How the FSCI Is Improving Urban Energy Efficiency by Encouraging Building Retrofits, Providing Alternative Business Models
The majority of the energy used by buildings is wasted, resulting in increased energy costs and air pollution. Among C40 cities, this translates to between 50 percent and 75 percent of citywide carbon emissions. Therefore, due to the sheer amount of energy consumed by buildings, urban decision-makers have an opportunity to make an outsized impact by targeting municipal building efficiency.
In 2015, the C40 Cities Climate Leadership Group and WRI Ross Center for Sustainable Cities convened the Financing Sustainable Cities Initiative (FSCI), made possible with support from Citi Foundation. One of the core components of the FSCI has been a series of workshops connecting urban decision-makers with energy efficiency experts to provide assistance on everything from potential business models to technical and policy concerns.
We spoke with James Alexander, Director of the City Finance Programme at C40, and WRI Ross Center experts Shannon Hilsey and Luca Lo Re, about their outlook on the municipal building efficiency sector while working through the FSCI and a recent workshop in Mexico City.
How are C40 and WRI Ross Center working with cities to make municipal buildings more energy efficient, and what is the connection to the FSCI?
James Alexander: Cities have a high degree of control over the buildings they own and changes to municipal properties can spur improvement by other stakeholders. C40’s Municipal Building Efficiency Network helps cities introduce energy efficiency improvements to government facilities through webinars, publications and workshops, which reduces their carbon footprints and saves taxpayer funds.
A key challenge for cities is the development of the most appropriate business models for these projects, and finding the necessary financing to implement them. The FSCI helps cities address these challenges by providing a financing workstream that works alongside C40’s Energy Initiative. Through this work, we create opportunities for cities to share best practices, offer technical support on business models and financing mechanisms, and support cities with project structuring.
Shannon Hilsey: In addition to working on the the FSCI program, WRI Ross Center is the coordinating partner of the Building Efficiency Accelerator (BEA), a Sustainable Energy for All public-private partnership with 30 partner jurisdictions and over 35 technical partners. The BEA works to support the goal of doubling the rate of energy-efficiency improvement worldwide by 2030. Within this context, FSCI and BEA partnerships leverage the building sector expertise of the BEA with the business model expertise of the FSCI to help cities from the idea stage of municipal retrofits through to implementation.
What funding and financing challenges do cities face in adopting energy efficiency measures for municipal buildings?
Alexander: Financing is one of the key issues that precludes cities from scaling their municipal energy efficiency programs, since most cities are constrained by their existing budgets and need to develop project models that can attract external capital. In particular, we are helping cities overcome the project development barrier, where many face substantial challenges turning great ideas into finance-ready projects. In the energy efficiency space, many cities and experts cite the inability to obtain quality data as a major barrier in attracting investors and accessing financing. Without proper data, investors are unable to adequately assess the risk profile of projects and are therefore unlikely to invest in them. Solving this issue is a critical step toward helping cities secure financing.
Luca Lo Re: In our experience, some well-intentioned local and national regulations, such as those that enforce procurement best practices or aim to reduce energy costs for consumers, also eliminate business options. A common example is a ban on multiyear municipal contracts. While often intended to ensure that local procurement is competitive and financially efficient, it can preclude the use of energy services contracts and long-term leases, which can be part of strong business models for building retrofits. Another example is energy subsidies that delay incentives for immediate action and prolong the continued inefficiency of municipal buildings. Our hope is that cities facing such barriers will explore new pathways that allow for alternative options – and we will help provide them.
What kinds of approaches can cities utilize to finance energy efficiency retrofit measures in their buildings?
Alexander: Cities in C40’s network have used a variety of tools to finance municipal building efficiency projects, including green bonds, revolving funds and other innovative fiscal instruments. At a recent workshop in Mexico City, representatives from eight Latin American countries analyzed these tools through interactive sessions and discussions to determine which of them might be suitable for their own contexts. Representatives from the Lawrence Berkeley National Laboratory also shared their technical expertise and recommendations for potential business models in energy efficiency.
Hilsey: In the FSCI research process, we studied 16 case studies of municipal retrofit programs and projects to build a map of the elements involved in successful business models. We found that cities deployed a wide range of mechanisms, including energy tariff levies, municipal bonds and concessional finance. Most importantly, we found that successful cities utilized some public budgets, such as existing facilities maintenance funds, as a part of their overall business model.
At the workshop in Mexico City, we heard about the different approaches cities are using, including our host, which is funding its first round of retrofits with a targeted climate fund and exploring other options to make changes to a larger set of municipal buildings.
What’s next for the cities that attended the Mexico City workshop?
Alexander: In C40’s experience, a collaborative approach is very effective in devising and sharing solutions to complex challenges. The workshop was designed to be as interactive as possible to facilitate dialogue between cities and identify common ground. At the end of the workshop, cities highlighted key next steps they would take to overcome financing hurdles. The participants also identified other cities from the workshop that they would like to continue engaging with. The C40 team will be conducting follow-up calls to facilitate these discussions as well as supporting the cities’ efforts to implement commitments made at the workshop.
Lo Re: We agree that collaboration is key. Some cities in attendance voiced their intention to build a stakeholder network to collaboratively design and carry out future projects. This is a great way to build public consensus and develop a stronger partnership proposal, with early participation from the private sector. As James noted, gathering existing data on energy use in buildings under consideration – or even carrying out a broader public building energy audit – is a great step forward and can inform the establishment of city-wide energy targets. We hope cities will consider these steps and more as they gear up for retrofit projects.
James Alexander is Director of the City Finance Programme at C40.
Luca Lo Re is an Energy, Climate and Finance Associate at WRI Ross Center for Sustainable Cities.
Shannon Hilsey is Project Coordinator for the Building Efficiency Initiative within WRI Ross Center for Sustainable Cities.