Building efficiency fund in works for Portland?

Daily Journal of Commerce (Portland, OR), Jul 7, 2008 by Libby Tucker

The Portland Office of Sustainable Development is formulating a proposal to create a fund with public and private financing that would pay for widespread energy efficiency upgrades in the city's residential and commercial buildings. The fund would remove the financial burden of rising energy costs and efficiency improvements from building owners and address energy use citywide on a large scale.

Early calculations call for $150 million to $200 million to retrofit as many as 10,000 homes and hundreds of commercial buildings each year with upgrades to reduce energy consumption by 30 percent. Tom Osdoba, director of sustainable economic development for OSD and the proposal's chief visionary, outlined his ideas for the DJC earlier this week.DJC: When you talked at the green professionals conference a few weeks ago, you said that the city needs to be much more aggressive in the ways that we address energy use and sustainability. Can you explain what you meant by that?

Tom Osdoba: In order to have any hope of meeting greenhouse gas reduction targets, we would need to increase energy efficiency work in this city by a factor of 10 immediately and we'd need to do it for 20 years. We're not even having that conversation right now. It's been about how we make our existing incentives more attractive, which is important, but we shouldn't do that to the exclusion of saying (that) maybe we shouldn't be talking about incentives at all. Maybe we need to be talking about creating an investment fund that will pay for energy-efficiency improvements for all.DJC: That's where you need creative financing.

Osdoba: Right. There are people who might be interested in providing that type of financing who aren't playing today. And building owners have shown over 30 years they're not good at doing it themselves. So it's a very tall order to ask building owners to shoulder all this investment responsibility. We need patient capital and a more system-wide approach.DJC: So what's your strategy?

Osdoba: The best corollary I could give is there are energy service companies who do energy-efficiency work on big campuses and industrial facilities that use a lot of energy. They say we'll guarantee energy savings and we'll help work with you to finance those capital investments, which will be paid for off the savings.

That same model needs to be brought ... to thinking about neighborhoods because we can't go building by building - it will simply take too long. We have too many barriers to making good investments in energy efficiency. Not only do people not have time, they don't have access to that kind of capital. So we should be helping them because they're just going to be burdened with ever more increasing energy prices. Incentives don't quite get them over the hump.

So that's a question we're asking: What if we take that responsibility off them and say "we'll do it for you?" Missoula, Montana, has a program where if a neighborhood can self-organize and get 90 percent of homeowners to sign up they'll do it for free.DJC: The city should be the investor in this case?

Osdoba: The city is the only entity that can draw lines on a map and say we want to do it here as a single investment for all these buildings.

Now, it's probably ultimately multiple investors. It could be the city, the utility and their investors, or other institutional investors who are relatively patient (with) capital like pension funds. And you're starting to see pension funds creating portfolios around clean energy, so this would be a portion of where they're already going. But you may say, investment capital is willing to do stuff like this but it needs an institutional framework for that.DJC: How do you measure the return on investment?

Osdoba: We can say what you need to do to get 30 percent improvement, how much it's going to cost per house, how much the payback is going to be in aggregate and we'll reduce your greenhouse gas emissions by this much.

We'll also be able to calculate how many jobs it's going to create, the relative economic impact, the multiplier and the relative impact on tax revenue benefits. So we can project out the full story of what this would look like because doing 10,000 homes a year is a lot. That's a $60 million investment every year. It's probably a 10-fold increase in terms of what's being done in the city of Portland on an annual basis.

DJC: How much would you raise through investment capital?

Osdoba: If we do that on an annual basis for residential, we also need to do it for commercial, so you add those up and you say it's $150 million to $200 million a year for the next 20 years.

So where does that money come from? We know the pension funds are coming to this portfolio slowly and they may need a push from the state to get there. There's a lot of compelling reasons to ask them to consider these investments. But in addition to that, the state as a whole tends to benefit from us doing this, so there's a bit of a public purpose along with that. What's different is they run about an 8 percent ROI usually on a 20- to 25-year time horizon. These sorts of investments we're probably looking at more like a 5 or 6 percent ROI over 20 to 25 years.DJC: So what's the city's role?