Clean Energy Initiative (CEI) Program – New York State Homes and Community Renewal

An example of a program designed and implemented in partnership with a state energy office and housing agency to serve LMI Communities.

Keys to Success

Create Deep Partnerships between Energy and Housing Agencies to Lead Programs
Streamline Energy Funds with Affordable Housing Funds
Energy Funds as a Construction Financing Source
Ensure Funding Awards are Flexible, Easy to Use, and Large Enough to Change Behavior for Affordable Multifamily Properties
Authorize Programs for the Long-term
Allocate More Funds to Soft Costs

Program Overview

The Clean Energy Initiative (CEI) is a first of its kind program that takes utility ratepayer dollars and combines them with state affordable housing subsidy dollars into one subordinate loan package to fund high-performance affordable housing. CEI is a collaboration between New York State Homes and Community Renewal (HCR) and New York State Energy Research and Development Agency (NYSERDA).

The CEI program incorporates many of the keys to success. It is a prime example of deep partnership between a state housing and energy agency to most efficiently deliver energy funds into LMI housing projects. State agency staff pushed through differing directives to provide a social good, safeguard taxpayer dollars, and find common ground. NYSERDA illustrated trust in HCR by granting energy funds directly to the agency to be combined with housing funds. In the first round of the program, developers were offered the ability to apply for additional funding to achieve high-performance building standards. Those that were awarded received the energy funds seamlessly as part of soft loans that they had already been awarded from HCR to support the affordability components of their projects. In successive rounds, energy dollars were offered to projects on term sheets alongside housing dollars. NYSERDA and HCR agreed to fund a third-party technical assistance provider to work alongside the developers and ensure funds were achieving agency goals. As developers become familiar with these scopes of work, cost compression will occur and funding levels will decrease gradually over time.

Program Snapshot

Program Size: $100 million available until program fully subscribed (estimated 5 years)
New Construction - $7,500/per unit
Existing Buildings - $25,000/per unit
Adaptive Reuse- $12,500/per unit
Program Objective: The overarching goal of the CEI program is to develop highly efficient all-electric affordable housing as “business as usual” over time. Currently, the program provides substantial incentives for developers to hit HCR’s “stretch sustainability goals”. The stretch sustainability goals refer to two types, new construction/adaptive reuse and existing buildings. New and reuse properties must be all-electric and meet either Passive House, Enterprise Green Communities Plus, or LEED ZERO specifications. Within existing buildings, applicants can choose any combination of the following: Advanced Envelope performance (nearing Passive House), Electrification of Domestic How Water (high-efficiency heat pumps), and Electrification of Heating (high-efficiency heat pumps).
Funding Source: Utility ratepayer funds allocated to NYSERDA and State Housing funds allocated to HCR.
Key Players: New York State Homes and Community Renewal (HCR) and New York State Energy Research and Development Agency (NYSERDA)
Financing Type: Structured as debt and set up as a subordinate subsidy loan with 0.25% interest and amortized over 30-50 years.
Eligible Applicants: Must be awarded funding through either the 4% Bond Finance or 9% LIHTC program. Funding will be based on construction type as described above
Eligible Uses: Energy efficiency installations: heating, hot water, envelope/ventilation upgrades.

Demonstrating Keys to Success

Create Deep Partnerships between Energy and Housing Agencies to Lead Programs - NYSERDA and HCR set up a memorandum of understanding (MOU) to allow HCR to administer utility rate-payer dollars directly to affordable housing projects. NYSERDA transfers funds to HCR to administer directly. Both NYSERDA and HCR collaborate on the program design and funding levels, and NYSERDA provides technical assistance to HCR and individual development projects to ensure compliance and responsible use of utility rate-payer funds.
Streamline Energy Funds with Affordable Housing Funds - The CEI program is structured as a term sheet and offered to development projects alongside other affordable housing funds. If projects meet CEI term sheet requirements, CEI funds are granted. CEI funds are provided at the same time as other affordable housing funds. HCR reviews eligibility for CEI in the same manner as other affordable housing funds.
Energy Funds as a Source - CEI funds are administered in the same way as other HCR subsidy sources of funding– as a soft subordinate loan avail- able during construction and with nearly 0% interest. Funds are introduced at a project’s construction closing, and used as a source during construction.
Size Funding Awards Large Enough to Change Behavior - CEI funding awards are designed to cover the full incremental cost of performing the scope and recognizes that existing buildings typically require greater funding to meet the goals.
Authorize Programs for the Long-term - HCR and NYSERDA completed demonstration rounds of the CEI program to ensure market uptake and refine program design. The CEI program is now fully scaled up and funding is available to the public until spend down. An MOU between the agencies allows for a long-standing program design.
Allocate More Funds to Soft Costs - Affordable housing developers who are funded are able to request up to an additional $2,500 per unit for design and project management of high-performance measures.

Program Strengths and Market Transformation

The CEI program is an excellent example of an Energy Program Administrator (NYSERDA) partnering with a Housing Agency to collaborate on program design and lead administration. It is also an example of mixing energy and housing project funds to meet decarbonization goals. The CEI program offsets the costs of adding sustainable features to affordable housing projects, especially those already required in existing state bond finance and federal low-income housing tax credit (LIHTC) programs. Using the business as usual affordable housing platform, including both LIHTC and non-LIHTC financing structures, allows for the seamless dissemination of capital to meet climate goals and the development of a market through a built-in pipeline and built-in funding mechanisms. In addition, the CEI clearly lays out program terms allowing affordable housing owners to easily consider project scoping upfront. CEI provides the following key market innovations:

Provides energy Incentives in a way that works for affordable housing

HCR recently released three sets of term sheets for the CEI program for New Construction, Adaptive Reuse, and Existing Buildings, each with corresponding scopes of work and funding levels. This is uniquely innovative because energy dollars are provided in a consistent way to other HCR subsidies and can be used directly as a source of funding in a project’s financing application to either the 4% or 9% LIHTC program. The traditional barriers of receiving money after work is performed and from various sources are completely removed. This also removes the barrier of having to obtain special approval from other investors to incorporate energy funding into the project capital stack.

Funds are sized to fully cover incremental costs

CEI funds are designed to cover the incremental costs between HCR’s base- line sustainability requirements and stretch goals. Currently, HCR makes up to $7,500/unit for new construction and $12,500/unit for adaptive reuse available to meet passive house levels of performance. Up to $25,000/unit is available for existing buildings to meet all three of HCR’s stretch goals (electrification of heating and domestic hot water, and advanced envelope performance), including an additional $2,500 for soft costs associated with making these upgrades. Acknowledging the unique challenges associated with decarbonizing existing buildings, projects are allowed to select one or two of the above goals for a smaller incentive level.