New Clean Energy Program Won't Cost Cities a Dime

A new public-private partnership is similar to existing clean energy programs, but this one doesn't require any financial investment from cities.
March 19, 2013

Many communities want to increase their use of alternative forms of energy, but green technology can be expensive. Now, a number of municipal governments are partnering with a new privately funded clean energy program to save money and help make their cities more environmentally friendly.

The program, which is a public-private partnership (P3), is called the Ygrene Energy Fund and it enables property owners to make their buildings more energy efficient through renewable energy system installations and water conservation upgrades at no upfront cost. Ygrene provides the money for the upgrades and is paid back through property taxes over a period of up to 20 years. The municipality uses its property tax system to collect the revenue and remits it to Ygrene. If an owner sells that property, the costs associated with the technology enhancements stay with the site, to be paid by the new owner.

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Sound familiar? That's because the idea is an offshoot of Property Assessed Clean Energy (PACE) programs, which operate on the same principles. Most PACE programs require some sort of financial investment by municipalities. In this case, however, Ygrene provides the capital for the project rather than the local government.

Sacramento is one of several cities to enter into a partnership with Ygrene and the first to roll out the program. Already, the city has helped a property owner upgrade to a more efficient water-cooled air conditioning system in a prominent downtown office building. The project is expected to save approximately $47,000 per year for 25 years.

Energy financing has been on Sacramento’s radar for a couple of years, according to Yvette Rincon, the city's sustainability program manager. Sonoma County and the city of Riverside have set up PACE programs with some success, but Sacramento had fiscal challenges that prevented them from using the same model.

“The reality of where we were because of the economic downturn, we didn’t have the staff or debt capacity to fund our own program,” Rincon said. “So I put an RFP out there to see what type of service we could get and who was doing what in the private sector.”

Sacramento received three bidders and selected Ygrene, primarily because of the company’s private financing model. In January, the city announced it had signed a 5-year contract with Ygrene.

Sacramento already has about $20 million worth of projects lined up, mostly on the commercial side, according to Rincon. For the past six months, the city has been talking to contractors and subsidizing energy assessments for commercial buildings to figure out appropriate projects.

Sacramento eyes energy savings and jobs

Part of Sacramento’s interest in the program -- dubbed “Clean Energy Sacramento” -- is to reduce the city’s energy use by 15 percent by 2020, a goal that's driven by a California law requiring greenhouse gas emissions to be cut to 1990 levels.

Because existing buildings are a major contributor to greenhouse gases, the city hopes Clean Energy Sacramento will drive down emissions.

“If we can get our citizens to participate in this program and implement some really great projects to reduce their carbon footprint, then we won’t have to consider later how we can reach that goal through mandatory regulations,” Rincon said.

The partnership with Ygrene is also seen as a potential job creator in a region where the unemployment rate is 9.9 percent -- well above the national average of 7.7 percent. The program should create 1,500 jobs and generate $250 million in economic activity, plus add some revenue to the city through sales tax, according to Rincon. Overall, the city is eyeing $100 million in projects completed during the initial five-year contract.

Problems with PACE open door for Ygrene

So why should cities look at another energy financing model when they have PACE, which is considered an innovative way to finance alternative energy improvements? What was missing was a private funding model. Ygrene is able to leverage private capital.

“The program unlocked the opportunity to do energy upgrades in buildings that otherwise would be accepting the status quo,” said Jason Mittelstaedt, Ygrene’s senior vice president of marketing and strategy. “It makes those energy upgrades more accessible to the property owners, and it 'de-risked' those upgrades on many fronts and ultimately it’s a win-win through the perspective of the property owner.”

PACE gets its funding through municipal bonds. Cities then loan the money to property owners and are paid back through property taxes. But that has created some problems for residential property owners. In 2010, the Federal Housing Financing Agency (FHFA) effectively suspended residential PACE programs. In a revised ruling in June 2012, FHFA reserved the right to make the full amount of any PACE lien due upon the sale of any property involved in the program.

Clean Energy Sacramento hopes to avoid this issue by targeting property owners that have no intention of selling their homes any time soon.

“What we did to avoid that risk in our program is made a disclosure to our property owners that it might happen to them if they consider refinancing or selling,” Rincon said of the FHFA ruling. “So we really want to make sure they’re not thinking about those two things in the next couple of years and that it really makes sense for them to participate in the program in light of those two possibilities.”

The FHFA ruling has been challenged in court for the process by which it made its revised ruling. Rincon said if another ruling is issued this summer or later this year, Sacramento will adjust its clean energy program accordingly.

Florida, Atlanta tap the energy fund

Other clean energy programs, using the Ygrene Energy Fund, have sprouted up in Florida and Atlanta. The Florida project is called the Green Corridor and involves seven towns and cities within Miami-Dade County and will formally launch later this year.

Green Corridor is similar to Clean Energy Sacramento but has hurricane protection and wind hardening as its key objectives. Edward McDougall, mayor of Cutler Bay, Fla., said the Green Corridor will allow property owners to enhance their homes and businesses with green technology and renewable energy, and ultimately increase property value. He added that while the reasoning behind the decision to partner with Ygrene was primarily environmental, it has also struck a personal cord with him and others in Cutler Bay.

“We have an opportunity as a nation, as people, to take the lead in these environmental issues -- whether you believe in global warming or not,” McDougall said. “Even if you don’t believe that, we are still spending a trillion dollars on foreign energy every three years. Everyone should be doing what they can possibly do to try and mitigate that and if a government such as ours can help move that along, that is my mission.”

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