Energy use in buildings and construction accounts for about 40 percent of world consumption and a third of greenhouse gas emissions.
As a result, much attention is now being paid to how to improve the efficiency of homes, offices and public buildings.
But much of the potential to reduce building emissions remains untapped. This is largely due to insufficient investment in sustainable design, the refurbishment of buildings, or the redesign of efficient technologies, according to a last year’s report by the International Energy Agency.
More funding assistance is now slowly becoming available. In the U.S., publicly owned and “unprofitable” green banks have grown like mushrooms over the past 10 years, helping to bridge the funding gap. Their goal is to help set energy transition projects in motion while keeping an eye on their investment recovery.
Among these is NY Green Bank, which was launched in 2014 with funding provided by New York State’s electricity taxpayers. It recently supported BlocPower, an energy technology company that aims to improve the energy efficiency of buildings in poorer districts of New York.
Donnel Baird, founder of BlocPower, explains that his workers use digital cameras to scan and examine buildings for defects in their structural integrity. This information is combined with blueprints and public records to generate recommendations for the remodeling of buildings and help ensure that the correct efficiency upgrades are made.
Last December, BlocPower earned the financial support of NY Green Bank, after which it has been suing since 2015. For five years, says Baird, we have been told it is too risky and too small. NY Green Bank has agreed to provide a $ 5 million line of credit.
The deal came two months after BlocPower signed a deal with Goldman Sachs. The Wall Street bank agreed to invest $ 1 million in BlocPower and gave it a $ 49 million debt facility through Urban Investment Group, its impact investment arm. It comes on top of venture capital from Mitchell Kapor, one of the first investors in Uber.
In October of this year, Michael Regan, head of the U.S. Environmental Protection Agency, toured another site on which BlocPower worked: the Church of the Immaculate Conception of the Blessed Virgin Mary, in the South Bronx. There, BlocPower installed a more energy-efficient boiler and used the savings to fund a rooftop WiFi system that provided cheaper internet access to the area. It is one of several churches in the district that have renovated BlocPower.
Another building efficiency startup that NY Green Bank has supported is Sealed, which is a similar business model to BlocPower. Its funding, back in 2016, was intended to market Sealed’s business model and provide a platform for further rounds of fundraising.
In June this year, Sealed announced that it had completed a $ 16m fundraiser from a range of venture capitalists for a service that provides homeowners with assistance in financing and planning energy-saving upgrades.
In addition to the NY Green Bank, energy efficiency companies have also received support from the New York City Energy Efficiency Corporation (NYCEEC) – a non-profit bank backed by the city government. It offers loans to repair apartment blocks, commercial buildings and community institutions, such as shelters for homeless people and places of worship, with an average loan size of about $ 1 million.
NYCEEC focuses on finding projects that are “smaller and more complex than the private sector would be interested in,” says CEO Curtis Probst. But once the organization has reviewed a project – by creating a loan, underwriting and structuring it, and educating the borrower – commercial lenders are often interested in buying into the transaction. This enables NYCEEC to continue to “recover our capital,” says Probst.
However, the relatively modest amounts involved in supporting these energy efficiency businesses demonstrate the difficulty of raising capital from both conventional and impact investors for the refurbishment of buildings – especially in poorer, unfashionable areas.
Part of the problem is that investing in housing aimed at low- and middle-income households in the US is often considered a high risk or just not worth it.
Replacing outdated lighting systems, gas-slipping boilers and leaking heating, ventilation and air-conditioning systems can quickly cut energy bills and free up cash flow from rentals. But such projects are often small-scale transactions that fly under Wall Street’s radar and transaction costs are high. Key stakeholders in such projects – landlords, landlords and tenants – may not be aligned and each building’s unique challenges must be individually diagnosed.
Solving the key technological hurdle – standardizing an evaluation of building defects – was only half the battle for BlocPower. Banks see retrofits in poorer districts as subprime, in part because they have lost money in the past.
Baird cites the example of one lender in New York who financed a kettle in a church. When the pastor did not pay, the bank went to fetch the kettle and was inundated with negative news in local news. That made investors “really gun-shy,” Baird says.
NY Green Bank’s success in attracting new interest in the private sector in financing energy efficiency projects in buildings has also been questioned. Some say their public funding has stayed behind the private sector, rather than attracting capital to precedent-setting deals.
To date, the organization has invested more than $ 1.3 billion in environmental projects, which are strongly focused on wind and solar power generation. But some proponents of clean energy are urging it and other green banks to shift more funding to building upgrades, and to help prepare homes for extreme weather, improve ventilation and swap gas boilers for electric heat pumps.
Alfred Griffin, the founding president of NY Green Bank, who recently left and joined Generate Capital, a private sustainable infrastructure investor, earlier this year, defends the bank’s record and says attracting private financing for building stock improvements is not easy. .
“It’s such a big opportunity – but there’s not as much activity in the market as we’d like to see,” says Griffin. “And I think it’s not just a New York Green Bank perspective, it’s a general market frustration. We have to respond to where the market activity is. ”
Adam Zurofsky, who oversaw the bank as New York’s former deputy secretary of energy and finance, also argues that there is little reason for impact investors to double projects once conventional financing is readily available. He says: “If you get to the point where you compete with Goldman and Citi to sign an agreement, then you have won. You have to move on. ”