Financing models for green remodels include financing by invoice, in which the customer reimburses the costs of modernization through their utility bill; and clean energy financing evaluated by commercial properties (C-PACE), in which the customer reimburses costs through their property tax bill. Solar energy offers four direct financial benefits to homeowners. Approximately half of the original investment is amortized through two tax benefits that can be monetized during the first year of operation: the federal investment tax credit (ITC) and an additional 100% depreciation. In addition, Xcel Energy offers production-based renewable energy credit (REC) payments for 20 years.
The last benefit, and the most obvious, is the reduction of operating expenses through savings on public services. Both increase net operating income (NOI), which increases the value of the property. There are numerous sources of green building funding at the national, state and local levels for homeowners, industry, government organizations, and non-profit organizations. Other banks have been attracted by their customers or by the desire to take advantage of the growing green lending market.
Some examples of measures that can be taken to increase the energy efficiency of a building and improve its green credentials are the use of renewable energy, the measurement, the installation of LED lighting, the optimization of building management systems (BMS), insulation to improve the thermodynamics of buildings, the improvements of heating and ventilation systems, the glazing and shading of windows and reflective surfaces, and the measurement of production in close collaboration between the tenant, the property manager, the owner and the investor. They offer expertise and products to borrowers looking to finance everything from sustainable business products and concepts to green building projects and alternative energy. And green building, which has become commonplace in large commercial projects, is spreading to smaller commercial projects that are more under the control of community banks. The price of on-site solar installations has fallen steadily in recent years, leading to greater adoption by commercial buildings and residences.
In other words, building owners and managers bear all the costs and risks of installing solar panels, but tenants get most of the profits because each housing unit pays for its own electricity consumption, so the landlord has no savings to pay for the investment. However, green design will soon be the norm rather than the exception, and homeowners who choose not to invest in green buildings could miss out on the opportunity to highlight their commercial properties. This research shows the financial and environmental argument in favor of green buildings and how they are differentiators in a competitive market. Until now, green loans have been slow to gain ground in the broader community banking sector, but that could change as more borrowers seek green loan products.
The studies mentioned above focus on building certification and energy efficiency; however, additional certifications may also be important for the green premium in the future. Green buildings are no longer a niche category, and the rising adoption rate demonstrates their many benefits. In Singapore, which has 90% of grade A offices certified as green, it offers a rental premium of 4 to 9%, while in Seoul, which has 37% of the stocks certified green, the rental premium ranges from 7 to 22%. Both Fannie Mae and Freddie Mac have introduced green loan programs for multifamily borrowers to encourage energy-efficient buildings.
Therefore, the opportunities to benefit from the green premium are greater in markets that have fewer certified buildings in general. The green premium also exists at the portfolio level, meaning that the overall ecological nature of a portfolio has additional benefits. .