TODAY’S STUDY: MORE EFFICIENT APARTMENTS

Engaging as Partners in Energy Efficiency: Multifamily Housing and Utilities
Anne McKibbin and Anne Evens (CNT Energy) and Steven Nadel and Eric Mackres, (ACEEE), January 2012

Executive Summary

Energy use in multifamily buildings can be reduced substantially, with many cost-effective upgrades achieving savings of 15–30% in buildings with five or more residential units. At 2010 national average energy prices, the full expansion of these efficiency upgrade programs would translate into annual utility bill cost savings of almost $3.4 billion for the multifamily sector, nationwide.

Multifamily building owners are among the first to feel the squeeze of rising energy prices. As energy bills rise, upward pressure is put on rents, financial institutions become increasingly concerned about risk to their loan portfolios, and tenants continue to demand comfortable homes. Energy efficiency upgrades provide a solution by improving the bottom line for multifamily building owners, decreasing pressure on rents, decreasing financial risk and improving tenant comfort. Consequently, building owners nationwide are looking for ways to improve the efficiency of their buildings.

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Building owners may have difficulty finding technical assistance, financing, or qualified contractors to upgrade their buildings. Building owners often need financial incentives to adopt new technologies or equipment with higher up-front costs. Despite this, studies have documented that affordable housing, often multifamily, receives a disproportionately small share of available energy efficiency funding. Our analysis confirms that states vary widely in their commitment of utility energy efficiency program resources to multifamily housing.

Public utilities represent a vast, largely untapped opportunity for engagement and leveraging of resources for improved energy efficiency. But historically, utility business models and regulation discouraged energy efficiency. Consequently, public policy intervention is needed to make strong engagement in energy efficiency compatible with utility business models.

Utility business models vary dramatically, and utilities are regulated primarily at the state level, with each state taking a different approach to the utilities’ business and energy efficiency. These circumstances dictate current energy efficiency investment and the appropriate policy intervention to encourage utilities to partner for effective and comprehensive multifamily energy efficiency retrofit programs. As one example of the local details that can affect multifamily programs, some states classify multifamily housing as residential, some classify it as commercial, and some states have no consistent classification. As a result, it may be unclear whether multifamily housing qualifies a specific energy efficiency program, or any program at all.

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Consequently, to align utility incentives with the multifamily industry’s needs, building owners and other housing industry players must become partners with utilities, engaging with them directly and in local and state regulatory proceedings. No single strategy will work nationwide, but by joining existing efforts at the state and local levels, housing industry players can work with utilities to increase and improve the use of utility energy efficiency investments in multifamily housing.

This paper outlines the opportunity and strategies for the multifamily housing sector to engage electric and natural gas utilities…in order to expand resources available for energy efficiency retrofits and improve the use of these investments. Every state holds opportunities to improve the energy efficiency of our buildings. And our analysis shows that some states, particularly the District of Columbia, Florida, Illinois, and Texas, are particularly fertile ground for improving energy efficiency policy toward multifamily buildings. We also provide case studies of numerous successful programs to illustrate the range of approaches that can be used by utilities to improve the energy efficiency of multifamily buildings.

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Partnering with Utilities on Energy Efficiency: The Opportunity

Utilities are major players in the energy efficiency arena, having contributed $4.3 billion to electric and natural gas efficiency programs in 2009, and an expected $7.5–12 billion annually by 2020.1 While investments are becoming more widespread, almost 80% of utilities’ contribution occurred in just 10 states as recently as 2008…

Regardless of the concentration, this investment is substantial even when compared to the federal government’s contribution through the American Recovery and Reinvestment Act of 2009, which made a one-time investment of approximately $17 billion in energy efficiency…

Utility efficiency programs for multifamily buildings vary significantly and range from simple incentives to use energy efficient light bulbs and reduce hot water consumption to comprehensive energy efficiency improvement programs that combine energy audits, contractor selection and oversight, financing from multiple sources, and post-retrofit review of actual energy savings.

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These comprehensive programs combine building envelope, HVAC, systems, and maintenance and operations improvements and, over the long run, garner the greatest savings per dollar. But utilities only have incentive to participate in these programs where they see opportunities for financial benefit or are subject to government mandates. Even then, successful program delivery requires buy-in from this important and powerful stakeholder.

In 2005, U.S. energy bills in multifamily buildings totalled approximately $18.03 billion. Of this energy 42% was used to heat and cool buildings while the remainder was used for lighting, water heating, refrigeration, appliances, and other equipment such as pumps and elevators…

These multifamily building expenditures have continued to increase as residential energy expenditures increased by 10.6% between 2005 and 2009…Fortunately, much can be done to reduce this use and associated costs. As shown in the case studies throughout this paper, many owners have reduced their energy use and energy bills by 20% or more, improving cash flow and profits and freeing up money to pay for other building improvements.

Homes where low to moderate families live can benefit from energy efficiency as well. Some of this housing is subsidized by the government, but most of it consists of privately owned buildings.

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Studies have documented that affordable housing, often multifamily, receives a disproportionately small share of available energy efficiency funding…

A study by Charlie Harak of the National Consumer Law Center describes the issues confronting affordable housing and the tremendous cost burden that outdated and inefficient units and buildings present to the federal government and residents alike. Harak estimates that HUD spends upwards of $5 billion on energy costs for public housing and “privately owned housing where the owner or tenant receives rental assistance from HUD.”7 However, in 2007, HUD only shaved 2/3 of 1% off of that bill with energy efficiency.

Despite the need for greater efficiency in these properties, they also get a disproportionately small share of utility incentive dollars in some states. While the affordable housing market (and policies to increase energy efficiency in that market, differs from the rest of the multifamily sector) it contributes to the substantial potential for savings from energy efficiency.

When scaled to the community and national levels, taking advantage of the available effi-ciency opportunities can yield very large savings.

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For example, if the energy savings from Energy Savers, a multifamily building energy efficiency retrofit program that has improved over 7,500 units in the Chicago area since 2007, is aggregated to all 854,000 multifamily units in Chicago, it would reduce energy bills by approximately $269 million each year…

In addition, we can estimate the potential impact of applying quality multifamily energy efficiency programs to every multifamily building in the country. At the national level, and with 2010 national average residential energy prices, energy efficiency improvements of 15% for electricity and 30% for natural gas in all multifamily buildings would create annual utility bill savings of approximately $2.03 billion on electricity and $1.34 billion on natural gas.9 Thus, the potential for energy efficiency savings from enrolling the entire multifamily sector in a quality program is over $3.4 billion. Even if we adjust these figures by removing the 25.52% of U.S. buildings built after 1990, the potential for energy efficiency savings is immense. These savings levels are consistent with savings reached by quality multifamily energy efficiency programs, including those found in the multifamily energy efficiency programs discussed below in Case Studies of Effective Programs and Partnerships. This level of savings is also consistent with a 2007 report surveying energy efficiency opportunities in multifamily housing.10 Figure 1 shows the savings potential for each state based on the number of housing units in buildings of five or more units and the national average electricity and natural gas consumption per unit of multifamily housing.

Public utilities represent an enormous opportunity for engagement and leveraging of resources for improved energy efficiency. Utilities have longstanding, energy–centered relationships with building owners, as well as unique access to customer usage data that can be used to design and target effective, comprehensive energy efficiency retrofit programs. But because utility incentives regarding energy efficiency vary dramatically, no single policy will encourage them to partner for effective efficiency programs. Instead, building owners must engage utilities based on each utility’s regulatory circumstances and the local markets to align utility incentives with effective, comprehensive energy efficiency retrofit programs.

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To achieve the greatest benefit from energy efficiency, building owners and utilities must work together to jointly fund comprehensive multifamily efficiency improvement programs in ways that meet building owners’ needs.

Building owners must find ways for utilities to share data with program delivery providers so that these providers can assess energy costs, prioritize buildings for improvement, and secure financing. Regulators, legislators, and building owners must work to align utility incentives with comprehensive efficiency improvement programs and responsible data sharing…