New Report Helps Set The Stage For A Much-Needed Increase In Energy Efficiency Lending

Source: Deutsche Bank

In their groundbreaking study released today, The Deutsche Bank Americas Foundation and Living Cities have made a terrific contribution to a critically important enterprise: addressing prospective lenders’ uncertainty about energy efficiency projects.  The study, which was carried out by Steve Winter Associates and HR&A Advisors, systematically evaluated the results of energy efficiency projects in about 231 multifamily residential buildings (primarily affordable housing) containing over 21,000 dwelling units in New York City.  Their finding?  Portfolio-wide, the building modifications saved 19% in fuel costs and 7% in electricity.  Furthermore, the projects contributed to the economic well-being of the communities in which they were located, by creating jobs locally while simultaneously making housing more affordable.

Deutsche Bank and Living Cities’ contribution is especially vital because they have provided a clear path from their findings to lenders’ efforts to evaluate new opportunities.  In addition to proving that savings were real, the study demonstrated correlations between results and upfront projections – giving lenders a basis for relying on engineers’ upfront projections in projects where the predicted savings are key to loan repayment.  Among the important contributions arising from this study is a lender tool – an approach to “capping” high fuel savings projections – that gives prospective lenders a means to discount projections that are higher than what is typically achieved in similar projects to bring the projections in line with typical results, while leaving lowball projections as they are.  The study found that such a “capping” methodology greatly improved fuel realization rates (actual energy savings compared to projections) and portfolio performance, without needlessly shrinking the market (which would be the result if all projections were discounted, rather than only those that are above the trend line).

The study’s successes also shed light on where further work is needed.  For example, as appealing as it is to focus on the top-line finding that energy efficiency work really does save energy and money in a predictable manner, a robust data set comparing projections and results in affordable multifamily buildings in New York should leave the market hungry for similar data about other building types/regions.  In addition, the “capping” tool, while likely very helpful to lenders given the state of the world today, does not begin to make sense of the diversity of approaches used by today’s energy auditors even where some approaches may be demonstrably more or less reliable than others.  Even with the “capping” methodology limiting the damage that might be done by very high outliers, considerably variation in realization rates persists. 

Here at EDF, our Investor Confidence Project, currently underway, brings together engineers, prospective lenders, and investor parties to get inside the black box that is the engineering analysis of a building – from modeling of the status quo, to retrofit recommendations and savings projections, to monitoring, verifying and assuring efficiencies post-retrofit – to identify best practices, as well as ways of thinking about atypical methodologies and how they should affect lender confidence (for better or for worse).  That project begins with energy efficiency in office buildings market, but this disconnect between building science perspectives and lender needs will need to be broached for all common building types throughout the marketplace.  By emphasizing the need for methodological consensus and rigorously evaluating the effectiveness of actual practice, projects such as our ICP project and the comprehensive analysis of multifamily projects performed by DB/Living Cities set the stage for the increase in energy efficiency lending that is needed for building owners and occupants to stop the waste and jump-start the GHG reductions we all need.