulty in adding additional debt to the complicated ownership and financing structures that are common with large multifamily affordable housing projects. Further, the Bay Area’s modest climate resulted in
130 An “owner‐arranged” PACE program is one in which the responsibility for securing financing is on
the project developer or building owner. Once financing has been negotiated, the county will secure the
loan with a first priority lien and collect and remit payments via the property tax infrastructure. More
small loans that did not scale well, given the complexities of analysis, underwriting, and implementation. Borrowers also wanted to fix dysfunctional equipment as opposed to installing energy‐efficient features. And the split incentive between landlords and tenants reduced the pool of applicants to only master‐metered buildings.
Department of General Services
The Department of General Services received $25 million to establish the Energy Efficient State Property Revolving Fund to provide loans to state departments and agencies for energy projects on state‐owned buildings and facilities to achieve greater long‐term energy efficiency, energy conservation, and energy cost and use avoidance. The program has successfully provided more than $22.7 million in loans to large and small energy efficiency projects. In 2011, the Legislature passed AB 1392 (Bradford, Chapter 488, Statutes 2011) to allow the Energy Commission to add up to $50 million to the loan fund should underperforming ARRA contact funds need to be transferred to fund more state building upgrades.
The Energy Commission learned that this is a good mechanism to address state‐owned building efficiency needs, as many state department and agencies took advantage of this program and loans are already being repaid. Department of General Services could do a better job
administering this loan program by allocating more staff resources. Close attention must be paid to quality assurance and quality control, as some installation issues arose.
Innovative Financing in Los Angeles County
In April 2012, the Los Angeles County contract was expanded by an additional $11 million in SEP funds for various innovative loan enhancement programs that are extended until 2017, including residential and nonresidential loan loss reserves, residential interest rate buy downs, and municipal building revolving loan funds and loan loss reserves. The finance programs are expected to launch by fall of 2012.
Residential Whole-House Upgrade Programs
Statewide Energy Upgrade California Program
The Local Government Commission contract developed the Energy Upgrade California
program statewide infrastructure. Energy Upgrade California is the statewide energy and water efficiency and renewable energy generation upgrade program for single‐family, multifamily, and commercial buildings. It is a one‐stop resource for information on building upgrade benefits, rebates/incentives, financing, finding a participating contractor, workforce training, and home energy ratings. Through this contract, a massive statewide marketing, education, and outreach effort was put in place to establish a statewide marketing program, tools and resources; coordinate program outreach with 30‐plus program counties; and develop the program Web portal as the one‐stop resource for homeowners. This contract also included