Here Are Some Ways to Overcome the Landlord-Tenant Split That Hinders Energy Efficiency

Here Are Some Ways to Overcome the Landlord-Tenant Split That Hinders Energy Efficiency

A new report concludes that green leases could deliver $3B in annual savings.

Katherine Tweed
May 27, 2015

Leases that realign the financial incentives of sustainability measures, such as energy efficiency, to benefit both owner and tenant could unlock energy savings of up to 22 percent in U.S. offices, according to a new report by the Institute for Market Transformation.

Green leases, as they are commonly called, could deliver about $3 billion in annual savings. For these savings to be realized, however, green leases will likely have to become the de facto lease in the office-space sector, rather than the exception.

“There is no need to call a lease with aligned energy incentives a green lease,” the study authors argue. “It is a well-written lease that takes the benefits of an efficient building into account, and does not have to presented with an environmental or green lens.”

No matter what they’re called, energy-aligned leases can be attractive to savvy tenants, especially those with stated corporate sustainability goals. Studies have also shown that green buildings command a premium in the marketplace.

Depending on the region and market, there are endless variations on language that can help to solve the split-incentive issue in leasing, where the owner pays for improvements but the energy savings accrue to the tenant.

Here are five clauses the Institute for Market Transformation study suggested can create value by increasing the energy efficiency of the space while benefiting both tenant and owner.

Pass-through cost recovery. Traditionally, many building owners amortized capital expenditures. However, energy-efficiency upgrades will often be paid back long before the amortization payment schedule is finished.

IMT outlines lease language for a savings pass-through, where a landlord can recoup operational savings from energy-efficiency improvements until the capital expense is paid back, and then any further savings go to the tenant. For more than 20 years, Brandywine Realty Trust, one of the largest integrated real estate companies in the U.S., has used this strategy to drive efficiency in its buildings.

Limit lighting and plug loads. Adding in language that requires tenants to adhere to existing green standards, such as LEED, can be too onerous for some tenants, but owners can require tenants to exceed building standards for specific energy hogs.

Lighting can be a substantial part of tenant load, which makes it a reasonable place to start. For example, landlords can leverage the lighting standards from LEED without requiring LEED certification, which calls for lighting to outperform the ASHRAE 90.1 standard by 3 percent.

Plug loads are the fastest-growing source of energy use in buildings and can account for up to 50 percent of total electricity use. IMT estimates that halving a traditional tenant plug load limit, from 4 to 2 watts per square feet, can save considerable energy without affecting tenant experience. Requiring smart plug strips is another way to reduce plug load without limiting a tenant’s use of the space.

Energy Star appliances. One of the least contentious strategies for saving energy is for tenants to only install EPA-rated Energy Star appliances, which already have a market penetration above 50 percent. This one move can save appliance energy use by an average of 20 percent.

Install submeters. Submeters used to be more expensive, but costs have come down, and the U.S. Department of Energy has a goal to bring them down further, to about $100. By providing basic energy-use information, submeters help tenants become more aware of their energy use and therefore more inclined to save. The data can also be used to identify other potential areas for savings.

Retrocommissioning. Building owners can lower their costs, and share savings with tenants, when there are firm guidelines in a lease about the commissioning process. Commissioning not only saves energy — on average, $0.41 per square foot, according to Berkeley Lab — but it also helps assure tenants that the building is being actively managed.

TAGS: energy efficiency, green leasing, high performance leasing

The Rules of Conduct of a Strata Corporation

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The Rules of Conduct of a Strata Corporation

Before buying a unit for yourself in a strata, you need to stay aware of the fact that everything regarding the strata’s management and policies is looked after by a strata corporation which is established specifically to do all of this work. To help you out in understanding the role of a strata corporation in a strata, we have listed the most common duties of a Strata Corporation below which will more than definitely assist you in knowing your strata corporation much better.

Controls and Looks After the Common Property

The main role of the strata corporation is to look after the common property.  For this, the corporation acts as a governing body that must take care of all issues and problems and deal with any developing nuisances effectively. Simply put, if you happen to find out that there’s something wrong within the strata’s premises, you can report it to the corporation and have them take care of the matter.

Insures the Buildings

It is highly recommended that you opt for a strata which features insured buildings. Speaking of which, insuring the strata’s buildings is also one of the major jobs of the strata corporation. This includes taking care of the replacement cost as well as making regular payments of premiums.

Keeps the Common Property Held

Some sort of neutral body needs to keep the common property held and do this in trust for the owners of all the units. As such, the strata corporation also takes over this role and makes sure it keeps hold of the common property in trust for the unit owners.

Owns a Bank Account Dedicated to the Strata

A strata needs to run properly and it must have a bank account which is maintained and kept safe for the funds of maintenance. Of course, these funds are all contributed by the unit owners for the welfare of their community. The strata corporation plays a leading role in this regard, as well as it collects the maintenance fund contributions given by the owners of all the units and keeps them all safe in a bank account. This bank account is entirely dedicated to the strata’s  maintenance, and the funds inside it are only used in case any maintenance problem arises. The corporation cannot and must not utilize these funds for their own usage. Furthermore, the strata corporation cannot undertake business for profit by using the maintenance fund contributions provided by the unit owners.

The Strata Corporation cannot, in any way, be a profit based business as it is solely present to deal with any developing problems and underlying issues in the strata scheme among a few other tasks. Studying the above mentioned rules of conduct of a strata corporation and understanding them will help you realize the extent to which you can question your strata’s association in case you notice them doing something out of the ordinary.

How to Help Trees Survive the Drought

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California is going on four dry years with no end to the drought in sight. With record low rain and snowpack levels to-date, the state’s soil is severely dry and affecting the natural landscape, including our trees in the state’s natural landscape as well as those in larger urban forests.

Trees growing in nature depend exclusively on rain and snow for survival and because of the prolonged drought, the moisture stored in the soil is now depleted and trees are stressed and in danger of dying or becoming susceptible to pests and diseases. Trees growing in urban forests and lawns may also be stressed and at risk due to unintentional mismanagement of watering; lawn sprinklers will keep a tree alive but it’s not the best way to grow healthy tree roots.

Our trees are valuable resources that provide clean air and shade, homes for wildlife and food, healthy communities and increased property values. We must do what we can to help our trees remain healthy throughout the drought. California Department of Water Resources gathered ideas to help create a strategic plan to keep priority plants and trees healthy with the limited amount of water available:

  • The key to saving water while saving trees is to decide which plants are the most important and dedicate the limited water to them first. Trees are decades-long investments and should get first priority. Next important are shrubs and perennials. Last on the list include lawn and annual flowers.
  • Check the appearance of the tree(s) for potential drought stress damage. At first glance, drought stress and leaf drops may look similar but there are subtle differences: brown crispy edges on leaves or visible wilting are both signs of drought stress along with dieback branches whereas normal leaf drop show even color changes and the leaves are soft as they fall.
  • Determine soil moisture level using a small shovel or large screwdriver. If the tool cannot be pushed in, or the shovel pulls up dry and crumbly soils, the tree needs water. To get moisture to the tree’s roots, do not turn on the lawn sprinklers! Instead:
  • Deep water the tree by laying a soaker hose in a ring around the tree just inside the drip line (marks the edge of the tree canopy) and continue to spiral outward. Let the hose run until the water soaks into a depth of 8-12 inches. But beware of runoff, especially on clay or compacted soils. Depending on the soil type and hose flow rate, this process may take only a few minutes or a few hours.
  • Check soil to make sure you’re not watering too deep or too little. To prevent runoff you can install a simple battery-operated or windup timer to shut off the hose after a certain amount of time. If water runs off before soaking in, turn the water off for a few hours to allow additional time for the water to soak. If the tree is small, start the soaker hose closer to the trunk since its roots are still young and short in length.
  • Recheck soil once or twice a month and water trees when necessary, as long as it adheres to current watering compliance within your region. Dormant (bare) trees need moisture to keep the roots alive and soil should remain moist for broadleaf evergreen and needleleaf evergreen trees that grow year round.
  • As part of a strategic plan to keep priority plants and trees healthy, check with your local water supplier about the days of the week allowed to water landscapes. If you have questions about your trees call the local Cooperative Extension Master Gardeners or your local urban forest or tree foundation.

Although Californians must continue to save water and prevent wasteful water use, it’s also important to be strategic with the limited water available to help priority, native plants and trees survive the drought.

For more information, check out our helpful infographic on water-wise tree maintenance from the California Urban Forests Council.

What would an American “House of Clicks” look like?

by Lloyd Alter (@lloydalter)

In Sweden, the big property site Hemnet designed a house based on consumer preferences and it turned out small, efficient and modern. Wondering what an American version would look like, I contacted Dan Gregory, Editor in Chief ofHouseplans.com, which has been selling complete house plans since 2004, with over 100,000 homes built. They come in all styles and sizes, and people put down real money, about a thousand dollars, to buy a set of plans so I thought they would be a real indicator of what people are really interested in when they finally build a house. And it ain’t small, efficient or modern.

© Houseplans

The most popular plan is this craftsman style house, at 2091 square feet. It pushes almost all the buttons that Dan says people want in their houses; elaborate master suites with bedroom-sized walk-in closets, big porches for outdoor living, kids’ bedrooms on the other side of the house with a shared bathroom between, big open “kitchen hubs”- it is “the heart of the home and opens to a great room, usually across a food prep/buffet.”

In another post, Boyce Thompson notes looks at consumer preferences and finds that the wide open informal living area is by far the most popular, the majority of plans are one-story or have main floor master bedrooms, “a reflection of the aging American population.” They almost all have home offices.

It should be said that people who buy house plans and build their own houses are a very small proportion of the population, and tend to be building out in the country, because the developers control most urban and suburban lots. They tend to be older and richer. But is still a large group building houses from clicks, and this is what they are buying:

  • Between 2,000 and 3,000 square feet
  • Single floor living; ground floor master if two floors
  • Big elaborate master bathrooms with separate tub, shower and toilet in its own room, and big walk-in closets
  • “Jack and Jill” shared bathrooms for the kids
  • “great rooms” where living, dining and kitchen are all combined
  • big porches for outdoor living
  • home offices

© Houseplans

Many of the houseplans are architect-designed and here is where it gets interesting. They have almost all the same features, but are a lot simpler and even modern; this is the third most popular design and there is a lot to like about it, particularly the lack of jogs, the relatively simple form and yes, it even puts the bedrooms in corners with windows that can actually provide cross-ventilation. The dual front doors dumping you into the kitchen are weird, but architect Nicholas Lee has pushed all the buttons in a more thoughtful way. It doesn’t look too bad either.

© Houseplans

But whether craftsman, farmhouse or modern, when Americans build a house of clicks, it’s a bigger single story house on a big piece of land. And they can afford it, because they will probably build it with vinyl windows and siding to American building code standards because natural gas and electricity are a lot cheaper.

© Tham & Videgård Arkitekter

This 2168 square foot Nicholas Lee house probably costs not much more to build than the 1296 square foot Tham & Videgård Arkitekter Swedish house shown in our previous post, which has fancy euro windows, wood siding and Swedish grade insulation, which is probably close to Passivhaus standard.

Swedish house design is data driven (and small and modern)

Lloyd Alter (@lloydalter)

They call it “The House of Clicks”.

This lovely red box is ostensibly designed by Tham & Videgård Arkitekter, but it is programmed by two million Swedes who clicked on Hemnet. The big property site analyzed 200 million clicks on 86,000 properties and asked the architects go create “Sweden’s statistically most sought after home.”

This is data from visits and properties that were for sale on Hemnet between January and October 2014. In addition to this data, we conducted an image analysis of the most clicked properties over a six week period. Each week the images from the 50 most clicked properties were analysed to gather additional data about the interiors. For example: the colours of the walls, floor types or kitchen countertop materials.

It’s a remarkable idea, truly crowdsourcing the programmatic characteristics. And the results are pretty remarkable too, with three bedrooms and two baths in only 120m2 (which they call 1115 SF but I convert as 1296 SF). The house will sell for 2,774,021 Swedish Kroner, which converts directly to US$ 332,458 and adjusted for purchasing power parity is US$ 234,470, which is not bad at all for this kind of quality.

The architects explain how they turn this into a house:

© Tham & Videgård Arkitekter

The house is in short based on two parts: first a direct interpretation of Big Data statistics from all the Hemnet users, an average value that determined the measurable properties of the home, including size, price, number of rooms, bathrooms and floors. To this Tham & Videgård have added a reading of the Swedish house condensed into two iconic types: the red wooden cottage that represents history, local resources, crafts and national building traditions; and the white functionalist box, which stands for modernity, optimism, industrial development, the welfare state and international ideals. The aim was then to create an architecture that combines the statistics with the features of the two iconic types: the rationality of the functionalistic box combined with the quality of craftmanship and material presence of the Falu red cottage.

Wow. The welfare state and international ideals. I somehow don’t think those would show up in a North American design.

© Tham & Videgård Arkitekter

Swedes evidently want big, bright open kitchens (57% of properties clicked on had open plan kitchens) that are in fact the home’s most important social spaces, which the architects have turned into a big double height space. Oh, and Swedes like stone countertops with white cabinet doors. ” The kitchen is now one of the home’s most important social spaces, here emphasized with a double floor to ceiling height and the inclusion of space for both dining and stairs.”

© Tham & Videgård Arkitekter

Swedes also apparently like grey monochrome furniture and natural materials in their living room, and a fireplace is a must.

© Tham & Videgård Arkitekter

Bathrooms are fully tiled; the average of all the hits was 1.6 bathrooms per house, so there are two, one with bath and one with shower only. I cannot imagine a North American house with less than two full bathrooms, one ensuite to the master bedroom.

© Tham & Videgård Arkitekter

Wood floors everywhere! Not a drop of carpet. Bright and airy is the fashion. It looks out to the lovely enclosed deck.

© Tham & Videgård Arkitekter

The deck is great for privacy, particularly if the houses are sited close together in a denser environment. It also can be enclosed if more space is needed later.

© Tham & Videgård Arkitekter

There are many things to love in this house; the light, the private outdoor spaces, the bike locker at the entrance. It is small, efficient, modern and bright. It’s the antithesis of what gets built in North America. Here are the data:

© HemNet

and here is the plan.

© Tham & Videgård Arkitekter

More on the house at Hemnet’s house site, which they kindly produce in English. I would love to know what an American version would look like; probably this:

© Thomas Kinkade

Corporate water risk management strategies

For the first time, the World Economic Forum’s annual Global Risks report has ranked the water supply crises as the number 1 global risk to businesses over the next ten years. Meaning the number 1 risk to businesses is their inability to access, sustainably, good quality water of sufficient quantity necessary for the creation of economic goods and services.

Corporate water risk management is essential

How are companies exposed to water risks?

Companies need to understand the concept of physical and ecological footprints: The physical footprint is the percentage of the Earth’s surface their facilities are located on – the company’s direct operations, while a company’s ecological footprint is the geographical area in which their suppliers (of goods or services) are located in – their supply chain. Therefore, companies are exposed to water insecurity through both their direct and supply chain operations.

Mega-trends and corporate water risks

To mitigate the corporate water risks, companies need to understand the global mega-trends that impact water security of all users including companies directly and indirectly. These mega-trends include:

Rapid urbanisation: Currently 50% of the world’s population is urbanised. By 2050 this will rise to 75% increasing demand for water resources. In addition, water quality is threatened by land-use changes that degrade ecosystems, point source pollution from industrial and domestic waste, and non-point source pollution from organic and inorganic chemicals.

Rapid economic growth: Rapid economic growth in emerging markets will see a significant increase in the percentage of water resources used by industry: In low-to-middle income countries, industry typically accounts for around 10% of total water withdrawals; however, this rises to nearly 60% for high-income countries.

Increased energy demand: World energy consumption will grow by 56% between 2010 and 2040 with most of this growth in non-OECD countries. This trend will result in increased demand for water in the production of electricity.

Increased food demand: Currently, the world’s population is 7.2 billion. This will increase to 8.1 billion in 2025, 9.6 billion in 2050 and 10.9 billion in 2100. Currently, agricultural production accounts for 79% of water withdrawals, but this is expected to increase by 75-100% over the next half-century.

Climate change: Climate change will likely increase the frequency and magnitude of floods and droughts. Specifically, flooding will decrease the availability of good quality water from the contamination of surface and ground water supplies, while droughts decrease the quantity of water available while increasing demand for water for cooling and drinking.

Corporate water risks                                                                                                                                       

If companies do not address water security overall, they will be exposed to numerous risks, which include:

  • Financial – Losses from disruptions to the production cycle as well as increased costs of treating poor quality water.
  • Litigation – Consequences of lawsuits or other legal actions in relation to the company’s impacts on water quantity and quality of other users.
  • Physical – Include both current and predicted change in water quantity and quality that may impact the company’s direct operations, for instance lack of water supply can slow down or stop production.
  • Regulatory – The impacts of current and/or anticipated water-related regulations on a specific company.
  • Reputational – Current or potential conflicts with the public over water issues that can damage the company’s brand image locally, nationally or internationally, or result in the loss of the community’s license to operate within a certain location.
  • Strategic – Failure to incorporate water availability data into strategic planning.
  • Technological – Lack of adequate technology in ensuring the efficient use of water resources, which can hinder production during times of limited water supply.

Corporate water risk management strategies                                                                                      

To achieve water security in both their direct and indirect operations and mitigate the numerous risks of water insecurity, companies can implement a 5-step corporate risk management strategy.

1) Companies can establish a water policy and set quantifiable goals and targets on water-use efficiency and conservation to minimise water-related risks to their direct operations,

2) Companies can assess water conditions and risks to both their own operations and those of their suppliers,

3) Companies can implement best-available technology for reducing water consumption,

4) Companies can factor in water-related risks (droughts, floods, sea-level rise) into their business decisions and,

5) Companies can form strategic partnerships to address water-related problems on a regional scale.

The take-out                                                                                                                                                

Global mega-trends will exacerbate water insecurity exposing companies to numerous risks to both their direct and indirect operations. To achieve water security, companies can follow the prescribed 5-step process.

US moves forward with raising the bar for energy efficiency in affordable housing

 by Elizabeth Beardsley

The Department of Housing and Urban Development (HUD) and the Department of Agriculture (USDA) took an important step this week—one that will make a difference in the lives of thousands of families. HUD and USDA issued a final determination essentially adopting the next set of building energy codes for a suite of programs and recognizing LEED certification as an alternative compliance path, which will help streamline documentation for project teams. USGBC filed comments on the proposed rule last summer, and also joined a diverse set of organizations in supporting the proposal. We are pleased that the final rule follows through with the intent to use these codes in the affected programs.

For a refresher on the role of codes, check out three building code questions you should be asking.

Under federal law, HUD and USDA have a responsibility to adopt minimum energy standards for new construction of certain assisted housing, based on periodic revisions of the International Energy Conservation Code (IECC) for single family homes and the ASHRAE 90.1 for multifamily buildings. Specifically, once the Department of Energy (DOE) has studied and found that the revised codes would improve energy efficiency, then HUD and USDA must adopt the revised codes after first determining that they will not negatively affect the affordability and availability of certain HUD- and USDA-assisted housing.

In this action, the agencies determined that adoption of the 2009-IECC and ASHRAE 90.1-2007 will not negatively affect the affordability and availability of covered housing, so, these codes now become requirements for those programs, which include both rental and owned housing.

In addition, LEED project teams will be able to use certification as a recognized alternative path to show compliance with the agency requirements. This means streamlined documentation and less work for projects being LEED certified. The complete list of alternative compliance paths include ENERGY STAR Certified New Homes, ENERGY STAR Multifamily High Rise, LEED–NC, LEED–H, or LEED–H Midrise, and other green building programs, all of which require energy efficiency levels that meet or exceed the 2009-IECC and ASHRAE 90.1–2007. Likewise, HUD and USDA will accept certifications of compliance with state codes that exceed 2009-IECC and ASHRAE 90.1–2007.

The agencies will now take steps to implement the new baseline codes, such as HUD updating its Builder’s Certification Form and handbooks. In order to realize the benefits of the new baselines as soon as possible, HUD and USDA need to expedite these actions. And, the agencies should begin their affordability and availability determination for the next revisions, the 2012-IECC and ASHRAE 90.1–2013, which DOE has already found to save energy.

The impacts of HUD and USDA’s action are positive and significant. Their analysis show that houses will save about 10% in energy over the currently used code versions. Among the benefits of energy savings are potential health impacts with improved indoor environmental quality; reduced mortgage default risks; and many others. Importantly, the families who will rent or own these housing units will see a real and sustained benefit, as well. The reduced utility costs can be a significant boost to low income families, for whom utilities may represent 10 percent of income. For example, a recent study of green affordable rental housing in Virginia found that energy usage was approximately 30% less than new standard construction, saving families $54 per month on average—representing 1% to nearly 3% of gross income. That’s a big deal for any family struggling to put food on the table.

We applaud HUD and USDA for helping strengthen communities across the country, while directly supporting the President’s goal of cutting energy waste in half by 2030, and HUD’s priority goal for energy efficient and healthy homes. We’re excited to see progress towards energy efficient housing for all.

Is Your Insurer Ignoring Climate Change Risk?

With climate change comes significant risk of weather-related catastrophes, the likes of which could mimic Katrina and Sandy. Without more insurance companies acknowledging the exposure, we all stand to lose.

Victims of Hurricane Katrina helped by the National Guard.
Victims of Hurricane Katrina helped by the National Guard.
Credit: National Guard

Looking back over the last decade, it’s all too easy to recall environmental disasters that left thousands of families homeless.

Worse, after their losses families often found themselves unable to rebuild due to insurance loopholes and ill-prepared catastrophe models.

The most notable catastrophes include Hurricane Katrina and Hurricane Sandy, which caused upwards of $130 billion in direct damage combined – and more than double that in total economic losses.

According to Swiss Re, insurance covered less than a third of the $11.6 billion in global losses from weather-related disasters in 2013.

Looking ahead at climate related exposures, a report by CoreLogic found that more than 6.5 million homes along the U.S. Atlantic and Gulf Coasts are at risk of storm surge inundation, representing nearly $1.5 trillion in total potential reconstruction costs.

As climate change continues, leaving significant uncertainty and risk in how to best prepare properties against such “unforeseen” hazards from Mother Nature, insured parties need to start being more proactive and demanding improved options from insurance companies.

What Can Insureds Do?

Given the lengthy and widespread financial havoc that results from the existing perfunctory policies, we all have a stake in changing the norm.

Among the ways insureds can reduce exposure include: 1) understanding green risk management and 2) successful risk transfer to insurance companies.

However, just last fall, a report from Ceres, the nonprofit sustainability advocate, discovered “a profound lack of preparedness in addressing climate-related risks and opportunities.”

Based on 330 insurer disclosures last year in response to a climate risk survey, the study broke down the answers into a 4-point scale between “minimal” and “leading.” A mere 3% of companies received the top ranking:

Other key findings of the report found that insurers with more than $5 billion in direct premiums had stronger climate risk management practices than their smaller counterparts.

What’s more, only 1-in-10 insurers overall have issued public climate risk management statements articulating their understanding of climate science and it’s implications for their models.

The point is this: insurance companies across the board must not only acknowledge the real threats posited by climate change, but actually change their models and policies to better protect supply chains, buildings, crops and other assets that if left underinsured could eventually succumb to extreme weather scenarios and ultimately end up costing the government significantly more.

So what can be done?

First, ensure that your policies are as sound as possible against climate change risks. Check for gaps in insurance coverage and exposure to events likely to be associated with climate change. Educate yourself on the types of coverage you need for your respective assets and call your insurer to discuss the options.

Second, consider advocating for stronger insurance requirements through the federal government. The risks involved in inadequate insurance policies are momentous and if we fail to act and be prepared, the consequences will continue to be dire.

– See more at: http://www.poplarnetwork.com/news/your-insurer-ignoring-climate-change-risk?sthash.zAAd4YrZ.mjjo#sthash.zAAd4YrZ.T62KzaNH.dpuf

Turning Adversity into Opportunity: Ghettos and Slums as Hotbeds of Green Innovation

Written by Antwi A. Akom

Antwi Akom, PhD. Executive Director and Co-Founder of i-SEEED

This article was originally published in the March/April 2015 issue of USGBC+. Read the original version.

I recently gave a TEDx talk on Mastering TAO. Not TAOism in terms of Eastern philosophy—although, in some ways, yin and yang are a part of it—but in this case TAO stands for Turning Adversity into Opportunity. I call the people, places, and policies that have mastered the art of Turning Adversity into Opportunity “Hope Dealers.”

Hope Dealers ask questions like: What kinds of public and private investments in green infrastructure can help us innovate our way out of poverty? How are our ghettos, slums, and barrios hotbeds of green innovation? What is the role of so-called “slum dwellers” in the future of green cities and in building the green economy? And how can we change the negative narrative of “slum dwellers” so that they can be seen for who and what they are—everyday people and community members—not slums, but neighborhoods with families living, working, playing, praying, loving, living, eating, drinking, walking, biking, and taking their kids to and from school.

These are important questions because the fastest-growing cities are not skyscraper cities like Dubai, Singapore, Shanghai—places that try to make poverty invisible in order to attract investment—but rather informal settlements, ghettos and slums, where poor people typically face inadequate housing structures, enormous environmental health hazards, land use rights, safety threats, vulnerability, and social exclusion.

An estimated one billion people live in slums all over the world. These communities are often beyond city planning and regulation, and account for more than 30 percent of the developing world’s urban population. This means 1 in 7 people on the planet are experiencing spatial—and to a certain extent 20th-century remnants of racial apartheid.   The most formidable challenge of the 21st-century city, then—in the face of massive population growth, climate change, and rapid urbanization—is extending public–private partnerships and green infrastructure solutions—clean energy, water, sanitation, parks, protected pathways, greenways, busways, health services, LEED, and especially LEED for Neighborhood Development— to these informal settlements.

Mastering TAO and understanding how slums and ghettos can be transformed into hot,beds of green innovation are critical for the U.S. Green Building Council, EcoDistricts, Urban Land Institute, Energy Star, and others who want to grow and fulfill their promise of “democratizing development” (without displacement) and “scaling sustainability.” Because if these organizations want to remain green global leaders, they will have to make their tools, products, and resources more culturally and community responsive to the fastest-growing demographics and the fastest-growing cities that are becoming the world’s major commercial centers of the 21st century.  In other words, “Greening the Ghetto” as my friend and MacArthur Genius Award winner Majora Carter’s inspiring call to action suggested many years ago—is the next frontier.

Why Rate Reform Is a Better Solution to Distributed Solar Than Eliminating Net Metering

Why Rate Reform Is a Better Solution to Distributed Solar Than Eliminating Net Metering

Shayle Kann of GTM Research dissects MIT’s recent Future of Solar report.

Shayle Kann
May 11, 2015

Last week, a group of researchers at the MIT Energy Initiative released a sweeping 332-page study called The Future of Solar Energy. The report projects agrand future for solar as a major long-term driver of greenhouse gas reductions and is bullish on the prospects for centralized solar.

But on the matter of distributed solar, the report has a different view — calling today’s net energy metering policies a “subsidy” that would be better removed from the market.

This is a controversial issue in both the solar industry and among utilities, and some might be tempted to log this report in along with the many other reports on the costs and benefits of net energy metering for which the findings vary widely. Still, I think it is worth examining this latest research more closely, because it does have something to say about how distributed solar should be compensated and how electricity rates should be structured. But my conclusions are not the same as the report’s headlines might suggest.

Does rooftop solar cost other ratepayers?

Chapter 7 of the MIT study runs a complex Reference Network Model (RNM) to simulate the impacts of distributed solar penetration on grid costs under a variety of scenarios. It finds that, while an increase in distributed PV does reduce line losses (thereby saving network costs), this is more than offset by the added distribution costs associated with investments required to maintain power quality with increasing two-way power flows. In other words, distributed solar costs the grid more than it saves.

This is already a point of contention; other studies have found distributed PV (or net metering) to be a net benefit to the grid, largely by incorporating savings from avoided transmission and distribution infrastructure upgrades, reliability benefits, and/or environmental benefits (see page 9 of this Vermont report or this great RMI meta-study for a comparison of existing research methodologies).

But let’s assume that the MIT study fully accounts for all appropriate costs and benefits. Solar’s costs to the grid would still be very small.

Source: MIT Future of Solar Energy; Note: Scenario E1 refers to a European network design, whereas E2 is a U.S. network.

In the MIT study’s U.S. scenarios, the average incremental cost caused by distributed PV ranges from less than $5/kilowatt/year at below 5 percent penetration to a maximum of around $19/kilowatt/year at 30 percent penetration. These numbers vary (and high-irradiation locations generally see lower costs), but the bulk sit within a relatively small band.

Let’s put this in context. Outside of Hawaii, no major U.S. utility has yet hit 5 percent distributed PV penetration. And the vast majority are still well below 1 percent. So if we were to design a solar-specific fixed charge to cover this cost for most utilities today, it would likely be in the range of $2/kilowatt/year, or $0.17/kilowatt/month. A residential solar customer with a 6-kilowatt system might pay a total of $12/year to cover their incremental system costs.

And even as PV penetration grows, the solar-specific charge would be relatively small. At 25 percent penetration, a distant scenario by today’s standards, the solar surcharge might average $15/kilowatt/year, or $1.25/kilowatt/month, and the 6-kilowatt system owner would pay $90/year.

This is well below the solar surcharges often discussed today. APS in Arizona currently has a $0.70/kW/month charge in place for solar customers and isreportedly planning to propose an increase to $3.00/kilowatt/month. In Wisconsin, We Energies customers who install solar are charged $3.80/kilowatt/month despite solar penetration well under 1 percent.

In other words, today’s solar-specific fixed charges are far out of proportion with the actual network costs imposed by solar customers.

Do solar customers pay their fair share?

So far, we have only addressed the incremental costs that distributed solar may create for the grid. But what about the general costs of service that those same customers also incur? In rate cases and net energy metering discussions,many utilities have argued that solar customers don’t pay their fair share of these costs. By net metering at the full retail rate, the argument goes, solar customers avoid paying their share of fixed distribution network costs.

If all solar customers were to net-meter their bill down to zero, this would be undeniable — the customer would pay nothing to the utility while still benefiting from the grid’s infrastructure. In reality, this is rarely the case.

As Jon Wellinghoff and James Tong point out in this great piece explaining the distinction between a “cost-shift” and “paying one’s fair share,” a CPUC-commissioned study in California found that NEM customers on the whole “appear to be paying slightly more than their full cost of service.”

Thanks to California’s (admittedly unique) rate structures, many solar customers, who tend to be high energy users, were paying well beyond their fair share prior to installing solar, and only slightly more than their share afterwards.

And in reality, many residential customers do already have fixed charges on their bills to cover some portion of distribution costs. The GTM Research PV Rate Structure Economic Model incorporates a real tariff structure for a representative customer in each of 50 states and finds that residential customers pay a simple average of ~8 percent of their bill through fixed charges today, though the numbers range from zero to nearly 20 percent depending on the tariff.

Some solar customers probably are not covering their relative share of fixed distribution system costs. But to the extent that this is an issue, it is not specific to solar. When the solar-specific network costs are separated out, a solar customer looks just like any other customer. And many customers currently do not pay their “fair share” of distribution network costs — some energy-efficient homes, many rural homes, and second/vacation residences, to name a few.

Cross-subsidization of distribution costs is an unavoidable result of the way distribution charges are currently calculated, which is by dividing total network costs by total consumption, and spreading those costs equally across all customers on a dollars-per-kilowatt-hour or dollars-per-customer basis.

The MIT study argues strongly against this methodology in favor of a “distribution network use of system” or “DNUoS” charge (see another MIT working paper, WP-2014-006, for a good explanation), which essentially provides a means to charge specific customers based on their individual contribution to network charges, thereby avoiding (or at least exposing) cross-subsidization.

This problem could also largely be addressed without new fixed charges on customer bills, and instead with highly location-specific, customer-specific and time-variable rates — if you pay what you cost the system at any given moment, you’re not making anyone else pay more.

How should we proceed?

I think most people can agree that electricity pricing should get smarter. As long as we manage the need to maintain affordability and comprehensibility for customers, the entire market will be better off with more dynamic pricing. This would reduce overall cross-subsidization while creating incentives for customers to implement solutions that reduce their system cost, and therefore their bill. Energy storage, load control, and demand response will be among the beneficiaries of such a change.

But there is little reason to single out distributed solar in this endeavor. Apart from what appear to be minimal solar-specific network costs (especially at today’s penetration levels) that can be dealt with individually, solar customers impact the grid just like non-solar customers.

And increasingly, customers are doing more to actively manage their own consumption. The solution is a more intelligent, inclusive electricity distribution market — like the one being planned in New York — not a set of piecemeal charges that offer only short-term effects.