ABAG Releases Report on BPER Consumer Market

Research Tells Us...What We, Kind of, Already Knew

Several months ago, the Association of Bay Area Governments, in an effort to comply with Greenhouse Gas (GHG) Emissions Reductions, undertook some market research to better understand how consumers / homeowners feel about this area of interest.  

Here's a small picture of what they learned and reported in their Study.

About Consumers / Homeowners:

• they think their house is already energy efficient
• they don't want to spend money because the payback is not fast enough
• the rebates are not big enough to motivate them to buy
• they don't trust contractors
• they don't want liens on their homes (PACE financing)

Pretty challenging set of circumstances for the Energy Retrofit market.  I would be likely to call this a "tough sell."

Are there any of these items that would be easy to fix?  Even if we got some Rhodes Scholars into the contracting business, it's unlikely the consumer perception would significantly change in any short window of time.  

This sobering news comes on the heels of the announcement from Fannie Mae and Freddie Mac about not subordinating (moving into "second" position) their mortgages behind the PACE financing / property tax lien.  This ruling by the Federal Home Finance Administration (FHFA) , appealed by a lawsuit from California AG Jerry Brown and Sonoma County, has all but shut down project financing in places like Boulder, Colorado and New Jersey.

Click here to download your own personal copy of this well done Report (I'm serious; they did a nice job!)

ABAG Market Research Report

Fannie Mae and Freddie Mac Create a Blip

Energy Retrofits Hit a Roadblock: 
Another Federal Government Policy Setback 

In an earlier Blog Post I wrote about the financing innovations -- that would spur more energy retrofits -- in Sonoma County, California and Boulder, Colorado.

The Government, through its quasi-free-market entities Fannie Mae and Freddie Mac, have shut down those financing schemes that would, if they could get going, have helped move us away from fossil fuels to alternatives.  And, helped us conserve on what we're already using.

The method of Property Assessed Clean Energy (PACE)  financing was a small revolution in the field: homeowners get to upgrade their home -- solar, new furnace, water heater, efficient lighting, etc. -- and have the investment stick with the house.  Sell the house in five years?  If you move, you don't have to keep paying for it: the new owners have the expense.  And, the benefits, too: lower energy bills; a home (supposedly) with a higher market value, etc.

The story first broke in the New York Times on July 3 and has had a cascading effect on the entities that actually do the financing and, more importantly, on the Contractors who ramped up for this market.  They thought it was a safe bet.

Congressmen Henry Waxman and Barney Frank spoke out strongly against the ruling.  (I think they have some idea of the implications to the "market.")

Now, major companies like Recurve, who has an "arrangement" with Big Box Lowe's, had to lay off a good portion of its workforce.  And, put projects on hold.

Sheila Horton, Executive Director of Boulder Area Rental Housing Association, reports that the financing entity there has halted loans/liens on residential housing after the announcement.

Sonoma County Building Performance Contractor John Sutter has written to the loan giants and expressed his mystification in a letter and made the following concrete recommendation:

 "Reach out to the proponent’s of PACE and attempt to achieve some compromise arrangements, and do it with a sense or urgency.  The “green shoots” of this program will be dead within weeks or months, not years."  -- John Sutter, President, Applied Building Sciences, Santa Rosa, Ca.

What it will take to start things up again is not clear.  I think Sutter is right, though: the green shoots will die off quickly.

What are the implications of this situation?  Do the 22 states who've authorized PACE financing have egg on their face?  I don't know.  But while all the entities were messing around with the creation of regulations -- EPA, Municipal Consultants, State Agencies --  it would appear that someone(s) could have given a little more attention to the housing financing agencies.

Yes, this is armchair quarterbacking, but I did publish my concerns with an attempt to "over-regulate" this market before it ever got started.  Where we go from here is...up.  I guess.

For a view of how Sonoma County's financing agency has dealt with this setback, read their letter:
SCEIP Letter to Applicants / Participants.

Financing for Energy Independence: Novel Ideas

Innovation Facilitates the "Market"

One of the outstanding innovations that Sonoma County has spearheaded for the development of its Building Performance Energy Retrofit (BPER) market is the creation of a financing arm for building owners.  Gotta give some credit where it's due.  


SCEIP (Sonoma County Energy Independence Program), pronounced like the web-based communications tool (Skype),  is a forward-looking endeavor with some innovative lines.  SCEIP gets its money from the County's working capital and uses it to lend to BPER or Energy Replacement (solar panels, new furnaces, etc.) projects.  It's helping building owners put technologies into play that the owners might not purchase were it not for the clever financing and open market models.  


The funds from SCEIP could, for example, be used to insulate a building (home), upgrade / install new windows, install a new furnace, a tankless / on-demand water heater, etc.  The minimum financing right now is $2,500 which is pretty easy to get to in this wild and wooly new market.


SCEIP is interested in safety and security, too: it requires, for now, that any of the financed work be done by a certified installer with special licenses and certifications (HERS II, CBPCA, BPI) to assure compliance with code and energy retrofit specifications.  New rules will have to be invented to allow the Do-It-Yourselfer (DIY) to get access to the money.  


John Sutter, President of Applied Building Sciences, says: "This [SCEIP] is a game changer."  


The really clever piece of architecture underneath SCEIP's design is the "revolving door" of money that it has engineered.  SCEIP takes all of its loans and packages the liens into bond instruments and sells them on the open market at 5% interest to the investor.  


SCEIP gets more cash  -- working capital -- from the County and...they do the same thing all over again: lend out money, secured by liens and, then, package the loans as bonds.  Investors are happy, right now, to get 5% on their safe bonds, secured by Property Tax income streams and Liens.  


Some of the thinking that appears to have gone into the SCEIP idea includes: 

• a supply of relatively inexpensive money for energy upgrades
• the investment in the property stays with the property, not the current owner, so the asset(s) are tied to the piece of real estate
• bonds sold off of these property liens are relatively secure; the default rate has been, historically, quite low

Looking into the future, we believe that competition will arise and the County will have other providers trying to come into niches of the market and, likely, lend on these secure deals.  We predict that these financiers will, ironically, find themselves in the higher ticket projects.  


We also believe we're going to see at least 10% of the property owners struggle with paying their new tax bill -- humans just don't save and, ultimately, will find themselves confronted with a bill they didn't anticipate or plan for.

County Releases Draft of Design for Retrofit Program

Just a Few Hurdles In This Design

Sonoma County, along with its Consultants from BKi, release their Draft Design Document.  It's a lot to take in!


Draft Design Retrofit Program Click here to get the full design program document.


Take a look at this if you'd like to see how complicated this enterprise is getting.  Just a sample below; mostly it's all text so having a picture is a good thing.

Boulder Landlords Tackle New City Planned Mandates

Horton, BARHA ED, Delivers Sober Message to Council

Executive Director of the BAHRA, Sheila Horton, last Wednesday, May 19, 2010, delivered some strong messages to the Boulder City Council.  Horton and her members are who is intent on protecting landlords. (As much as 50% of Boulder's housing stock is thought to be owned by investors / landlords.)


I spoke to Ms. Horton, by phone, on May 27: she was quite busy getting ready for the next round of fighting.  Putting on her gloves, as it were.  


She also had quite a lineup of supporters at the City meeting to counter the "other guys:" members of the Green Building Industry and Tenants.  

"At $1,500 to $2,000 per unit, these landlords can't afford to spend that kind of money on a retrofit that, frankly, may not deliver the results that are predicted," says Horton.  


"I can see why the Green Building industry is lining up: there's a lot of money to be made with all of these potential retrofits..." added Horton.


The original impetus for some of this brouhaha came out of a piece published in the Wall Street Journal article, written by former LA Times writer Stephanie Simon back in February 2010.


Boulder's "Daily Camera" barked back with claims of negativity towards Simon's writing.  In her piece,   Laura Snider cited a prejudiced slant in the WSJ article.  

Jonathan Koehn, Boulder's regional sustainability coordinator.

Big Assumptions Affect BPER Market

How Will These Assumptions Play Out?

Lots of assumptions -- that have already been made but not tested -- will affect the BPER market rollout.

The Big Picture: What Are We All After?

Click on the picture to see the whole thing.

A Few Pictures of the Current Situation