Jennifer V. Hughes in Building Operations on October 8, 2013
Freedman is talking about a shared-savings agreement (also called an energy-services agreement) that the cooperative employed to tackle a $3 million garage lighting retrofit that was completed in 2011. Although the concept has been used in New York City since the 1980s, it is now gaining traction with co-op boards and condo associations as another way to finance green projects.
Here's how it works: individual finance companies, energy consultants, or contractor/vendors finance a building's green project with the promise that they will be repaid annually through the subsequent energy savings. The lender receives a certain percentage of financing over the life of the term, which can range from three to ten years. In some cases, a finance company will pay the contractor to perform the work and then the co-op repays the finance company. In other cases, the contractor secures its own funding and then the condo repays the contractor.
Let's say your traditional budget was $100,000 annually for garage lighting. After the retrofit, the actual cost is $50,000 a year. Under most shared-savings deals, you pay annually an amount that is higher than this actual cost, but lower than you were paying before — say, $80,000 — to the financier. You still see a savings, but the bulk goes to repay. At contract's end, the co-op or condo feels the full impact of the savings.
At Co-op City, the lighting retrofit for the development's eight parking garages cost $3 million. The deal was helped along by a $1 million grant that came from federal stimulus funds but was administered by the New York State Energy Development Authority (NYSERDA). leaving Barrett Capital Corporation to fund the remaining $2 million. About 6,100 lighting fixtures were swapped out. Most were metal halide 100-watt lamps, which were replaced with 40-watt induction lights. The rest were fluorescent tubes that were replaced with LEDs, says John Tabacco, chief executive officer of Green Energy Management Services, which did the work.
Before the retrofit, the electric bill was $360,000 annually; now, it is about $120,000 a year, a 66 percent drop. The savings have been evaluated and confirmed by a third-party independent meter reading company, says Tabacco.
Inside the 10
Although the contract calls for a maximum of 10 years, the deal is finished after the amount borrowed and financing costs have been paid to Barrett Capital.
Barrett Capital managing director Barry Korn declined to detail the exact financing deal he secured from Co-op City, or those for any of his projects, but said his financing on shared savings can range from 6 to 10 percent (6 percent would bring them $120,000 in financing for the Co-op City project). Those interest rates are certainly higher than what co-ops and condos can often borrow in a loan secured by the apartment's property, which can be in the 4 or 5 percent range, he says. (That would have cost Co-op City between $80,000 and $100,000 in financing.)
In general, if energy savings are not as healthy as planned, the contract can specify a minimum amount that Barrett would be repaid. "[The co-op is] on track to be done sooner than 10 years because of the amount they are saving," says Korn.
Illustration by Danny Hellman
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