The organization that runs Efficiency Vermont is beginning a new kind of energy-saving venture.
If all goes according to plan, a spin-off of the Vermont Energy Investment Corporation will spend more than $50 million over the next five years to conserve energy in buildings used for low-income housing and other public purposes.
But this project will have to take on some risk before it generates any rewards.
Upgrades at Union Square
A five-story apartment complex on the outskirts of downtown Windsor pretty much defines the streetscape here. Constructed in 1922 by the National Acme Company as housing for its mill workers, the stately structure, with its rolling brick façade, now serves as public housing for the 56 low-income families living inside.
Logan Brown, though, is far more captivated by what lies beneath.
“If you get excited about basements, this is a good place to visit,” Brown says.
Brown is the director of operations for Commons Energy, a new spinoff from the nonprofit that runs Efficiency Vermont. And the basement he’s so keen on will soon house the wood-pellet boiler system that will save the owners of Union Square, as the complex is known, about $27,000 in annual costs for heating and hot water.
Improving public-purpose buildings
There’s nothing new about “energy saving companies,” and for-profit firms have long helped hospitals, universities and other large institutions trim their energy bills. But those firms generally target seven-figure clients. And energy saving projects at small- and mid-size public-purpose buildings – like the one at Union Square – haven’t attracted much attention from the private sector.
“There’s numerous low-income multi-family housing properties throughout the state of Vermont that need assistance with making energy-related upgrades that they haven’t been able to make for one reason or another,” Brown says. “So we started Commons Energy to provide the technical support, construction support, provide financial support when needed, and to provide a guarantee of performance that will allow facilities like this one to make improvements."
The $270,000 pellet boiler system will replace the two oil-fed units that currently provide heat and hot water to residents here. Union Square will trade the 17,000 gallons of fuel it uses now every year for 143 tons of pellets. And even after paying off debt service to Commons Energy, which covers upfront capital and technical support, Union Square will still net about $10,000 in savings annually.
Brown says that’s money Union Square can then invest in its affordable-housing mission. And if Commons Energy is wrong on its efficiency projections, it will actually cut a check to Union Square for the difference.
Eric Schmitt is the director of asset management for Housing Vermont, which, along with the Windham & Windsor Housing Trust, owns Union Square. Schmitt says that every dollar saved on energy costs “is one we can use to maintain the quality and affordability of this housing.”
Commons Energy's model
Commons Energy is what’s known as a low-profit, limited liability company. And its $6.5 million in start-up funds come largely from a $5 million investment from the John D. and Catherine T. MacArthur Foundation.
Commons Energy has to pay the money back. And Peter Adamczyk, who works as finance manager at the Vermont Energy Investment Corporation and oversees financing operations at Commons Energy, says the plan isn’t without risk.
“We have often said throughout this process that there’s a reason no one’s done this before,” Adamczyk says. “It is certainly challenging, and we recognize these challenges up front.”
But Adamczyk says demonstration projects at places like Union Square will show proof of concept, and not only attract more financing to Commons Energy, but bring more low-profit Energy Saving Companies into existence. In addition to low-income housing complexes, Commons Energy aims to service health care facilities, municipal buildings, and education centers and daycares.
“I have worked in finance-related projects for my entire adult life. And I have never seen a concept that has more excitement and more appeal,” Adamczyk says. “This is bringing a real service to an unserved sector of the market, that people have just been unable to solve this problem.”
Social mission meets financial profit
Adamczyk says the corporate structure used by Commons Energy allows the firm to put as much weight on its social mission as financial profit. But he says the company’s ability to maintain positive margins, however thin, will give it the self-generated lasting power that a nonprofit couldn’t muster.
“The business plan that we developed has us doing more than $50 million worth of projects in the first five years,” Adamczyk says.
Commons Energy plans to offers its services nationwide, and, in addition to Windsor, also has projects underway in the District of Columbia and Maryland. Commons Energy has also gotten upfront capital support from the High Meadows fund, the Kresge Foundation, the Vermont Community Foundation and the Vermont Housing and Conservation Board.
VEIC itself has kicked in a $250,000 loan, and a half dozen VEIC employees provide the staffing at Commons Energy.
Adamczyk says the business plan envisions a permanent staff of about 20 fulltime workers once Commons Energy hits its stride.