Moving on Multifamily Efficiency: Four Tips for and from States

by Sandy Fazeli, Program Manager, National Association of State Energy Officials

Wide-scale investment in multifamily energy efficiency holds the promise of extraordinary returns, including an estimated $3.4 billion annually in utility cost savings and lasting gains in economic development, job creation, home affordability, emissions reductions, and public health. State and local governments across the United States are acting on this opportunity by innovating and supporting services, programs, and partnerships with utilities, nonprofit housing developers, community development institutions, and businesses.

With this increase in state-level activity comes the need to coordinate practitioners in the energy and housing sectors, as well as the opportunity to elevate and implement best practices in a market that has historically been underserved by states’ ratepayer and nonratepayer energy efficiency programs (i.e., those targeted at single-family residences and commercial buildings). Through a grant provided by the Energy Foundation, the National Association of State Energy Officials (NASEO) has led discussions among a group of state energy offices, housing finance agencies, and energy-housing experts to explore state policy, program, and partnership approaches that show promise in the multifamily sector. Derived from discussions with energy offices and housing agencies that are currently thinking through these issues, NASEO’s running list of tips and insights includes the following advice for governments and their partners to move the bar on multifamily energy efficiency in their states:

1. Understand the uniqueness of multifamily housing …

Multifamily properties have been poor fits for, and significantly underserved by, most single-family and commercial retrofit programs. Though an individual unit may use energy in the same way a single-family home might, the building itself may have equipment, common areas, leasing setups, utility bill payment processes, and financing structures similar to a commercial building. Even within the multifamily housing market, properties exhibit a wide range of size, ownership, occupancy, subsidization, and debt/liquidity profiles, adding further complexity to the market and the level of customization needed for a successful program. As such, multifamily properties require targeted program design and delivery, often according to the specific submarket(s) in need of energy upgrades.

2. … but still seek inspiration from other markets.

Although the challenges and energy savings opportunities in multifamily properties may be unique, there is a large opportunity to piggyback on lessons learned from other markets and building types. For instance, the decades-long experience of energy service companies (ESCOs) and state agencies in the public buildings retrofit market offers a source of data, lessons learned, and practices that enable multifamily buildings to pay back comprehensive energy retrofits through guaranteed savings. Promising adaptations of the ESCO model include the Vermont Energy Investment Corporation’s “Public Purpose ESCO” and the Colorado Energy Office’s private-sector energy savings performance contracting program, which have begun to tap into nonprofit or privately owned building types.

Energy offices and their partners have also begun to set a precedent in exploring and adapting financing programs for multifamily efficiency. Recently, the state energy offices in Tennessee and Florida have established or expanded their existing loan funds and credit enhancement programs to target multifamily buildings, and in 2013, the Washington, D.C., energy office achieved a breakthrough by arranging Property Assessed Clean Energy (PACE) financing, which typically caters to commercial buildings, to retrofit a 140-unit Hope IV housing project.

3. Develop a user-friendly and consistent market presence.

Many multifamily building owners and property managers lack the resources, personnel, time, expertise, and liquidity to execute and pay/borrow for needed energy improvements in their buildings. Even in instances in which multifamily projects qualify for incentives that are offered for single-family homes, commercial buildings, and/or low-income assistance, the process of navigating these programs is harrowing and confusing. A growing trend in the multifamily market to mitigate project complexity and owner reluctance is the “one-stop shop” model promulgated by organizations such as Elevate Energy and the Community Investment Corporation. This business model combines technical services, low-interest financing bolstered by rebates and incentives, and post-retrofit performance monitoring and reporting to provide a full suite of services that guide multifamily owners through efficiency projects.

4. Cast a wide net to find partnerships, information, and financing.

Electric and gas utility programs are an important source of multifamily efficiency funding and financing; as such, utility commissions, utilities, and their partners have had a dominant presence in research, recommendations, and discussions around strategies to improve multifamily efficiency. Outside of the regulatory and utility community, a number of additional stakeholders can serve as sources of support and partnerships in promulgating these strategies. State energy offices and housing financing agencies are well positioned to leverage their convening power and knowledge of the energy market to increase policy, planning, and business support for multifamily efficiency advancements and innovations. These agencies also have knowledge of and access to unconventional funding and financing sources—such as Qualified Energy Conservation Bonds, program-related investments, and financing partners that may be willing to offer subordinate debt or credit enhancements—to further bolster the ability of owners of multifamily buildings to access capital for efficiency improvements. At the national level, a number of entities are helping elevate best practices and share information on market advancements, including philanthropic organizations and the Departments of Energy and Housing and Urban Development (through their joint Multifamily Residential Better Buildings Challenge).