Existing multifamily structures, such as apartment complexes, represent a huge opportunity to limit energy consumption through efficiency retrofits: multifamily buildings, comprised of five or more housing units, make up 18 percent of the nation’s housing stock. Measures like improving the insulation on their walls and roofs, strengthening the sealing on their windows, and upgrading their heating and cooling equipment would significantly cut energy bills. And a growing body of research and personal accounts from residents living in retrofitted units suggest that multifamily energy efficiency retrofits lead to a range of benefits beyond monetary energy savings for all stakeholders. These findings are described in a recent report by Rachel Cluett and Jennifer Amann with the American Council for an Energy-Efficient Economy (ACEEE) entitled Multiple Benefits of Multifamily Energy Efficiency for Cost-Effectiveness Screening. Cluett and Amann emphasize that while cost-effectiveness testing does not often account for non-energy benefits, it does tend to account for the majority of a program's costs. For example, a cost-effectiveness test performed by a utility to assess an upgrade of multifamily wall insulation may consider all capital and installation costs, but consider only the benefits of energy bill reductions and reduced electricity transmission costs. As a result, the testing outcomes may be unrepresentative of stakeholder motivations and potential gains. The industry’s commonly used, largely quantitative testing criteria rarely accounts for less tangible, though extremely important, benefits like improved health and comfort. These unbalanced and non-inclusive cost-effectiveness screenings may limit the number of efficiency retrofits performed on multifamily units.
Benefits of Multifamily Energy Efficiency Programs
Cluett and Amann use the phrase “multiple benefits” to describe the positive benefits of multifamily energy efficiency upgrades—both energy bill savings and non-energy impacts—for tenants, building owners, electric utilities, and society. In addition to enjoying lower energy bills, tenants in an efficiency-retrofitted unit report enhanced comfort and health. For example, added insulation and sealing with proper ventilation can improve air quality and temperature. Lighting improvements, in which product efficiency and performance often go hand-in-hand, may also lead to increased productivity. Benefits to tenants can also translate into pluses for the building owner. Lower vacancy rates due to increased tenant satisfaction can lead to higher rental income for owners. For instance, a multifamily building in Buffalo, New York, suffered from a 15.7 percent vacancy rate prior to its retrofit, which leapt down to a mere two percent vacancy rate after improvements to the buildings’ heating efficiency that made units more livable in the winter. In turn, building owners must pay for fewer unit turnovers and reduced maintenance costs. Higher property values represent yet another benefit to property owners. These benefits can be measured by surveying tenants on the monetary value of benefits they receive, such as a tenant’s “willingness-to-pay” for fewer sick days off from work or enhanced indoor air quality, as well as surveying building owners to assess vacancy rates and rental revenues, for example.
On a larger scale, utilities and society (the American public) can also benefit from multifamily energy efficiency upgrades. A utility may enjoy decreased operating costs from debt collection since customers with lower utility bills are more capable of making regular payments. Operational costs may be reduced by fewer shutoffs, reconnects, and customer calls from tenants in a retrofitted building. Utilities further benefit from reduced grid loads and lower costs for generation, transmission, and distribution. These benefits, which also accrue to all rate-paying utility customers, are quantified using utility data to compute incidence and marginal valuation. Societal benefits include fewer greenhouse gas emissions and water pollution from utilities as a result of reduced residential energy usage. Multifamily retrofits can also spur local economic activity due to tenants spending a larger share of their income on goods and services rather than energy payments. Low-income tenants may also benefit from reduced hardships, such as greater income stability and family stability, which lead to reduced dependence on government aid. These complex societal benefits can be estimated with economic and climate modeling, though they are rarely implemented in cost-effectiveness testing.
Typical Cost-Effectiveness Testing for Efficiency Programs
Although the many benefits of multifamily energy efficiency are significant and usually quantifiable, common cost-effectiveness testing considers few benefits beyond monetary energy bill savings. In the case of utility-run energy efficiency retrofitting programs, administrators use cost-effectiveness tests to compare the costs of investing ratepayer funds against the estimated benefits. Agencies that administer funds for the federal Weatherization Assistance Program use testing similarly. Usually, in order for a utility or agency to take on a multifamily building retrofit, certain cost-effectiveness thresholds and cost-benefit ratios must be met. While the predominant cost-effectiveness test used to assess rate-payer funded programs, the Total Resource Cost (TRC) test, is theoretically designed to evaluate the multiple benefits and costs to the utility system, all utility customers, and the program participants, the focus often remains on energy savings alone.
According to a survey of ratepayer funded energy efficiency programs in 43 states and the District of Columbia conducted by ACEEE in 2012, less than one-third of the surveyed jurisdictions using the Total Resource Cost Test chose to include non-energy customer benefits. Conversely, over three-quarters of the jurisdictions chose to include all participant costs. Of the non-energy benefits that were considered, jurisdictions included fuel and water savings, reduced maintenance costs, and general percentage “adders” to reflect benefits that are deemed difficult to quantify. When benefits such as health and comfort are unrepresented or undervalued in testing, the cost-effectiveness evaluation may over-represent the costs, discouraging utilities from pursuing important energy retrofits.
Challenges and Recommendations for More Representative Cost-Effectiveness Testing
Assessing the cost-effectiveness of energy efficiency retrofitting programs for multifamily housing presents important differences from single-family housing. For example, a multifamily cost-effectiveness test must consider the relative energy payment responsibilities of the building owner and tenants, as well as unit occupancy by renters versus owners, since circumstances change from building to building. Nevertheless, tackling the challenging task of sorting out stakeholder responsibilities is worthwhile since, according to Cluett and Amann, “multiple benefits that are valuable to building owners could more than double the savings from reductions in energy use.”
Overall, Cluett and Amann recommend that multiple benefits should be incorporated into cost-effectiveness tests using monetized valuations of the benefits in units of dollars per participant per year. The Resource Value Framework developed by the National Efficiency Screening Project provides guidelines for assessing cost-effectiveness through a “public interest” lens that recommends quantifying benefits wherever possible, such as “reduced public health care costs” and a monetized value for “participants’ health impacts.” The authors also emphasize that collecting program data—both quantitative and qualitative, such as “tenant satisfaction”—is a key step to improve modeling and monetizing assumptions. Data that accounts for a broader range of benefits across varying multifamily housing situations could then be used to improve the cost-effectiveness testing. Finally, it is important for utilities to ensure equal access to energy efficiency programs for all utility-paying multifamily tenants, in the same way that homeowners access programs.
Author: Sunny Sowards
- “Multiple Benefits of Multifamily Energy Efficiency for Cost-Effectiveness Screening,” American Council for an Energy-Efficient Economy
- “A National Survey of State Policies and Practices for the Evaluation of Ratepayer-Funded Energy Efficiency Programs,” American Council for an Energy-Efficient Economy
- “Energy-Efficient Multifamily Housing,” Alliance to Save Energy
- “Understanding Cost-Effectiveness of Energy Efficiency Programs: Best Practices, Technical Methods, and Emerging Issues for Policy-Makers,” Energy and Environmental Economics, Inc. and Regulatory Assistance Project
- “The Resource Value Framework: Reforming Energy Efficiency Cost-Effectiveness Screening,” National Home Performance Council