Promoting Residential Weatherization Programs

New Jersey households have among the highest rates of energy consumption and average household energy expenditure ($3,065 per year) in the country.   So we have a big financial stake (in addition to our concerns about climate change) in the success of public efforts to help us weatherize our homes.  In many cases, particularly in the case of older homes, investing in weatherization pays for itself[i] within 10 years (a better investment than long-run average stock return).  The challenge is that the costs are upfront while the savings come in the future.  Many people don’t have the have the financial flexibility to make the initial outlay (usually several thousand dollars) for home improvement or can’t obtain a low cost, long term loan that makes weatherization financially viable. Successful weatherization programs help homeowners overcome the upfront costs by issuing homeowners loans that have a repayment schedule with a monthly payment that is lower than the projected energy bill savings.  Programs that facilitate weatherization also help the local economy by creating jobs and providing local residents with more purchasing power to support local businesses.  The most successful residential weatherization programs are PACE programs (Property Assessed Clean Energy programs).  Under PACE programs, local governments lend the money to pay for weatherization and the borrower repays the loan through a special assessment that is added to her property tax bill.  Local governments may even do this with little or no cost to their budget by selling bonds to finance the loans and then using the proceeds of the special assessment revenue to service the bonds.  PACE programs typically include a home energy audit and other consumer protections to ensure that the borrower will achieve enough energy cost savings to cover the property tax assessment—providing confidence both to the borrower and lender.  Because PACE programs show such great promise, the Federal Housing Finance Authority (FHFA) disappointed many people when it recently announced that it would not modify a directive that has obstructed the operation of residential PACE programs across the country.   But, New Jersey public officials and citizens cannot let this setback stand in the way of implementing other programs that can successfully promote residential energy efficiency projects in a self-sustaining manner.

PACE programs raised the concern of the FHFA because they effectively make the weatherization loan superior to the existing mortgage in any potential foreclosure process.[ii]  For example, if a home with $5,000 left in delinquent weatherization debt were to be foreclosed, then that $5,000 might be repaid before the mortgage loan during a foreclosure (with variations depending on the details of the specific program).  In 2011, the FHFA directed Fannie Mae and Freddie Mac to refrain from purchasing home loans where a PACE program lien is superior to the mortgage because those liens “raise safety and soundness concerns.”  Simply put, PACE loans would decrease the value of loans purchased by Fannie Mae and Freddie Mac (which are both government-owned).  Due to the important role of Fannie and Freddie in the home mortgage market and because most PACE programs make the special assessment superior to mortgage repayment, many local governments have ended or decreased their PACE activity.  The FHFA had been scheduled to announce a final rule this September in which it could have articulated conditions under which the purchase of mortgages subject to PACE assessments would be permissible.  But, late last month, the FHFA announced that it would not be issuing a new rule, though it would continue to consider alternatives.

It should be noted that the FHFA directive does not impact commercial mortgages.  As such, PACE programs that finance commercial property energy efficiency improvements, solar power generation, and other clean energy projects are not affected.   Additionally, local authorities, if authorized to do so under state law, may adjust their PACE programs to make them consistent with FHFA requirements.  Vermont, for example, has passed a law making PACE special assessments subordinate to mortgages and any other liens created prior to the PACE assessments, thus addressing FHFA concerns.  But, it makes sense to consider other financing options as well.

One potential alternative mechanism to PACE is On-Bill Repayment (OBR).  OBR is similar conceptually to the PACE method, but loan repayment is made as a part of the utility bill instead of the property tax bill.  Since local governments don’t generally issue utility bills, state legislatures or utility regulators may need to authorize or require utilities to enable the on-bill payment mechanism and to engage in lending.  Utilities might also work with traditional lenders to provide financing and expertise on certain lending issues.  Perhaps more importantly, legislation or regulations will need to be enacted that allow the transfer of OBR obligations when a new customer (who will benefit from lower energy bills and should receive disclosure beforehand) takes over an account (or the meter).  The assurance that OBR obligations run with the utility bill should inspire lender and investor confidence that the loan will be repaid, and thus maximize the availability of financing and economies of scale.

In addition to not being impacted by the FHFA directive noted above, one advantage of OBR is that it will facilitate weatherization under scenarios where the individual who pays the property taxes is not the same as the person who pays the utility bill, i.e. rental property.  In theory, it better aligns incentives and would be accessible to more property owners and energy users than PACE.  Like PACE programs, a smart OBR program will require professional energy audits, consumer protections, and quality assurance.  The disadvantage of OBR is that fewer states and localities have developed experience with OBR programs.   But, last year the New York in cooperation with several utilities implemented an on-bill repayment program that enables residential customers of those utilities to finance weatherization projects through OBR.   In New Jersey, New Jersey Natural Gas (NJNG) eligible customers may participate in the NJNG OBR program. New Jersey also offers Energystar Home Performance loans for weatherization to eligible participants.  But, the program expires on June 30, 2014 or when funds are used up, whichever comes first. New Jersey leaders should establish new mechanisms to finance residential weatherization before then.

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[i] Participants in the Weatherization Assistance Program administered by the U.S. Department of Energy achieved 35% reductions in their energy costs. http://www1.eere.energy.gov/library/pdfs/48098_weatherization_assisprog_fsr4.pdf

[ii] (either explicitly or, depending on the program, by virtue of property tax debts being considered superior to mortgage debt)

Net Metering for Solar Power Generation: Will it Set in the West?

Battles over California public utility regulations might not seem like they would impact us here in New Jersey.  But, if you care about promoting solar power generation or happen to prefer stable weather patterns, then a push by California electricity utilities to end incentives for rooftop solar power installation concerns you.  California leads all other states in the country when it comes to the total number of rooftop solar installations.  This is attributable to natural advantages like total population and climate, but also a number of state policies that incentivize solar power installation – the most important of which are installation subsidies and net metering.   Net metering enables utility customers that generate electricity through solar power (or other sources in some cases) to sell the portion of electricity that they don’t use to the utility for use by other customers.  In California (and New Jersey, actually), individuals or businesses who sell electricity back into the grid are credited at retail rates, though some other net metering states credit customers who sell back into the grid at the much lower wholesale rate. The New York Times reports that California utilities are lobbying “to reduce the credits and limit the number of people who can participate” in net metering.  They argue that without these changes, their business model will be threatened and customers not generating solar power will pay increasingly higher bills:

[U]tility executives say that when solar customers no longer pay for electricity, they also stop paying for the grid, shifting those costs to other customers. Utilities generally make their profits by making investments in infrastructure and designing customer rates to earn that money back with a guaranteed return, set on average at about 10 percent.

If the costs to maintain the grid are not being borne by some customers, then other customers have to bear a bigger and bigger portion,” said Steve Malnight, a vice president at Pacific Gas and Electric. “As those costs get shifted, that leads to higher and higher rates for customers who don’t take advantage of solar.”

As is stated in the Times piece, critics of the Utilities’ stance argue that solar power generators add value by creating dispersed power within the grid system and should be rewarded for that.  But, even if one takes the utility representatives at face value, it raises serious questions about how the utility model will evolve in coming years.  Regulators set utility rates at levels that are designed to maintain a level of profit that is high enough for utilities to cover overhead and attract investment.  The overhead costs of establishing and maintaining the system that delivers energy to an individual customer don’t change very much based on the individual customer’s level of energy usage.  Consequently, if a customer becomes more energy efficient, that has the effect of raising the cost per kw of energy delivered by the utility company.  If efforts to achieve more efficiency are successful, then rates have to increase or be passed on to others in order for utilities to be profitable, the very issue – though perhaps not to the same degree – that concerns California utilities with regards to net metering.

Even without incentives for ordinary citizens, moves by companies like Verizon and Walmart to develop their own renewable power sources show that distributed energy generation will challenge the traditional public utility model.  Utilities have developed expertise in many areas – customer usage patterns, the intricacies of electricity delivery, billing practices, grid maintenance and expansion - that should allow them to adapt to a changing landscape.  But, adaptation requires innovation, in strategy, regulatory approach, and perhaps other areas. Former U.S. Secretary of Energy Steven Chu thinks that utilities should model themselves after the old AT&T.  In an interview on NPR early last month, Mr. Chu said utilities should approach customers and say,

“ . . .allow us to use your roof, allow us to use a little corner of your garage, and we will equip you with solar power. We own it. We maintain it. We're responsible for it. You don't have any out-of-pocket expenses. You just buy electricity at the same rate, or maybe even a lower rate. In addition to that, you have, you know, like five kilowatts of energy storage in your home. And five kilowatts - when you're in a blackout situation and you want to keep your refrigerator going, you want to keep a couple of energy-efficient light bulbs lit at night - that goes a long way.”

This would address the net metering problem and provide utilities with more grid flexibility.  Obviously, this will not address all the challenges that utilities face.  Of course, nobody knows for certain that this is the correct model for all, or even any, utilities to pursue.  But, one thing is certain.  Maintaining the status quo when it comes to energy use is not acceptable.  Curtailing efforts to achieve energy efficiency or to increase clean energy generation cannot be the answer.  So, it is important that we keep our eye on what is happening in California.  The Times article concludes:

“The next six to 12 months are the watershed moment for distributed energy in this country,” said Edward Fenster, a chief executive of Sunrun, adding that if their side prevailed in California and Arizona, it would dissuade utilities with net metering programs elsewhere from undoing them. “If we don’t succeed, the opposite will be the case and in two years we’ll be fighting 41 of these battles.”

Including right here in New Jersey.

Lighting the Way: Urban Energy Efficiency

When you're out in rural New Jersey, there's an easy way to find New York: look for the glow. While the rest of the sky will get dark, you will see two hazy, orange glows on the horizon. The brightest one is NYC, the other is Philadelphia. Lights are one of the defining features of an urban area. Can't see any stars? You must be in Manhattan. Or in Jersey City.

To some extent, there's good reason for this. You want sidewalks to be well lit, so people can travel with greater safety. Some places never shut down, and the burn of their electricity lets you know that they're open and waiting. But lots of it is simply light pollution: waste generated by our indifference to what the sum total of all that light is costing us. Or waste created on purpose, because as humans we are still fascinated by the shimmer of man-made stars.

Such is Paris, the City of Lights.

But even Paris is recognizing that the excesses of old need some rethinking. In June 2013, a California company named Silver Spring Networks teamed up with the city of Paris to embark on a program to modernize the old city's streetlights and traffic signals. The program is just a first step toward developing a smart grid throughout Paris.

Smart Grid

A smart grid is a complex web of utilities and infrastructure services that talk to each other and are able to respond in real time to changing conditions. Smart grids allow for two-way flows of energy. Currently, electricity flows from the power station to the consumer. But as solar panels become more popular, and energy more distributed, the grid will need to handle energy flowing back from consumers, as well. Smart grids can also be in direct communication with the systems inside buildings, such as the air conditioning, allowing them to automatically adjust temperatures to avoid spikes during high usage times. The high level of data gathering and communication done through such a system allows for increased efficiency and resiliency.

But the cost of such a system is high, which is why Silver Spring and Paris are starting with the lights. Street lights are already ubiquitous. Enabling them to report on their usage will, by necessity, create a communication network throughout the city's infrastructure, which can be leveraged for further smart grid uses later.

LEDs for Savings

The major upgrade to the lights themselves will be the switch to LEDs. New York City is already underway with its plan to replace all the street lights in the city with LED bulbs. They expect a 35% savings, which translates to $250,000 a year just for the 1,500 lights in Central Park. New York has over 300,000 fixtures total. They project a return on investment in 5 years, presuming that greenhouses gases have no monetary value.

Silver Springs projects even higher savings, near the 65% range, for Paris. The savings isn't entirely due to raw wattage from the bulbs, either. Maintenance costs drop dramatically, as LEDs are rated for 50k hours, compared to 10k for fluorescents. A smart streetlight can even report on its current lumen output, altering the city when it needs to be replacing without having to have anyone inspect it.

In Paris, the new LED system will also support auto-dimming. The European standards for roadway lighting define an illumination level based on cars per minute. As usage of the roadway drops, the lighting level requirement drops as well. The new system will be able to automatically dim the lights on used highways, lowering energy consumption.

While the United States has no such standards, it is an intriguing avenue to investigate. Perhaps Jersey City has some sections of highway that don't need as much light at 2 a.m. as they are currently getting. Even strictly directed lighting can save the city money, as less of it is required if you're ensuring that it's all going onto the ground where it's needed, instead of up into the air, washing out stars.

Given the success that New York is already seeing, it seems only natural to ask when Jersey City can start down this same path. The cost savings are only part of the benefit. The telecommunications network that would accompany the roll out would also be the start of a smart grid. As the energy usage of the city goes down, and distributed generation via solar goes up, a smart grid gives us the ability to avoid outages and recover from disasters faster. The convergence of these forces is where the future smart city is born: a partially self-sustaining, actively adjusted system that maximizes efficiency and uptime.

Before JC invests in more inventory to keep our old lights burning, it should start an exploratory project for making the switch.

References http://www.greenbiz.com/blog/2013/07/29/how-silver-spring-networks-saw-light-led-lit-cities?mkt_tok=3RkMMJWWfF9wsRokvqjOZKXonjHpfsX56%2BQpUKGxlMI%2F0ER3fOvrPUfGjI4DT8VnI%2BSLDwEYGJlv6SgFSLHEMa5qw7gMXRQ%3D

http://www.greenbiz.com/news/2013/04/17/what-it-takes-change-all-lights-new-york-city?page=0%2C0

https://en.wikipedia.org/wiki/Smart_grid#Features_of_the_smart_grid

Hurricane Season and Smart Grid Initiative Happening in Hoboken Region

Read about Hoboken's partnership with the Department of Energy; first time innovative military grade application implemented at community level; more information here - http://energy.gov/articles/energy-department-partners-state-city-and-industry-stakeholders-help-hoboken-region-improve

Funding Sustainability - Mosaic Model For Crowdfunding Clean Energy

Sharing a few links here that will help you understand what's happening in the market with new funding models to support community supported Clean Energy alternatives. One of these is the Mosaic investment platform -

http://opinionator.blogs.nytimes.com/2013/03/06/crowd-funding-clean-energy/?hp

Caveats - If you reside in a state other than California, Colorado, Oregon, Nevada, or New York, you may only invest on the Mosaic platform if you are an accredited investor, as defined by the U.S. Securities and Exchange Commission, e.g., amongst other factors, networth, degree of indebtedness and income level which must exceed $200,000 in each of the last two years if an individual or joint income with spouse exceeding $300,000 in each of those years with reasonable expectation of reaching the same income level current year.

Check out Community Power Network page on Replicable Models - http://www.communitypowernetwork.com/node/144

More information available on SJC's Resources / Links page