Monday, February 16, 2015

Open letter to Governor Brown, State of California



I wrote the following letter to California's Governor following his State of the State message outlining many things, including energy improvement and rooftop solar programs.  While I was pleased to hear him set these goals, I am concerned that there are a few major roadblocks that could prevent achieving these goals.  Having no place else to turn, I decided to write to the Governor in the hopes that I might be a slight influence toward making the necessary changes.  You might find some of these words helpful in understanding what is preventing obvious advances from being made.
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Honorable Governor Brown,

As an energy engineer, general contractor and owner of a small company in the home energy efficiency improvement business I want to applaud and thank you for several of your comments during your “State of the State” message. Your targets of doubling the efficiency of existing buildings and of expanding the installation of rooftop solar and microgrids appear to be the quickest, and cheapest, avenue for dramatically reducing our global carbon footprint.  Bringing existing homes to “net zero” through a combination of efficiency improvements and rooftop solar can potentially save enough energy to allow the State to meet its energy needs without using fossil fuels or the expansion of environmentally destructive large scale solar or wind “farms.”  Once homes and most businesses achieve net zero energy use, California will have sufficient energy resources from existing or readily achievable “renewable” energy sources such as bio-fuels made from waste products and other carbon free sources such as hydroelectric and geothermal to eliminate our need for energy sources that create Green House Gases. 

There are a couple of major roadblocks to achieving your goals that need to be rectified to clear the paths to the desired solutions.  As an engineer/contractor doing business in both “rooftop” solar and building energy efficiency improvements I find the following issues to be significant impediments to reaching the goals that you outlined in your message.

1) Rooftop Solar

There are four significant problems that keep getting in the way of higher solar use. These are:

Utility company posturing – The large utilities, such as PG&E, keep making it sound like net metered, distributed, solar is unfair to the poor people who can’t afford it.  Many studies have shown conclusively that this is not true.  Their negative ads and posturing inhibits many people from buying in because they don’t want to be thought of as unfairly taking advantage of others.

            Solutions:
- Promote the fact that roof top solar decreases the price of electricity for all utility            customers by decreasing the cost of overhead, facilities and production required to produce power from fossil fuel sources.  Roof top solar is not just good for the fat cats, it helps everyone by reducing electricity costs.

- Promote the fact that net metering customers are helping the environment, helping to reduce the carbon footprint, and are reducing the overall electrical costs for all customers.  
Cost-benefit uncertainty – The utility companies keep lobbying to add a surcharge or otherwise increase costs for net metered customers.   This creates an uncertainty concerning the future benefits from solar installations.  Many people are unwilling to invest in the face of this uncertainty.
           
            Solutions:
- Pass laws that prevent the utilities from adding a surcharge to net metering customers.

- Remove the limitation whereby net metering customers are prevented from installing solar systems providing more than 110% of their previous year’s electrical use. Many customers are interested in adding additional solar for future use such as purchasing electric cars or by changing from gas appliances to electric ones, but are prevented from doing so because of this restriction.

Availability of money to finance solar installations - Homeowners and owners of small businesses are finding it difficult to obtain affordable funding that does not impact their credit rating and line of credit. 

            Solution:
- Create a government financed revolving fund to provide low interest, or no-interest loans collateralized by the solar system itself.  The loans should be of sufficient duration to reduce the annual payments to 20% or less than the current cost of electrical power.

Fear of not being able to recoup the solar investment when selling a building. – Many potential customers are afraid that they will not be able to recoup the cost of their solar investment when they sell their home or property because they feel that the home appraisal will not clearly separate the selling price of the home from the cost of the solar investment.

            Solutions:
- Provide a means to identify the loan on the solar system as a separate loan that is not part of the value of the property.  This will allow property assessments to be separated from the solar investment and not become mixed into the overall value of the property. 

The original solar owner will have benefited from reduced energy costs during their ownership. The remaining portion of the solar loan should pass on to the new buyer with minimal fees, without impacting the appraised value of the building.  In situations where the original homeowner self-funded the solar system, there should be an easy affordable way for the new owner to finance the value of the solar system.

The current practice of companies providing solar through extremely expensive leases (with interest rates often well over 25%), or high priced loans underwritten by counties and municipalities is supporting financial investment companies rather than the customer or the common good.  This approach of depending upon private funding to cover the cost of investments does not adequately or fairly address the energy problems in the State.  We need affordable sources of low, or zero, emission energy - not well financed and funded investment corporations.

Instead of subsidizing high cost installations that carry extremely high interest rates, the State should be lending low interest money for the installation of vast amounts of distributed, net-metered, electrical generation (“roof-top solar”).  While it is true that the loan companies are saving customers some money, they are overpricing that service and taking large amounts of money out of the economy in the form of government sponsored tax rebates, expensive solar installations, and high interest rate loans in the form of lease agreements.  These profits should go to the State and the building owner, not to large investment corporations.

2) Increased efficiency of buildings

Increased efficiency of buildings, especially residential buildings, is easily achieved because of the huge inefficiencies that are built into these structures, even when complying with the “strict” requirements of the Title 24 energy code. 

The solution to improving the energy efficiency of small buildings such as residential properties and small businesses is pretty straightforward.  There are three major problems with the vast majority of homes and small businesses.  These problems include:

Poor insulation – There is usually very little, poorly installed, insulation in the ceiling spaces.

Solution: Require adequate insulation for new construction and appropriate remodel projects, including a requirement to inspect to ensure proper insulation installation.  Provide incentives in the form of no-interest loans and cash rebates for improving insulation.

Excessive Air Infiltration – There is a significant energy loss from buildings because of the lack of adequate air sealing between the ceiling space and the occupied zones. 

Solution: Provide incentives in the form of no-interest loans for improving buildings that have been tested to have too much air infiltration (are too leaky).  Rebates or other incentives for these types of projects should be prorated value upon the difference between pre-retrofit leakage rates versus after-retrofit leakage measurements (“test-in, test-out”).

Improperly sized HVAC systems – In most residential and small business installations the heating and air conditioning systems are not matched to the needs of the building.  They are usually oversized and operate at less than 50% (often much less) of their advertised efficiency because of the mis-match between the loads and the size of the unit.  

Solutions:  Require new HVAC systems to be designed and installed to match the needs of the building.  Provide incentives in the form of no-interest loans to retrofit poorly designed and installed HVAC systems.

Ensure that the HVAC system is properly design and installed requires that the following tasks be completed:

- The building is modeled to determine the thermal loads for each conditioned room or space and for the building as a whole. 

- The HVAC system components are selected to provide heating or cooling in each room or space within a small fraction of the design values (for example within +-10% of the design).  Any recognized engineering approach to doing the design calculations should be allowable, but submitted for review by the building department.  The total design approach must ensure that loads for the building are approximately equal to the total energy loads as determined by using the appropriate version of CBECC (California Building Energy Code Compliance) software. 

There are many tools for doing load calculations.  The design engineer needs to be free to use whichever approach they believe meets that needs of the building.  However, to ensure that the overall HVAC sizing calculations comply with the appropriate Title 24 energy requirements, they need to be compared with the accepted standard practice in California. If the sum of the individual room loads equals the CBECC standard for the total building, the method used to calculate the individual loads is approximately correct.

- The measured energy provided to each conditioned space as determined by supply air temperatures and air volume measurements must match the design loads to within a small variation.

- The size of heating or cooling equipment should not be more than 0.5 tons (12,000 BTU) larger than the calculated loads. (The reason for the 0.5 ton bracket is to allow equipment manufacturers to only have to provide a reasonable number of size options.)

- Bypass ducts returning supply air directly back to the return (bypassing the building’s conditioned spaces) should not be allowed.

The current version of Title 24 requires that a flawed SEER level criterion be used: Title 24 requires minimum SEER and HSPF ratings for HVAC systems.  However, the test protocol for determining these values does not match the needs of California’s relatively hot, dry climate.  The SEER ratings envision hot, humid climates that require dehumidification to achieve comfort within the buildings.  Dehumidifying air in California wastes vast amounts of energy as “latent heat,” and results in unhealthy dry air in the building.  For a properly designed system in California, the air flows, and supply air temperatures are very different from what is measured by the SEER ratings. 

Because manufactures are required to pass the SEER testing protocol, they only design systems to meet the energy requirements meeting the SEER testing protocol for humid climates.  Therefore, almost all residential HVAC systems sold in the United States are designed to not work properly in California – creating an efficiency penalty of 50% or more while making it extremely difficult to purchase equipment that meets the load profiles of small buildings in the California climate.

Solutions: There are three possible solutions for this problem. 
      (1) Convince HVAC manufacturers to produce certified systems that match the design       requirements for California’s climate,
      (2) provide for the prediction of system SEER and HSPF from systems designed        using “mix-and-match” components (heating unit, heat pump, fans, heat transfer coils         and air handler), or
      (3) create protocols for testing installed systems that the flexibility to mix-and-match   components.

Availability of funds to finance HVAC retrofits or improvements: Replacing or improving a working HVAC system in existing buildings is an expensive endeavor.  In most cases, building owners are unwilling to make that kind of investment until the existing system fails and needs to be replaced.  Based on an average service life of over 15 years for this type of equipment, updating and replacing existing equipment will take a couple of decades.  In order to achieve the goals of doubling the energy efficiency of existing buildings in the near future it is necessary to implement the necessary changes at a cost that can be covered by the value of the avoided energy. 

Solutions: Provide low or no interest loans to cover the cost of improving or retrofitting HVAC systems at a cost that is significantly less than the cost of energy without the retrofit.  The energy savings potentials and associated cost savings potentials should be predicted by performing before-and-after comparisons of total building energy use using the CBECC tools. 


3) Poorly structured energy incentives:

The current approach to providing investment incentives on “big ticket” energy improvements through tax reductions is highly regressive and does not work for fixed income home owners.  For example, a high income homeowner can now be receive tax incentives of up to 60% of the cost of a roof top solar installation by financing the cost of the improvement through a PACE program.  They get a 30% rebate out of their income taxes, and since the PACE financing gets treated as “property tax” they can deduct those payments from their taxable income, achieving an additional 30-38% savings for a total incentive of well over 60% financed by tax dollars and only 40% financed by them, with no upfront out-of-pocket investment.  On the other hand, a fixed income home owner (such as a baby boomer that has paid off their home and is living on social security and their investments) does not have enough income to generate income taxes sufficient to benefit from the government tax incentives.

Therefore, the current practices of providing government incentives in the form of tax savings is only beneficial to those high income people who could afford the improvements without the incentives.  The people who really need the incentives to make energy efficiency improvements affordable cannot get the government incentives and therefore can’t implement the energy savings improvements that are required to meet your goals.

The use of tax savings as the means of providing government funded incentives eliminates a vast number of homeowners that would otherwise be extremely willing to make the investments to reduce their energy costs.  Included in this group of people are the coming flood of “baby boomers” that are beginning to reach retirement age.  The vast numbers of these people have small or non-existent company or union sponsored retirement plans.  They have planned for the retirement years by reducing expenses by paying off their homes, setting aside small personal investments such as IRA or 401K plans, and hoping for continued Social Security payments.  They have little, or no, taxable income – therefore they cannot make use of the income tax based incentives.  However, they are very interested in reducing their costs of energy and are looking for inflation protection that can be achieved by installing solar systems to eliminate their electricity bills.   

The best way to achieve a fair, and useful, government sponsored incentive program is to provide direct re-imbursement for energy efficiency investments rather than tax breaks for upper income people.  In order to eliminate the need for large up-front investments, the government can provide low or no interest loans to cover the cost of the investment.  The use of direct cash re-imbursements instead of tax breaks costs the tax payers the same (not receiving taxes costs taxpayers the same as receiving taxes and giving them back as incentives), but has a dramatically different impact on the ability of low or fixed income homeowners to be able to afford the investments.  The government should provide funds for the loans rather than relying upon private investors in order to reduce costs to the homeowner.  For example, the current PACE programs charge 6-10% in initial fees, and then charge interest rates on the order of 8%.  This creates very expensive loans that are only affordable because the payments can be deducted from income taxes as property tax payments.  There should be very low fees (1% or less) and very low interest (comparable with savings account interest returns) loans to fund energy efficiency improvements.

Taxes are once again subsidizing corporations to make very expensive loans to those people who have high enough incomes to benefit from the tax incentives.  The government should make the loans at zero or very small cost if the goal of increased efficiency in all homes is to be achieved.  Energy improvement investments for homeowners is not the place to be subsidizing loan companies that charge extremely high interest for extremely low risk loans.   

SUMMARY:

The goals of doubling the energy efficiency of existing residential and small business buildings can be achieved with existing technology at an annual cost that is much less than the cost of not making the changes.  However, there is a problem with funding the initial investment.  Very low interest loans are the most likely way to provide the necessary funding for the up-front investments required for equipment and labor.  Ideally, the money will be in the form of loans and cash rebates rather than tax reductions. Revolving funds created for this purpose are paid back and become available for use for improving other buildings.  Providing tax reduction incentives works for people who have enough income to enjoy the tax breaks and have enough cash to fund the work, but are not useful for low income people.  However, there are many building owners that have neither – they need help in getting the necessary upfront funding that will immediately lower their energy costs. 

Once a building has been upgraded to minimize energy use, then it is often quite affordable to add sufficient solar generation to bring the building to “net zero” use making as much energy over the period of a year as it uses.  Net-zero energy use should be the minimum goal for all residential and small business buildings in California.   

Respectively,


Charles Hoes
President, Hoes Engineering, Inc.

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