Lobbies around New York City proudly display signage declaring that the retrofitted infrastructure installed improves the building’s sustainability. Qualifying buildings that are not in compliance with Local Law 97 are going to be subject to fines starting next year. As the deadline for penalties approaches, there are many ways to ensure a portfolio follows New York City’s policies.
New York City consumes more than 50 terawatts of energy annually and emits ~55 million tons of carbon dioxide yearly, with buildings accounting for two-thirds of the total. In 2019, the city government took steps to reduce this impact and passed the Climate Mobilization Act and Local Law 97, intending to reduce emissions from buildings by 40% by 2030.
The regulation requires any building (including residential, commercial, and institutional) over 25,000 square feet to meet specific standards for efficiency and emissions. Failure to meet specific thresholds will result in fines as early as 2024 – to the tune of $268 per metric ton over the limit. The Real Estate Board of New York estimates this could lead to $200 million in fines across 3,000 buildings. Complying with the new regulation seems straightforward – invest in efficiency! Implementing these solutions is not always straightforward.
Building owners and property managers should consider the following when assessing energy efficiency:
Conduct an energy audit: An energy audit can help identify areas where facilities are wasting energy and determine cost-effective ways to improve efficiency. Audits can help identify specific steps to reduce a building’s energy consumption.
Make energy-efficient upgrades: Upgrading energy-efficient lighting and appliances, sealing air leaks, and adding insulation can all help reduce energy consumption.
Incorporate renewable energy: Consider incorporating renewable energy sources into a building power mix. Enrolling in renewable energy programs can help reduce a building’s carbon footprint. When installing panels is unrealistic, enrolling in “community solar” programs that mix renewable energy into a power supply is possible.
Use the city's benchmarking tool: New York City’s benchmarking tool, introduced as Local Law 84, allows property owners to track and compare a building’s energy and water usage over time across a portfolio of properties. The tool is Energy Star’s Portfolio Manager and can help identify areas where efficiency can be improved.
Partner with an energy service company (ESCO): An ESCO can help assess energy needs, identify cost-effective solutions, and implement upgrades to improve a building’s energy efficiency. In addition to providing expertise and technical support, an ESCO may also be able to help you secure financing for energy-efficient upgrades.
Financing Energy-Efficient Upgrades
Financing energy-efficient upgrades can be challenging for building owners due to the high upfront costs and the perceived risk of these projects by banks and other lenders. Building owners may need more financial resources to pay for these upgrades out of pocket and may need to secure financing to implement them. However, some banks may be hesitant to lend to buildings for projects like this, particularly if the building has a history of financial problems or the upgrades are considered too risky. Buildings held in LLCs may also face challenges when obtaining financing, as banks may hesitate to lend to an LLC without a parent credit guarantee.
However, several financing options are available to help building owners finance these projects. These options include rebates, tax credits, and financing programs.
Rebates and Tax Credits
The New York State Energy Research and Development Authority (NYSERDA) offers a variety of rebates and tax credits to help building owners finance energy-efficient upgrades. These rebates and tax credits can offset the upfront costs of energy-efficient upgrades and make them more affordable for building owners. For example, the Commercial New Construction program presents incentives for buildings designed to be energy-efficient from the outset, while the Existing Buildings program offers incentives for energy-efficient upgrades to existing buildings.
Building owners can also take advantage of financing programs to help finance energy-efficient upgrades. Partnering with an energy service company (ESCO) can help fund energy-efficient upgrades. Banks have started to be more aggressive in supporting third-party financing structures for energy service companies. This assistance enables property owners to finance projects off-balance sheets through ESAs or MSAs. Bundling many properties together and structuring credit enhancements enables property owners to bundle multiple sites into a portfolio to achieve economic pricing. Grant funding is also available to support these projects. NYSERDA offers up to $5 million in grants through the Commercial & Industrial Carbon Challenge program to help building owners pay for energy-efficient upgrades.
This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.
Have questions on how Energetic Insurance can help you implement a programmatic partnership to deploy energy efficiency and renewables across commercial real estate sites? Reach out below.