🔒$739B U.S. Inflation Reduction Act sweetens green tech in apartment developments and houses

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A fuel cell beside the apartment tower at 777 Main St. in downtown Hartford and solar panels on the roof 26 stories above provide about two-thirds of the 285-unit building’s power needs, saving its owner about $750,000 yearly.

Heating and cooling are handled by hundreds of high-efficiency heat pumps that draw heat from ambient air inside during cooler months and push warmth out of the building for summertime cooling.

The property has 16 electric vehicle charging stations. Countertops and carpets are recycled. Faucets and toilets are low flow. Appliances are energy-star rated.

Acclaimed architect and builder Bruce Becker packed a lot of green technology into his redevelopment of the former Bank of America building. Completed in 2015, the project earned a “LEED platinum” rating, the highest possible for environmentally friendly construction.

Now, with the passage of the $739 billion U.S. Inflation Reduction Act in August, Becker said he is strongly contemplating installing even more green technology into his award-winning building.

Nearly half of the Inflation Reduction Act’s funding will be used to incentivize green technology in buildings and vehicles in a bid to combat climate change. Much of this is targeted at individual households, but there is also plenty in there for builders.

“I’m giving serious consideration to adding a significant amount of battery storage,” Becker said in a recent interview. “I have thought about it, and it didn’t pencil out last year. Now, with this, it probably will.”

Becker said he could spend $500,000 to $2 million on high-capacity batteries that can reduce the need to tap the electric grid during times of peak cost or — in the case of buildings equipped with solar panels — when the sun isn’t shining.

“The majority of our electric bill is for demand charges, and this can be significantly reduced or eliminated depending on how much battery storage is available,” Becker said. “Battery storage would benefit our own building, as well as the overall grid and all ratepayers by reducing the need for expensive peaking generation, which also tends to create the most carbon pollution.”

New incentives may also help cover the cost of planned upgrades to electric vehicle chargers on-site at 777 Main, Becker said.

“We are still studying the IRA incentives, which take effect in 2023, and will be exploring technologies in addition to battery storage and programmable microgrid controls,” Becker said. “There is a large basement at 777 Main as well as a second-floor large former cafeteria and commercial kitchen that we hope to find new uses for. If we build out the spaces with energy efficient systems, the IRA should help.”

Beefed-up incentives

The Inflation Reduction Act leans heavily on tax credits. It increased the minimum renewable energy investment tax credit from 26% to 30%. It also qualifies high-capacity batteries for tax credits, eliminating a prior requirement that forced batteries to be paired with solar.

The tax credits can rise as high as 70% for projects that meet several additional criteria, such as being located in a brownfield or census tract where fossil fuels are a significant part of the economy, or using green technology in affordable housing.

“The Inflation Reduction Act is filled with incentives and opportunities to make heat pumps and electrification of heating and cooling more attractive to developers,” said Mackey Dykes, vice president of financing programs at the Connecticut Green Bank.

Dykes said rules and regulations governing incentives under the new law are still being developed by the U.S. Treasury Department, Department of Energy and Environmental Protection Agency.

Connecticut has long offered green technology incentives, with a steady progression in the number of takers.

The Connecticut Green Bank’s primary tools include “Commercial Property Assessed Clean Energy” (C-PACE) loans, which can be used for virtually any energy upgrade embedded in a building, whether it is a more efficient boiler or new solar array.

These loans are repaid through a special assessment voluntarily tacked on to property tax bills in participating towns.

Since its 2013 launch, Connecticut’s C-PACE loan program has helped finance 363 projects worth $217.8 million. The program provided $1 million in loans toward the cost of renewable power at 777 Main.

“It’s using a centuries-old tool — a tax assessment — to unlock attractive capital for property owners to improve their property or to build a building that’s more efficient and sustainable than they would have otherwise,” Dykes said. “C-PACE adds capital to the mix so you can afford those higher upfront costs, which lead to a lower operating cost for the property over its life.”

The Green Bank has a small lending pool, but most C-PACE loans are funded by banks and private lenders, Dykes said. By tacking repayment to tax bills and securing the buildings as collateral, C-PACE loans are more secure, allowing banks to offer more generous terms, Dykes said.

“It’s not a question of having enough money,” Dykes said. “It’s finding the projects.”

C-PACE loans are open to nonprofits, office buildings, industrial operations and multifamily housing developments.

Connecticut was one of the early implementers of the Green Bank model, which has since been adopted by more than 35 states, according to Jessica Bailey, president of Nuveen Green Capital.

Since its 2015 founding, Darien-based Nuveen has lent out more than $1 billion to sustainability projects in 30 states using C-PACE programs.

Roughly a quarter of that has gone to fund sustainability projects at nearly 100 multifamily projects, Bailey said.

Bailey said the Inflation Reduction Act reduces red tape and makes it easier to sell off tax credits, which is more useful to nonprofits and affordable housing developers. The act also expands the types of technologies that qualify for credits, such as highly efficient windows.

She said multifamily developers and operators will be receptive, as long as the extra cost of green technology can be justified in project budgets.

“Those of us concerned about climate change are feeling pretty urgent about the need to accelerate that shift as much as possible,” Bailey said.

Unintended consequences

While the new green incentives could intrigue more developers, there are some concerns about how the policy will play out.

For example, Paula Cino, vice president of construction development and land-use policy at the National Multifamily Housing Council, said her group is concerned that incentives will be tied to increasingly high and cost-prohibitive efficiency standards.

“We do worry that ratcheting up what builders have to do to satisfy underlying criteria may be too much to overcome even if there is a greater value to incentives,” Cino said.

Also, to qualify for tax credits, projects will have to meet federal prevailing wage and apprenticeship targets, which will increase costs.

The Treasury Department is seeking public comment as it drafts regulations to implement portions of the Inflation Reduction Act.

“A lot of this is going to be contingent on how these provisions are implemented and what the regulatory landscape looks like,” Cino said.

A no-brainer vs old habits

Becker, 64, is serious in his concern about the threat climate change poses to future generations. He has been widely acclaimed for environmentally responsible projects in New Haven, Norwich and Manhattan, in addition to Hartford.

His latest project transformed the long-vacant Pirelli Armstrong headquarters building in New Haven into the 165-room Hotel Marcel. Like 777 Main in Hartford, the hotel is LEED platinum certified. It has also been featured in publications ranging from Forbes to Vogue.

But green building isn’t just about saving the planet for his children. It’s good business and has helped some projects shift into the black, Becker said.

Becker said his first deep dive into green building came with the $115 million Octagon project — a 500-unit mixed-use apartment transformation of a former mental hospital on Roosevelt Island in Manhattan. Completed in 2006, the Octagon hosted the largest rooftop solar array in New York City at the time. It also featured triple-pane windows, low-flow fixtures, heat-recovery coils for domestic hot water and other energy-saving refinements.

The Octagon received historic tax credits and state green building grants. Its major financial backer, the Multi-Employer Property Trust, insisted on a 7.5% return, Becker said.

“The only way to get that return was to reduce operating costs,” Becker said. “I realized if I could make the building more efficient, there is more cash flow and the numbers pencil out.”

Becker said Connecticut’s clean-energy outreach to developers isn’t as sophisticated or robust as that of the New York State Energy Research and Development Authority.

The Inflation Reduction Act’s incentives have the potential for a huge impact on adoption of green technology, but that will depend on stakeholders, he added.

Lenders, local zoning boards, public officials and building professionals should insist clients and borrowers do a cost-benefit analysis of the new incentives, Becker said.

“That will almost always demonstrate that adopting them will make projects more profitable and less risky for all parties,” Becker said. “And the environmental benefits of reducing or eliminating the burning of fossil fuels will benefit everyone on the planet as well as reduce energy costs for all ratepayers.”