Cities across the country are taking advantage of the American Reinvestment and Recovery Act to develop healthier local economies and implement progressive programs.  Further enhancing its green reputation, on March 2, 2010, San Francisco will  launch GreenFinanceSF (GFSF), a property-assessed clean energy (PACE) program.  It is expected to help upgrade a major portion of the City’s building stock.

Buildings in San Francisco are estimated to generate almost 50% of the city’s greenhouse gas emissions, but urban planners’ efforts to address this issue have been impeded by a lack of viable financing for building upgrades.  Extensive up-front expenses for design, engineering, equipment, labor and materials are simply too costly for the average property owner to pay out-of-pocket.

With the recession’s effect on liquidity, money has not been made available from traditional lending sources either.  Complicating matters further, lenders do not recognize or consider the life cycle benefits as adding present value for property appraisals as the benefit often enures to the tenant or a future owner.

The GreenFinanceSF program was developed to finance these private residential and commercial property building upgrades when targeted for energy efficiency, water efficiency and renewable energy systems. Following the structure of similar programs developed in other cities, GreenFinanceSF will allow repayment of project costs (plus interest and administration) as an added-line item on the property’s tax bill during the loan’s term.

Providing terms of up to 20 years for some improvements is designed to make it practical to service the debt through the immediate savings achieved by energy and water efficiencies.

If the building is sold or title is transferred, the debt remains with the property, essentially allowing the new owner to ‘assume’ the balance.  From initial indications, any size energy or water efficient retrofit will be eligible for consideration, with improvements ranging from retro-commissioning to full re-commissioning.

Retro-commissioning is generally not an expensive endeavor, because it doesn’t replace any major systems or parts.  The process could be equated to giving the building a needed ‘tune-up’.   It focuses on incorporating better controls, management training and proper maintenance, but don’t let that fool you.

Researchers at the Lawrence Berkeley National Laboratory (LBNL) studied 150 large buildings across the country in 2004 and determined that retro-commissioning costs averaged about 27 cents a square foot. The same LBNL study determined that the savings from retro-commissioning averaged 15% of a building’s energy use. Crunching the numbers showed the average retro-commissioning effort pays for itself in less than one year.

One advantage of  providing loans rather than grants or rebates is that the program becomes a self-perpetuating, revolving source of funding for future projects.  Initially funded by a combination of private capital and grants received through the American Recovery and Reinvestment Act, here is a quick summary of what has been announced to date:

• A special tax district will be created (Mello-Roos Special Tax District).
• Property owners will need to ‘opt’ in to become eligible to receive loans.
• The City of San Francisco is the ‘lender’ and loans will have a fixed interest rate and term at funding.
• Residential and commercial buildings of all types and sizes are eligible
• Loan approvals will consider the value of the property, existing debt and repayment history with additional criteria still in development.
• Owners will be able to deduct interest paid on their tax returns
• Whole home energy performance audits will be required and used to match the useful life of proposed improvements with financing terms
• Energy efficiency improvements will be required prior to financing the more expensive retrofits - such as solar photovoltaic projects
• Energy auditors and contractors must be pre-certified by the program

Specific improvements that will be eligible are not fully defined but are expected to include:

• Retro-commissioning
• Efficiency upgrades – such as adding insulation, replacing windows, and upgrading heating systems
• Water efficiency upgrades – such as installing low flow toilets
• Installation of renewable energy generation on buildings – such as solar arrays
• Full-bodied re-commissioning

With such a quick return-on-investment, it would seem unpatriotic and perhaps even reckless not to take advantage of the program.