Philly’s “Building Tune-Up” Mandate – Using C-PACE to Achieve Compliance

By Lennal Kalawa and Lisa Shulock

Philadelphia Energy Authority held a webinar on November 5, 2020 about Philadelphia’s Building Energy Performance Policy, commonly known as Building Tune-Up, and how C-PACE can be used to achieve compliance. The final Building Tune-Up regulations were issued in October 2020. The law was motivated by the need to reduce the carbon footprint of commercial buildings. The law mandates that all large buildings must submit a certification of high energy performance to the city’s Office of Sustainability or conduct tune-ups.

Lisa Shulock from the Philadelphia Energy Authority moderated the panel and she was joined by Zach Greene from the City of Philadelphia’s Office of Sustainability, the City agency responsible for overseeing Building Tune-Up, Dave Ferro from Pennoni, an engineering firm, and Stephen Bevilacqua from REVL Capital Group, a C-PACE capital provider.

C-PACE is a financing tool that provides long-term funding for energy efficiency, renewable energy, and water conservation projects. C-PACE financing may be of interest to commercial building owners who want to upgrade their energy systems to achieve high energy performance as an alternative to conducting regular tune-ups.

This bill is directed at all non-residential buildings with indoor floor space of at least 50,000 sq. ft. This includes office buildings, retail stores, municipal buildings, hospitals, schools/universities, and more.

Greene explained that the first compliance deadline is September 30, 2021 for buildings larger than 200,000 Sq. Ft. However, they are granting 6-month extensions due to COVID. The last group of buildings which are between 50,000 and 70,000 Sq. Ft. will need to comply by September 30, 2024.

The first way to comply with this new requirement is to conduct a tune-up every five years. Tune-ups must address base building systems including:

  • Building System Maintenance & Repairs
  • HVAC Operations and Controls
  • Lighting System Assessment
  • Domestic Hot Water and Water Usage
  • Building Envelope

The tune-ups must be overseen by a “Qualified tune-up specialist” – defined as a licensed Professional Engineer or Certified Energy Manager with at least 7 years of experience. The specialist must be a third-party to the building, unless it is within a large portfolio.

The second pathway is through several high-performance compliance options including ENERGY STAR certification, gold rating or higher for USGBC LEED Operations and Maintenance v4, net zero certification, and many others.

Greene wrapped up by sharing key takeaways: the policy is focused on the operations and maintenance of a building and its existing systems, it does not require capital improvements, it does not require buildings to meet specific levels of efficiency, and the policy aims to increase tenant comfort and decrease energy costs and carbon emissions.

Dave Ferro from Pennoni stated that tune-ups “are all about an effort to control costs, improve occupant comfort, reduce wasted energy and, in many cases, improve cash flow.” Ferro stated that when evaluating a building, they like to start with an ASHRAE level 1 walk-through. “As an engineer, you should be able to walk into a level 1 building and find all the low hanging fruit.” Once you get the level 1 understanding, you can proceed to level 2 and identify no-cost/low-cost energy efficiency measures that can provide payback. One thing that certain engineering companies offer including Pennoni is ongoing monitoring of energy usage and identification of potential problems as an additional way to manage energy use.

If buildings have not yet achieved any of the qualifying high-performance standards, owners and managers have the option of investing in systems to attain one of the compliance options and use C-PACE as the financing tool. Bevilaqua noted the key features of C-PACE include the term of the loan can be up to the maximum useful life of the equipment up to 30 years; the first payment can be delayed two years; the lien stays with the property, not the building owner; financing rates are in the “high 4’s” to 7%; the long term assessment allows for deeper investments in energy efficiency and/or reduces monthly payments for borrowers; and PACE requires no upfront cash and can be treated as an off-balance sheet item. Bevilaqua stated that C-PACE typically will cover up to 30% of a project’s hard cost for new construction and up to 100% of the costs of energy upgrades.

To obtain an energy survey to develop the C-PACE financing package, building owners can reach out to Qualified Engineers listed on the Philadelphia C-PACE website. The owner also needs to select a Capital Provider to provide a term sheet and work with the owner throughout the process of obtaining C-PACE financing.

To qualify for C-PACE in Philadelphia the project must be a commercial or industrial property. C-PACE can be used for upgrades to existing buildings or for gut rehab and new construction projects. The minimum financing amount for a C-PACE project in Philadelphia is $100,000. There is a maximum 95% Lien-to-Value limit and up to a 30-year financing term. There is also the option of retroactively using C-PACE financing with a two year look back.

Shulock wrapped up the webinar by discussing the first two Pennsylvania C-PACE projects which are located in Philadelphia. The first was J-Centrel  in which Twain Financial provided $1,500,000 in financing to Shift Capital for a gut rehab project. The Olde City Day School obtained $519,000 in C-PACE financing from Greenworks Lending to install rooftop solar. It was the first solar project in Pennsylvania to use C-PACE financing.

The final Building Tune-Up regulations can be found here. To watch the recording of the webinar, click here. The slides can also be found on the Philadelphia C-PACE program resources page in the Philadelphia C-PACE webinars section.