C-PACE Financing Makes High-Efficiency HVAC Equipment Affordable

Despite the long-term savings, developers and owners often shy away from top-of-the-line, energy-efficient equipment due to the high upfront costs. But new legislation could make these green systems even more affordable than their less efficient alternatives.

C-PACE financing covers clean energy features, equipment and construction materials on new and existing buildings. Because the financing is repaid as a tax assessment on property taxes rather than as a shorter-term, higher-interest loan, it helps recipients finance equipment that will pay for itself several times over in operating cost savings before the financing is even paid back.

“HVAC systems account for a large portion of a building’s energy costs, so the benefit of a high-efficiency system is substantial,” said Jose Hernandez, commercial sales manager for Mitsubishi Electric Trane HVAC US in Texas. “Developers and building owners who weren’t previously considering this type of equipment due to first cost are now leveraging C-PACE, because while it helps afford this long-term savings, it also lowers the cost of a project’s capital upfront.”

HVAC accounts for between 44% and 53% of energy consumption in American commercial buildings. Energy-efficient equipment can reduce that footprint by 50% or more, according to a study by the Department of Energy. If a developer plans to sell the property, those savings instead become an increase in the property value. But the more immediate financial benefits make C-PACE even more appealing.

Because C-PACE is paid back as an assessment on property taxes, rather than as a traditional loan to a lender, payments are spread out over a much longer amortization term than a traditional loan — often 20 to 30 years — making a project more likely to be cash-flow positive. The term can’t be accelerated even if a payment is missed, so risk is lower. Because it isn’t a loan, the responsibility for repayment is passed on to new owners when property is sold. Plus, it can help developers tap into private capital that is more accessible and available at lower rates.

The Texas state legislature had in 2015 approved clean energy financing for energy/water efficiency and renewable energy on commercial and residential new construction and upgrades. Hernandez said that now, Texas developers are testing the waters. The Texas PACE Authority has developed a list of tried-and-true green heating and cooling technologies that are likely to be greenlighted for inclusion, which includes energy-efficient HVAC upgrades, automated HVAC controls, variable speed drives on motors, fans and pumps, and high-efficiency chillers, boilers and furnaces.

To get the most out of this financing opportunity, clients putting together C-PACE financing applications will often include key elements for energy-efficient HVAC systems, Hernandez said. Among the most popular inclusions are programmable thermostats.

“Especially in this climate, where the heat can be intense for months on end, it’s important for buildings to have automated controls that allow them to make spaces comfortable for tenants and occupants while still minimizing the energy expenditure at every opportunity,” Hernandez said.

These automated controls pay off: The U.S. Department of Energy reports that if buildings reduce the heat by seven to 10 degrees Fahrenheit for eight hours per day (or, for retail and office buildings, per night), energy costs could drop by 10% a year.

Ductless heating and cooling systems — also known as split systems or ductless mini splits — provide a similar opportunity, connecting multiple indoor air handling units to a single outdoor condensing unit, thus allowing rooms, or zones, to be controlled separately throughout a building. Hernandez said these systems are popular in new construction projects that want to give tenants every opportunity to lower their energy footprint, and they can be retrofitted for use in existing buildings.

Hernandez also noted that C-PACE is helping Texas developers and owners keep equipment up to date. A decade-old HVAC system can be running at as low as 60% efficiency, or even less, so regular maintenance or an upgrade not only ensures energy efficiency, it gives an owner the opportunity to evaluate the benefits of switching to cutting-edge HVAC technologies to decrease operating costs even further.

For example, the efficiency of an air conditioning unit is scored with a Seasonal Energy Efficiency Ratio. The higher the SEER number, the more energy efficient the AC unit. From 1992 to 2005, the average SEER number for an AC unit was 10 to 12. Today, the industry average is 16.7, and high-performance central AC units from Trane’s 2018 line sport SEER ratings as high as 22. Competitive SEER ratings can make a certain unit a shoe-in for C-PACE approval.

A joint venture formed between Mitsubishi Electric US Inc. and Ingersoll Rand in 2018 is another boost for local CRE stakeholders who want to use C-PACE for new HVAC systems, Hernandez said. The support available in the Dallas area for new ductless and virtual routing and forwarding equipment across the Mitsubishi Electric and Trane and Mitsubishi Electric brands is multiplied.

“We understand that even with new financing options that ease the financial strain of energy efficiency upgrades, committing to equipment of this scale can be intimidating,” Hernandez said. “With Mitsubishi Electric Trane HVAC US, our bandwidth for hands-on customer support has increased.”

This feature was produced in collaboration between Bisnow Branded Content and Mitsubishi Electric Trane HVAC US. Bisnow news staff was not involved in the production of this content.