A national loans program for the green industry could be the needed catalyst to put green-friendly retrofits on a fast track at a time when Canada’s aging building stock is ripe for renovation.
Although sustainable design and construction is much talked about, statistics show that the industry is not growing nearly as quickly as it could be. Building owners and developers often steer clear of green development because it comes with a big price tag and that additional capital outlay is beyond many owners’ fiscal capacity. A well-planned green loan program, however, could put more money in their hands, say proponents.
“The key is, how do we create a (loan) model that enables building owners to free up their capital and, at the same time, introduce more green programs into their buildings?’” asks Ron Lemaire, vice-president, market development, Canada Green Building Council (CaGBC), which has been investigating the issue with the Federation of Canadian Municipalities and the National Research Council Canada.
There are a number of specialized private and public green financing programs in Canada such as the Toronto Atmospheric Fund, (under the purview of the City of Toronto) that can help steer national loan organizers along the right path. The fund leverages investment from foundations, corporations, and federal and provincial governments.
Proponents of the national program say because the stakeholder base is expanding beyond traditional banks and governments, it is likely that a workable financing structure could be created for green builders. In the US, a number of states have given local governments the green light for Property Assessed Clean Energy (PACE) programs which provides loans to homeowners for energy retrofits. While that model might not work in Canada, Lemaire says variations could be developed.
“We know the federal government does not have the appetite to create a support mechanism for the major banks to leverage the financing similar to the insurance model of the CMHC (Canada Mortgage and Housing Corporation),” he says, adding other ways the feds can help include through regulation.
The City of Vancouver is developing two pilots for financing in the energy retrofit market – the sector with the biggest potential for energy savings. The city calculates an annual reduction of 175,000 tons of greenhouse gases from energy retrofits for residential and ICI sectors; by comparison, an annual reduction of only 15,000 tons is figured for new construction.
Taking a page from the US’s PACE (Property Assessed Clean Energy), a program developed in the US for residential market, one of Vancouver’s proposed pilots would provide loans to the owners of one and two-family homes for energy-saving renovations. But unlike the PACE model, it focuses strictly on retrofits with proven paybacks.
“One of the problems that really freaked out a lot of the US banks with PACE were $60,000 to $70,000 loans on things like solar energy that really doesn’t have a return on the investment,” says Dave Ramslie, sustainable development project manager, City of Vancouver.
Ramslie says to launch the pilot, which is developed in conjunction with Natural Resources Canada and its EnerGuide home rating system, will likely require non-traditional financing sources and be third-party audited and verified. If all goes well, the pilot could be launched in 2011.
Vancouver’s other loan pilot proposed for start-up this year would be available to strata corporations that manage condominiums. Because stratas don’t own common property, they can’t get secured financing for energy upgrades. “We’re trying to design an unsecured financing program for them,” says Ramslie. “Stratas are great customers; they do have an excellent track record of paying their bills, especially when you provide them with a new source of revenue in terms of lower operating costs.”
A national green loans program might also look to Toronto’s Tower Renewal (TR) program for direction. TR is an initiative to dramatically improve energy and other efficiencies of more than 1,000 concrete residential highrises built between the ‘60s and ‘80s in the Greater Toronto Area.
Its organizers see a credit-enhanced capital pool backed by property tax-based security rather than mortgage security, says TR’s project director, Eleanor McAteer. Financing would come through private sector money raised by Tower Renewal, which is an office of the City of Toronto. The provincial government would top off with a small amount of “over-collateralization” to help reduce the interest rate and improve credit quality of the pool.
What the government would get in return is a major job creation program. “It’s a $5 billion industry,” says McAteer.
The idea is that the energy savings from the renovations would pay for the cost of the work over a long period of time – ten years on average. Owners wouldn’t have to dip into their equity over the payback period. “Once the project has been paid for and the contract is completed, the owners will experience a tremendous gain in their net operating accounts,” points out McAteer.
To apply for a traditional loan through a bank would require refinancing their mortgage and a lien would be slapped on the building. The unusual financing model has some similarities to the U.S.’s PACE but Tower Renewal would have small administrative costs by comparison because the bulk of 1,000 or so Toronto towers are in the hands of just 50 or so owners. Also cutting the administration tab is the similar makeup and age of many of the buildings.
The kind of renos proposed under TR can easily save building owners 20 percent on energy costs, says McAteer. Cutting 50 to 70 percent energy costs, in fact, is tangible as a result of innovative technology such as geothermal heating/cooling and solar walls. The renos could reduce carbon emissions in the GTA by five percent.
The Tower Renewal program might be unique to Toronto but the means of financing such energy upgrades could be applied in other provinces – and not just for towers. A typical 25-storey or taller tower could easily cost an owner $5 million or more, says McAteer, noting that redoing cladding is an integral part of the upgrade. The financing model could also work for the renovation of other building types, including commercial ones.
The possibility of loans for greener buildings becoming more widely available across Canada is something the construction industry will have to continue to look out for since more loans could have a strong impact on retrofits as we head into a new decade of building and improving Canada’s aging structures.
This article was written by Don Procter and orginally appeared in the Feb/Mar print edition of The Trowel magazine.
