IN THIS ISSUE:
Dedicated Paths and Lanes: Their Influence on Bike Commuting
Grantee Spotlight: Honolulu’s Transit-Oriented Housing Strategy
Study Confirms Energy Savings in Multifamily Building Retrofits
Mixed-Use, Transit-Oriented Development in Arlington, Virginia
Study Confirms Energy Savings in Multifamily Building Retrofits
The study “Recognizing the Benefits of Energy Efficiency” examined data from 231 multifamily housing projects in New York City that had been retrofitted with energy-efficiency improvements that resulted in an average annual savings of 19 percent in fuel consumption and 7 percent in electricity consumption. A recent study sponsored by the Deutsche Bank Americas Foundation and Living Cities could result in changes to the energy-efficiency retrofits market. “Recognizing the Benefits of Energy Efficiency” is a comprehensive effort to quantify the benefits of energy efficiency retrofits in multifamily housing. The study provides empirical data on energy consumption before and after building retrofits, filling the void where the absence of evidence has stifled demand among owners and kept lenders from creating loan products to finance the cost of building improvements. In addition to illustrating how building retrofits can save energy, the study provides a framework for incorporating energy savings into lenders’ underwriting standards.
Energy Savings in Buildings
The study included the development of a comprehensive database of 231 multifamily housing projects (composing more than 21,000 units) in New York City that had been retrofitted with energy-efficiency improvements. The database includes pre- and post-retrofit utility costs (gas, oil, and electricity bills), building and tenant characteristics, and recommended and implemented energy conservation measures, among other variables. The detailed data allowed for a robust analysis of energy savings in fuel and electricity consumption across a representative sample of multifamily buildings in the city.
The study found that after retrofitting, the projects showed an average savings of 19 percent in fuel consumption and 7 percent in electricity consumption. Across the projects in this study, these reductions amounted to an annual savings of approximately $2.3 million and $730,000 in fuel and electricity savings, respectively — an average annual savings of $240 and $50 per housing unit. The report notes that the difference between fuel and electricity savings is due in part to fuel making up a significant proportion of total utility costs among the buildings sampled in the study. Notably, fuel cost savings were less variable than electricity cost savings. These findings — electricity’s relatively smaller share of total energy consumption and the post-retrofit variability in energy cost savings — have important implications for underwriting, as the study does not recommend factoring electricity savings into loan underwriting.
The dataset’s size and quality also allowed researchers to examine whether the relationship between fuel savings and building characteristics (such as age and heating-system type) or retrofit measures were associated with higher levels of energy savings. Among the variables tested, pre-retrofit fuel use intensity was the only variable found to have a statistically significant relationship to increased fuel energy savings. The study also found that building age and heating system type are good proxies for fuel use intensity.
Implications for Underwriting: Cap Projections
To incorporate these fuel energy savings achieved through building retrofits into underwriting practices so they can be used in lending decisions, researchers in this study used a ratio called a “realization rate,” which is the post-retrofit energy savings divided by the initial audit projections. This study found that audit projections overestimated the amount of savings achieved through the building retrofits. For example, although audit projections for many of the buildings predicted fuel energy savings of 25 to 50 percent, most retrofit projects achieved only a 10 to 40 percent savings.
The only statistically significant factor that could predict post-retrofit savings was the intensity of fuel use before the retrofit. This finding led the researchers to recommend that during auditing a “cap” should be placed on energy savings projections and that these projection methods should be based on the pre-retrofit fuel use intensity. Applying the cap method, the study found, increased the realization rate from 61 to 117 percent.
This study represents a critical step in efforts to bring multifamily energy-efficiency retrofits to a scale that can be supported by the market. Evidence from this study suggests that energy savings from reduced fuel use in multifamily buildings in New York City are significant and predictable. As a result, the study recommends an underwriting methodology for loan products that’s specifically targeted to financing energy-efficiency retrofits for fuel consumption. Moving forward, the New York City Energy Efficiency Corporation will work with affordable housing lenders on a series of projects to implement this practice and pilot new underwriting guidelines.
