California’s newly enacted Building Energy Efficiency Standards and how C-PACE can help

On January 1, 2023, California’s 2022 Title 24 requirements for the California Building Standards Code went into effect, which sets the Building Energy Efficiency Standards for new commercial buildings. According to the 2022 Building Energy Efficiency Standards Summary, businesses and homes in California are responsible for almost 70% of the state’s electricity use and 25% of California’s greenhouse gas emissions. The state of California has set a goal of running fully on renewable energy by 2045. To achieve that goal, the state has enacted many policies to incentivize and mandate commercial buildings to employ clean energy.

The new 2022 building standards mandate, approved by the California Energy Commission in August of 2021, adds to the renewable solar mandate that went into effect in January 2020. In addition to meeting the state’s long-term renewable energy goals, the objectives of this policy are to decrease energy costs, reduce greenhouse gas emissions, and ensure a reliable power supply.

How will this affect commercial and multifamily new developments in California?

As a result of the new Title 24 requirements, California now requires almost all new commercial properties and high-rise residential projects to include solar power and battery storage. This includes hotels, offices, medical buildings, health clinics, retailers, grocery stores, restaurants, schools, and civic spaces, among others.

“Buildings profoundly influence our health, environment and economy. Into the future they will use less energy and emit less pollution while still being comfortable and healthy,” said Commissioner J. Andrew McAllister, who is the lead commissioner on energy efficiency. “The 2022 Energy Code firmly pivots California’s buildings toward the clean, low-carbon technologies that are the bedrock on which our collective path forward will rest. This foundation will help the state meet its critical long-term climate and carbon neutrality goals.”

According to the California Energy Commission , over the next 30 years, the 2022 Energy Code is estimated to provide $1.5 billion in consumer benefits and reduce 10 million metric tons of greenhouse gasses, equivalent to taking nearly 2.2 million cars off the road for a year. Expanded adoption of new energy-efficient technologies will help reduce costs of the technology over time.

For many, there is a concern that these mandates could increase construction costs during a period of already high inflation and market volatility for commercial building developers. However, the Energy Commission asserts that California property owners are expected to see significant cost savings over the next several decades as a result of implementing these mandates. In addition, California has a state policy enabled program to help alleviate the hurdle of upfront costs associated with implementing solar and battery storage on a commercial property: C-PACE.

Commercial Property Assessed Clean Energy (C-PACE), which was originated in the state of  California, makes it possible for commercial property owners and developers to obtain low-cost, long-term, fixed-rate financing for energy efficiency and renewable energy projects. The program classifies clean energy upgrades as a public benefit and allows them to be paid for through tax assessments, the same way in which other public benefits like water lines or roads are paid. These upgrades can be financed with no money down and then repaid as a benefit assessment on the property tax bill over a term that matches the useful life of the improvements (typically around 20-30 years). The assessment transfers on the sale of the property and can be passed through to tenants under certain commercial lease structures.

C-PACE can provide the upfront financing needed to install solar photovoltaic systems and battery storage on new development projects to meet Title 24 requirements, as well as cover the costs of all other eligible energy efficiency and water conservation measures – including covering up to 100% of a project’s hard and soft costs. C-PACE can also be used to recapitalize ongoing or recently completed solar and energy efficiency projects in California for up to three years post completion.

While facilitating sustainability efforts set forth in California’s Building Energy Efficiency Standards, C-PACE also reduces property owners’ annual costs and provides dramatically better-than-market financing for green new construction. Seen in this light, using C-PACE to implement solar and storage in California’s new commercial buildings can be seen as a financially accretive opportunity (as well as an environmentally friendly one), rather than a burdensome requirement.

To learn more about how C-PACE can help with California’s new Building Energy Efficiency Standards, please contact our California Director of Originations, Dana White, and for solar or battery storage projects please contact our Associate Director of Solar and Storage, Tim Olson.