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GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing – Better Companies, Better Communities
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ShoreBank: Building a Market for Energy Efficient Homes
Joel Freehling
Energy policy is again in the headlines in recent months, due to the soaring price of oil and
continued debate in Washington about what should be done to lessen America's dependence on foreign
energy sources. With some speculating that the price of oil could top $100 per barrel, it's easy to
understand why many politicians are eager to craft legislation to address this nation's insatiable
appetite for energy. While wise federal legislation is critical, so too are innovative solutions
created at the local level which can help put this country on an energy diet.
Finding
these solutions is of particular interest to ShoreBank, the nation's first and leading community
development bank. As a triple bottom line company, ShoreBank seeks to balance profitability,
economic development, and environmental sustainability; we believe finding ways to help our
customers reduce energy usage is an ideal opportunity to further all three objectives.
Every year, ShoreBank invests hundreds of millions of dollars into the underserved markets
where we promote home ownership, create affordable rental housing, revitalize commercial centers,
support small businesses, and strengthen community-based organizations. In 2004, this investment
topped $350 million. Energy consumption has a surprisingly large influence on the success of our
redevelopment efforts. Usage, prices, and environmental impacts affect our borrowers' ability to
repay these loans, the economic vitality of neighborhoods in which we invest, and the financial and
physical well being of the residents.
There are several interconnections between energy
usage and success worthy of particular attention. For one, a number of the Chicago, Detroit and
Cleveland markets served by ShoreBank are heavily dependent upon natural gas for winter heating.
Natural gas is a relatively clean burning energy source, but has a number of economic properties
that significantly impact our work. Because natural gas supplies are so constrained, the price of
natural gas is very volatile. Prices soar during a heating season when temperatures plummet and
demand for gas spikes, as was the case last winter when prices nearly doubled in a severe cold
spell. These price swings can be devastating for low to moderate-income households, especially
those on a fixed income. These swings also hurt apartment building owners, for whom utility
expenses represent upwards of 12 percent of their total operating costs.
Another impact
of energy usage on our work is the economic drain that natural gas represents for these
neighborhoods. The Midwest lacks significant local reserves of natural gas, which means the gas is
increasingly imported from well outside the region. In Chicago, this problem is particularly acute
as more than 99.99 percent of natural gas comes from areas outside Illinois, according to the
American Council for an Energy-Efficient Economy. The result is that winter heating bills pull
critical resources out of the area, eliminating any possibility for these financial resources to
cycle in the local economy, let alone augment savings or investment of residents. We estimate that
homeowners in the Chicago markets served by ShoreBank spent more than $100 million last year to
heat their homes. Imagine what can happen if we reduce that outflow by 10 percent and enable
homeowners to use these resources to employ local contractors to improve their homes, boost savings
for education or retirement, or start small businesses that employ neighborhood residents.
Even small reductions in consumption can have big impacts on natural gas prices. One study
suggests that a two percent drop in use could lead to a 20 percent fall in price . The resulting
reduction would bring significant savings for these homeowners and mean millions of dollars for
local investment.
One of the main hurdles to reducing energy consumption and using more
of these dollars locally is the age of the housing structures in our neighborhoods and their level
of disinvestment and disrepair. Chicago's Department of Housing estimates that more than 438,000
housing units in Chicago are over 60 years old, representing more than one-third of the housing
units. Similar trends are true in Detroit and Cleveland. Many of these structures have not seen
significant renovation for some time. As a result, the neighborhoods have significant numbers of
leaky, poorly insulated homes, with outdated appliances and furnaces and inefficient windows. All
of the factors make the units costly to heat, uncomfortably drafty, and potentially unsafe due to
risks from carbon monoxide poisoning. Many homeowners and renters have trouble paying their utility
bills. Governmental assistance programs such as the Low Income Home Energy Assistance Program
(LIHEAP) are estimated to address only 16 percent of the demand, according to the Department of
Energy.
Rehabilitation of these old homes also addresses other social issues, such as the
need for affordable housing for civil servants such as teachers and police officers who are being
priced out of many markets. A rehabilitated city neighborhood also provides a good opportunity to
reduce the sprawl that clogs highways and expanded commute times. ShoreBank's focus on the rehab
and increased energy efficiency of these properties is an ideal way for the Bank to tackle these
social and environmental concerns.
To address the lack of affordable homes and to help
redirect funds spent on utilities back into the local economy, ShoreBank launched its Homeowners'
Energy Conservation Program. This novel public-private partnership brings together resources and
incentives to encourage homeowners to incorporate energy efficiency into renovation plans. Each
participant receives a detailed cost-benefit analysis outlining why it is in the homeowner's best
interest to make energy efficiency a priority. ShoreBank then provides loans for the projects,
often lending 100 percent of the rehab costs. Those homeowners selecting to include more than
$2,000 in identified energy saving features receive a free ENERGY STAR® qualified refrigerator.
This program seeks to alter the economics of energy usage in low and moderate-income
neighborhoods by reorienting some utility funds towards home improvement. These funds provide work
for local contractors, improve the housing stock of the neighborhood, and boost the value of homes
- items that improve the local economy and bolsters wealth of families and residents. The
continuing savings increases the financial options of the homeowners.
One critical element
of this unique program is the information provided to homeowners. Despite the internet's seemingly
unlimited information about energy efficiency, we've discovered that too few consumers understand
how cost-effective energy efficient products can be, or how small the incremental cost is between
standard products and more efficient ones.
ShoreBank partnered with Northern Illinois
Energy Project and Illinois Clean Energy Community Foundation to increase its understanding of
energy efficient products and construction practices and to bring this expertise directly to
customers. Through this partnership, ShoreBank offers homeowners a free energy consultation with a
certified energy expert, who conducts an individualized analysis of the rehab plan and provides
detailed recommendations about energy saving measures that could be included. The analysis outlines
the expected costs of adding these features to the construction budget and estimates the annual
savings that result from their inclusion. Interestingly, customers appear more drawn to the
evaluation than to the free appliance.
Beyond just helping these particular borrowers,
ShoreBank is eager to change the dynamics of the real estate market. Everyone agrees that
developers, contractors, and even bankers will offer products and services sought by consumers.
Unfortunately, many of these players remain skeptical that homeowners are willing to pay more up
front for energy efficient products. We disagree. We have seen over our 30 years that quality
buildings bring quality tenants and that our borrowers can more than recoup sound investments.
Given the favorable paybacks on energy efficient investments, we believe consumers will gravitate
towards these services. But, they must understand and have confidence in the benefits. Building
this knowledge and trust will take time and leadership in order to find early adopters, experiment
with the message and delivery system, and develop expertise about which energy-saving repairs and
products make the best economic sense.
Because our goals involve transforming the market
as much as producing more efficient homes, creating consumer demand has to be a priority. We are
trying to create "energy efficiency enthusiasts." Individuals who recognize the benefits will talk
to their relatives, friends, and neighbors, about their utility savings, the enhanced comfort of
their homes, and, we hope, the increased value over neighboring properties with higher operating
costs.
We also will have to create a delivery channel to provide energy efficient homes
and to find and train local contractors skilled in energy efficient repairs. To increase contractor
knowledge in this field, we have held a number of seminars for developers and trades people about
the opportunities presented by the energy efficiency market.
Since launching the program
late last year, ShoreBank has helped 17 customers make better decisions about their rehab plans. On
average, the incremental costs of including more energy efficient elements is less than $3,000,
while expected annual savings exceed $400. When these incremental costs are financed as part of a
30-year mortgage, the energy savings provide a monthly windfall to homeowners. For many, the
repairs provide more than $25 per month in net savings.
One of the more surprising
findings is the number of participants who elect to include the full set of recommended changes.
One success story is Andre Bennett. Andre is our first, and probably most enthusiastic,
participant. With financing and free energy efficiency advice from ShoreBank, Andre completed a gut
rehab of a beautiful brick home in Chicago's Beverly neighborhood. Andre included a number of
critical energy-related elements in his renovation: extra insulation to the walls and attic, ENERGY
STAR® qualified windows and furnace, properly sealing ductwork with mastic, and sealing attic
bypasses. The result is annual heating costs reduced by an estimated $500.
One of the most
interesting facets of the project is the pride Andre takes in the work and in his choice of energy
efficient products. Andre mentioned a conversation with a neighbor who had visited his home to
examine the rehab and marveled at the level of insulation being put in the walls. The neighbor
commented on his latest heating bill exceeding $500. Andre chuckled as he recounted the story and
looked pleasingly at the surrounding insulated walls.
We believe that such success stories
will raise the visibility of energy efficiency and push consumers to seek more efficient products.
Affordable and efficient housing will allow homeowners to keep more of their hard earned funds. The
result will be a cleaner environment, increased savings and investment, more vibrant communities,
and new loan opportunities for ShoreBank.
To fund this lending effort, ShoreBank
developed the "Green Neighbor" certificate of deposit, a fully FDIC-insured account, earning
market-rate interest, which supports the Homeowners' Energy Conservation Program. These deposits
provide the capital for loans to customers like Andre Bennett and for reducing energy consumption,
revitalizing neighborhoods, and boosting incomes of residents.
For more information visit
their web site at- http://www.sbk.com
Note:
Martin Kushler, Dan
York, and Patti Witte. Examining the Potential for Energy Efficiency to Help Address the Natural
Gas Crisis in the Midwest. American Council for an Energy-Efficient Economy
Article by
Joel Freehling, Manager, Triple Bottom Line Innovations, ShoreBank
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