The United States is pursuing ambitious goals aimed at widespread decarbonization and the transition to cleaner energy sources. By 2030, the Biden administration intends to reduce economy-wide greenhouse gas pollution by 50% and ensure that half of all new vehicles are zero-emission models. The U.S. Department of Energy has also said solar will need to deploy at a rate three to four times faster than the current pace if it is going to expand from 3% of total generation to 40% by 2035.
Against this backdrop, several U.S. cities are independently working to take decarbonization a step further, by acting as frontrunners in this transition. One example is Ithaca, New York, a city of 30,000 people located around 180 miles northwest of Manhattan.
Home to Cornell University and Ithaca College, the city has dedicated itself to a Green New Deal, adopted in 2019. Through it, the city steps ahead of federal goals with plans to offset or eliminate all of its carbon emissions by 2030.
The focus for the city is retrofitting buildings with electric heating systems, installing energy-efficient devices, and adding rooftop solar and battery storage.
Private equity incentives
Ithaca’s director of sustainability, Luis Aguirre-Torres, recognizes that building owners are not sufficiently incentivized to transition from fossil-fuel energy on their own, and that state-funded incentive programs are often overly complex and slow-moving.
To address this, he is exploring a new strategy to spur action: the use of private equity. Although Ithaca has an annual budget of less than $80 million, Aguirre-Torres has helped the city raise $100 million by offering investors an opportunity to enter a large-scale program that he describes as low-risk, and with high cashflow potential.
Aguirre-Torres’ vision for the city’s Green New Deal is to create a program offering low- or no-interest loans to help faster adoption of sustainable technology. For example, homes will be better able to swap out gas appliances like furnaces and ovens for all-electric alternatives that include heat pumps – investments that would normally present a high upfront cost to homeowners.
For the program to have lasting success, Aguirre-Torres needed to find a way to keep the cost of capital low. The city is addressing this by minimizing risk and creating economies of scale. The program will be sized for 1,000 commercial and residential buildings within the first 1,000 days, keeping material costs low and providing contractors with consistent work.
Ithaca will also use a $10 million loan-loss reserve, backed by the State of New York. This reserve serves as a guarantee for lenders in the instance borrowers’ default on loans. And the city will buy insurance to shield from any potential “catastrophic losses” that boost defaults due to a pandemic or other unforeseen events.
This means funds will be offered to building owners as low- or no-interest loans, paid back by utility bill savings, and may come with additional cash incentives. Because the loans are backed by the city, low-income families that may typically be turned down for traditional financing due to poor credit history will have an opportunity to participate.
The program is unique and creative but may not apply to all U.S. cities, owing to the conditions for its success. For example, the program requires the utility to be municipally owned and allows for repaying loans via bill savings. It is also dependent on local gas and electricity rates and cases to exist where electrifying a home would cost more than reducing gas costs, for instance.
While upfront cash incentives have shown some level of success in the past, Ethan Elkind, director of climate at UC Berkeley’s Center of Law, Energy and the Environment, says bolder action may be needed. “We need to move forward with a mandate,” like the rule that requires solar on all new construction in California, “but let’s start with the incentives and marketing,” he says.
Net-zero building codes
Ithaca has decided that the mandate approach will be key to hitting its net-zero by 2030 goal. This past May, it adopted an energy code supplement that requires net-zero construction by 2026. The law, which took effect in August, requires a greenhouse gas emissions level 40% below New York State building code requirements. By 2023, it will be even more stringent at 80% below New York State levels, and will mandate that new construction be net-zero by 2030.
Buildings will be approved through a points system called the “Easy Path,” which is intended to guide builders through choices of electrification of space and water heating, use of renewable energy, and efficient building strategies. Buying power contracts from off-site community solar projects will be one of the main options available for both new and existing buildings.
Cornell University is leading by example in this field, having committed to powering its campus with 100% renewable energy by 2035. To date, it has installed 15 solar energy projects, including six solar farms, six rooftop arrays, and three solar heating projects, which meet more than 20% of its energy needs. One of its goals is to create living laboratories for testing solar PV solutions that will benefit the wider community.
Recent analysis by BloombergNEF suggests that new-construction builders should consider including solar in their on-site plans. While community-wide, opt-out community solar projects may offer customers a 10% saving on utility bills, it says on-site solar appears to have a stronger economic benefit.
For example, the analysts found that in California, the payback period for solar projects installed on new construction is halved when compared to retrofits due to cost reductions in marketing, sales, labor, and construction. New-build solar projects provide an internal return rate of 40% per year on their investment cost, rather than the 20% return rate offered by retrofitted systems, it says.
Overall, a combination of incentives, regulation, and mandates, as well as creative ideas, will be needed to drive change. Ithaca’s multi-pronged approach may serve as a case study for other cities across the U.S. and worldwide. The need for success is critical: As the International Energy Agency has stated, the world has around 20 years to achieve net zero if humankind hopes to avert the most destructive effects of climate change.
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