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Low Income, High Efficiency

Policies to Expand Low-income Multifamily Energy Savings Retrofits

Improving the energy performance of existing buildings will be key to achieving California’s efficiency and greenhouse gas emission goals. But owners and residents of low-income, multifamily buildings face some of the greatest obstacles, including difficult access to capital, complex financing arrangements, competing renovation needs, and a split incentive problem that limits owners’ financial interest in upgrades that primarily reduce residents’ utility bills. While California’s energy regulators and electric utilities fund and operate a number of incentive and rebate programs, structural barriers have hampered progress, including strict income qualification criteria, energy data opacity, and the complexity of combining multiple incentives into one project. Low Income, High Efficiency details policy solutions and case studies to increase access to energy efficiency incentives and unlock environmental, financial, and quality-of-life benefits for owners and residents alike.


California has committed to doubling energy efficiency in buildings.  This target, which SB 350 (de Leon, 2015) set for 2030, will be essential to achieving the state’s goal of reducing greenhouse gas emissions 40 % below 1990 levels the same year. It covers not only new construction but also existing buildings, including residential buildings–nearly half of which were built before the state instituted Title 24 energy efficiency standards in 1978.

Low-income multifamily households represent a significant portion of California residents. Approximately 40 percent of Californians are classified as low income, nearly 50 percent of low-income households live in multifamily buildings, and 70 percent of low-income households rent their homes. These include some of the oldest, least energy-efficient in the state, and their owners and residents face some of the greatest barriers–including difficult access to capital, complex financing arrangements, competing renovation needs, and the split incentive problem–to undertaking efficiency retrofits.

The state has created a number of efficiency incentives for low-income buildings, but uptake is limited.  Programs like the Energy Savings Assistance Program (ESA) and Low-income Weatherization Program (LIWP) offer significant financial and technical incentives for owners and residents. But taking advantage of these incentives is a complex process in itself, and few residents are able to benefit from the energy efficiency and quality-of-life improvements they offer.

Policy Needs

Policy Solutions

Increasing Program Coordination to Reduce Complexity for Users

Create a One-Stop Shop for Energy Efficiency Incentives

State legislators

Create a single, statewide “one-stop shop” efficiency program administrator.

A “one-stop shop” for users to obtain information about available programs, determine applicability, submit necessary filings, and manage participation, if properly designed, could be the most effective way to increase alignment throughout the ecosystem of retrofit financing. By giving owners and residents a single point of access to all available incentives, it would reduce their administrative costs and increase their ability to identify all cost-effective retrofits to undertake. Simultaneously, by channeling all state and utility programs through a single administrator, it would require staff to align relevant definitions, focus resources on a unified outreach campaign, and eliminate conflict among programs.

State energy regulators and utilitiies

Harmonize definitions of terms and eligibility for existing programs.

For example, the Low-Income Weatherization Program, Low-Income Home Energy Assistance Program, and the Energy Savings Assistance Program have eligibility thresholds of 80 percent of area median income, 60 percent of state median income, and 200 percent of the federal poverty line, respectively. It can be challenging for a multifamily property manager to determine eligibility of multiple residents under any one of these standards, and combining multiple incentives with different thresholds can prove prohibitively challenging. The state agencies and utilities that implement these programs could collaborate to develop easy-to-understand definitions for eligibility thresholds and other essential criteria.

State legislators

Increase funding for coordinated technical assistance across design, engineering, and financial needs.

Free, state-provided, or state-subsidized consultation on the identification of building energy needs and deficiencies, selection of best-fit project components, comparison of available technologies, overall project design, and installation and operation is among the top incentives available to draw owners and developers into the market for efficiency retrofits. The state legislature could authorize new funding for similar programs for applicants to all incentives, offering technical assistance grants to individual owners to contract with approved organizations like those identified above or directly providing consultations at low or no cost. Utilities could also contribute staff time and expertise to assist small customers with limited resources.

State legislators and energy and housing regulators

Restructure the timing of incentives and financing programs to align with planned renovations and refinancing events.

Existing financing arrangements and loan agreements, particularly for deed-restricted subsidized properties, may prevent owners from taking on additional debt obligations needed to finance an energy project. But when those agreements are renegotiated according to their terms, owners may have an opportunity to introduce efficiency-related obligations. However, these trigger points occur rarely, often decades apart, and existing incentive programs are not structured to align with them. Creating a statewide one-stop shop or even a database of properties and financing statuses could help identify these points.

State energy and housing regulators and program administrators

Harmonize cost-effectiveness metrics and savings targets across existing programs.

Cost-effectiveness tests that determine energy efficiency program success, such as the ESA Cost-Effectiveness Test (ESACET) and the Total Resource Cost (TRC) test, account differently for energy use, greenhouse gas reduction, non-energy benefits, and program costs. These differences can translate into implementation challenges for utilities and building owners seeking to apply multiple incentives. Regulators should seek the greatest integration of quality-of-life benefits and greenhouse gas priorities to maximize owners’ opportunities to improve their properties.

State legislators

Create incentives for existing programs to increase coordination.

Faced with the difficult and time-consuming task of implementing a program like ESA, agency and utility staff may lack the time and resources to assess how an applicant could access further incentives or better shape its planned retrofit to satisfy multiple requirements. A new legal mandate could require program administrators to begin harmonizing eligibility criteria, establishing common metrics to facilitate evaluation across multiple programs, and arranging shared technical assistance that promotes all available incentives. The initiative would be driven by a focus on the end-user experience, identifying customer intake and communication synergies that could increase efficiency for customers and administrators.

State energy regulators and utilities

Expand outreach to owners and developers about available programs and incentives.

Owners and developers of low-income multifamily properties may fail to take advantage of current programs because they are simply not aware of the incentives the state and the utilities can offer.The utilities, in conjunction with the Energy Commission, Public Utilities Commission, Department of Community Services and Development, and State Treasurer’s office could prepare a public messaging campaign that reaches all owners of eligible properties. For example, these parties could prepare a comprehensive low-income multifamily incentive program guidebook with straightforward descriptions of the programs available, the core types of measures covered and levels of funds offered, basic eligibility criteria, application timelines, and contact information and websites for detailed follow-up.

State energy regulators and utilities

Optimize deployment of existing funds to meet highest-order energy retrofit needs that entail the most energy-saving benefits.

Over time the cost and availability of certain components has dropped to the extent that incentives or rebates may no longer be necessary to ensure cost-effectiveness, and state leaders may not have designed programs to address these shifts. For example, LED lighting has long been considered “low-hanging fruit” that is straightforward to install, requires little maintenance, and is universally useful. In light of this evolution, policy makers could give incentive program administrators greater flexibility and tools to prioritize use of funds for items that owners are least likely to finance without support and that could benefit from an expanded initial market to reduce costs over time through greater scale.

State legislators and energy agency leaders

Ensure that programs address—or do not exacerbate—the housing shortage and preservation concerns.

Preserving affordable housing supply and limiting displacement should be top priorities for any new programs. Legislators and administrators could consider using efficiency incentive programs to drive the creation or preservation of affordable units by increasing the level of incentives available for owners that convert market-rate affordable units to deed-restricted units in concert with an efficiency retrofit project. The legislature could also provide small pots of funding for program staff dedicated to coordinating with affordable housing finance and policy organizations such as Enterprise Community Partners, which operates a Small Multifamily Housing program to identify financing opportunities to keep small developments affordable, and California Housing Partnership Corporation, which advises cities on policy measures to preserve affordable supply.

Enabling a Market Transformation

Provide Reliable, Long-Term Sources of Funding

State legislators

Ceate a stable, long-term public fund to support the one-stop shop administrator and subsidize advanced efficiency measures.

A long-term funding source would allow owner/developers to plan efficiency projects in line with their long-term obligations, minimizing financial risk and maximizing ability to incorporate costlier upgrades. Seeding a new one-stop shop program with this type of fund would help secure buy-in from owner/developers and utilities, driving sustained success through the knowledge that the consolidated entity and programs would be in place for an extended time. And ensuring adequate funding could help clear existing program backlogs and waitlists that limit even proactive owners’ and residents’ access to benefits (such as the estimated 1,000-building waitlist for the Low-Income Weatherization Program that affects approximately 18,000 residents).

State legislators and utilities

Promote pilot programs to facilitate financing mechanisms that leverage public and private funds and aggregation.

While private banks and lenders are always available to finance energy efficiency projects, the savings those projects generate are often not significant or reliable enough to satisfy traditional repayment and interest arrangements, and low-income housing owners often lack sufficient access to traditional capital markets. However, a group of innovative financing structures, including the Metered Energy Efficiency Transaction Structure (MEETS), Energy Services Agreements, and Managed Energy Savings Agreements (MESA), link building-wide energy efficiency upgrades with secure long-term savings, they provide a potential model for the low-income multifamily sector, generating financial benefits for owners and investors and grid benefits for utilities, at no cost for tenants. Pilot programs to test these structures in the multifamily residential sector could increase attractiveness for private investors.

The California Public Utilities Commission and utilities

Propose and institute utility tariffed on-bill programs that capitalize energy efficiency retrofits without making loans.

Under this model, the utility bears the upfront cost of efficiency measures and recoups that cost via a cost recovery charge (known as the “tariffed charge”) on the customer’s monthly bill that is “tied to the meter” (i.e., is passed on to subsequent occupants), but the utility makes an investment rather than a loan. As a result, there are no limitations to eligibility related to income or credit history. The energy efficiency upgrades are an “essential utility service” rather than a loan to the customer, so consumer lending regulatory oversight does not apply. Instead, utility regulators review and approve the terms of the tariff, which include multiple consumer protections. Pilot programs to institute the model in California could increase low-income residents’ access to efficiency measures.

Electric utilities and state energy regulators

Enable greater access to on-bill financing and on-bill repayment arrangements.

On-bill financing and on-bill repayment arrangements are energy efficiency loans that use the customer’s utility bill as a repayment mechanism for the debt. In exchange for the installation of efficiency upgrades, a utility customer agrees to repay the upfront cost via a recurring charge on the monthly bill, often in the form of a loan originated by the utility (or, in the case of the related on-bill repayment structure, by a third-party lender). These arrangements facilitate retrofits at no upfront cost, but uptake has been minimal (although the utilities’ commercial programs have seen greater utilization). Expanding access to on-bill financing options through utilities could increase the uptake of efficiency measures for low-income customers that are willing and able to take on debt or low-cash flow properties where the owner is responsible for the energy bill.

State legislators and energy regulators

Collaborate with housing regulators and owner/developers to create a statewide database that combines financing, general rehabilitation, energy needs, eligibility, and other key data.

Program administrators may be unaware of the properties best suited to maximize incentives in terms of building age, energy performance, financing status, and tenant population. As a result, they are unable to conduct targeted outreach or build timelines of anticipated projects. A statewide database incorporating key energy, financing, and eligibility data into a GIS-style interface could significantly improve the effectiveness of incentive programs. The database would include information on building history, renovation and refinancing timelines, energy usage, income levels, and applicable incentives, with staff analysts to identify when individual properties are best suited to take on energy retrofit projects and prepare a long-term timeline to help the state achieve its SB 350 goals. The database would also draw on and support Energy Commission energy data benchmarking and analysis efforts under AB 802.

State energy and tax agencies and property owner/developers

Leverage the welfare exemption from local property taxes for deed-restricted properties to encourage building owners to undertake efficiency projects.

California law exempts from taxation property that is used exclusively for charitable purposes and owned by a foundation or corporation organized and operated for charitable purposes;  dedicated low-income housing can qualify for this “welfare” exemption. The California Energy Commission and Public Utilities Commission could work with the State Board of Equalization, which administers the exemption, to advertise the availability of the exemption and integrate efficiency incentive program information into the welfare exemption application process (and vice-versa) to encourage owner/developers to undertake property conversion and energy efficiency measures at the same time. The state legislature could also consider amending the Tax and Revenue Code to create a time-limited welfare property tax exemption for low-income units (based on county-specific household income and rent levels) that are not deed restricted but whose owners commit to aggressive efficiency retrofits and a set period of rent control.

The State Board of Equalization and California Energy Commission

Harmonize Tax Credit Allocation Committee (TCAC) requirements to better incentivize efficiency projects.

The centrality of the Low-Income Housing Tax Credit to many projects means that compliance with applicable TCAC requirements often drives project timing and structure, drawing staff time and resources away from applying for and meeting deadlines for LIWP, ESA, and other incentive programs. In addition, compliance with TCAC’s strict 10 percent efficiency improvement requirement can sometimes restrict owner/developers’ ability to install new, efficient electric appliances that increase overall electricity load by switching from more polluting natural gas versions. Among other measures, TCAC leaders could consider amending the regulations requiring a 10 percent efficiency increase to permit projects that may increase overall electrical load but reduce natural gas consumption and improve quality of life, or consider setting aside a portion of available tax credits exclusively for qualifying deep retrofit projects that meet minimum income criteria

Increasing Investment and Non-Energy Benefits

Improve Access to Data and Accounting for Quality-of-Life Improvements

State legislators, energy regulators, and utilities

Expand public and program implementer access to building energy data, through customer opt-out programs.

Under current state law, utilities typically are barred from sharing data for individual units or buildings with efficiency program implementers or energy regulators, limiting their ability to identify worst-performing units and buildings for targeted incentives. Making unit- and building-level energy data available to program implementers and the public could greatly increase the efficacy of existing incentives. The state legislature could amend the Public Utilities Code to permit sharing of this granular historical and current data on an opt-out basis, rather than requiring express customer permission (or requiring aggregation and scrubbing of identifying information).

California Energy Commission

Update Title 24 building energy metrics to permit quality-of-life improvements that may increase electricity consumption.

California’s Title 24 building energy efficiency standards can prevent owners from adding new electrical capacity to an existing building as part of a retrofit, even when it replaces more carbon-intensive natural gas systems or tenants’ inefficient plug-in heating and cooling units. The Energy Commission could update the standards to allow projects that reduce overall carbon emissions through fuel-switching from gas to electricity, and/or projects that improve health and quality of life for residents, even if they increase total electricity use, provided that advanced efficient technologies are employed. This would increase the range of projects available to low-income multifamily developers and allow more equitable distribution of clean energy benefits in the state.

State legislators and energy agency leaders

Increase funding and support for long-term energy use monitoring, maintenance, and training to help owner/developers ensure consistent savings.

Savings often rely on continued observation, maintenance, and adjustment of high-performing new technologies to adapt to changing environmental and use scenarios. Without ongoing support in the form of technical assistance or funds for new ancillary equipment, a retrofit may not achieve the level of performance needed to generate savings, but not all building owners have affordable access to the ongoing services they may need. Increased funding authorization from the legislature, updated Title 24 requirements from the Energy Commission, and aligning efforts by the Public Utilities Commission and the Tax Credit Allocation Committee could all increase building owners’ access to these services.

State energy agencies and utilities

Create a pilot project to measure non-energy benefits and co-benefits and identify third-party beneficiaries like public health agencies.

Policy makers could increase program uptake and improve tenant quality of life if they allowed retrofit projects to count health and safety and environmental benefits toward their qualification for energy efficiency incentives, tax credits, and updated building standards. However, they will first need to develop rigorous measurement and standard criteria for evaluation in order to include these benefits into cost-effectiveness calculations and TCAC points allocations. The Energy Commission, Public Utilities Commission, and Board of Equalization  could initiate a joint pilot program to develop agreed-upon standards for measuring non-energy benefits and best practices for collecting and reporting data.

State legislators

Establish and fund loss reserves for projects that do not generate savings as predicted.

The possibility that savings might not exceed up-front costs will prevent some owners from undertaking a retrofit.  A state loss reserve—a small fund to help mitigate financial risk for owners and developers whose projects do not generate sufficient savings—could encourage more participation. The fund would include rigorous application criteria and submission of supporting data to demonstrate the failure of upgrades to perform, including information clearly tying the lack of expected savings to equipment failure rather than operational error or broader building issues. Payouts could be capped to ensure that only smaller, more financially vulnerable entities are able to draw from it. The fund could also include mechanisms to track the program implementers and contractors that were involved in these projects, to determine if they need to improve project evaluation or enhance service.

We need a single entity that can understand the target populations, think about solutions that are focused on the market in all its different segments, and also think about what it takes to get adoption. We need an entity that thinks bottom-up, rather than top-down.”

Jeanne Clinton, Energy and Sustainability Consultant