Making old buildings resilient to climate change requires new financial tools

On a rainy day this fall in Brooklyn’s Crown Heights neighborhood, a crew was taking stock of the heating system at the parsonage for Cornerstone Baptist Church, a nearly century-old building. The house is brick, 4 stories tall and has a big turret in one corner. But the heating system uses oil — and it’s really inefficient.

“Once you get everything heated, you have to turn on some air, just to balance out the heat,” said Cornerstone Pastor Lawrence Aker, who’s lived in the house with his family for nearly 20 years.

That’s right. They have to turn on the air conditioning in the dead of winter because the oil heat makes the home too warm. And all that inefficiency adds up. Just the oil bill alone costs about $30,000 a year.

The startup BlocPower uses software to identify buildings that are prime candidates to receive more efficient energy systems. In Cornerstone’s case, the company is installing an electric heat pump. For other buildings, that might mean installing a microgrid to make the power system self-sufficient. BlocPower also works with commercial apartment buildings and public housing in addition to single-family homes and works to train local construction crews to install the modern systems. The company operates in New York, Oakland, California, and Milwaukee, with plans to expand to Baltimore, Washington, Los Angeles and Chicago. It has worked on 850 buildings in Brooklyn alone.

Donnel Baird, BlocPower’s founder and CEO, said retrofitting buildings like this one is a way to build more resilient cities.

“At the individual building level, the building is more comfortable. It saves money, it uses less fossil fuels. But at the neighborhood or borough level, the entire grid is smarter and greener and more resilient,” Baird said. “Instead of investing a billion dollars in fossil fuel infrastructure, which is expensive and not resilient, we’re investing in distributed solar battery electrification projects to make the Brooklyn grid more resistant.”

Baird grew up in Brooklyn himself, in a family without much money. They would turn on the oven to heat their apartment. I talked with him about how BlocPower works.

Baird: We’ve built a recommendation engine that allows a user to type in a building’s address and pull up a set of preliminary recommendations on what kind of sustainability equipment should go into their building. We use a mix of big data, machine learning, some fancy statistics, mechanical engineering. We’ve built out an algorithm that allows us to make those recommendations, so that’s the software component. It helps us and utility companies and governments and building owners to determine what kind of equipment makes sense in each and every building. And then it allows us to develop a financial model of what returns to an investor or a bank might look like if they decided to finance a particular clean energy project in a particular building.

Wood: You have the data, [and] building owners can go and look up their address and say, “Oh, it would cost me this much.” But then you also close the loop, right? You do the retrofitting yourself?

Baird: We finance and install and project manage the project. So for a 10-unit apartment building in the Bronx, it may cost a half-million dollars to replace all of their fossil fuel heating and cooling and hot water with 100% renewable energy-powered energy systems. They don’t have that half-million dollars laying around, so we finance it. We identify and train a local mom and pop construction company. We get them trained by the manufacturer of the equipment, and we project manage the installation of the equipment that we finance.

Wood: And then where does the financing come from on the back-end?

Baird: We have to negotiate with banks, so we have a partnership with an investment bank. The New York state government has a green bank, and they’ve loaned us $5 million to invest in clean energy projects. And we have a new partnership with Goldman Sachs, where we’re borrowing $50 million to finance projects across New York City.

Wood: I’m very curious about the financial instruments that are making investments in renewable energy, for example, possible. Like, is this an opportunity for investment banks to then say, “We have these green investments,” even if the returns are not huge over time or take a long time?

Baird: Absolutely. We think that there is an opportunity to develop a new asset class, a new financial asset, a structured financial product, that allows investment banks and pension funds to invest in distributed clean energy technology across America, across the world, and create a new asset class that provides them 5% to 15% rates of returns, depending on what kind of investments they make. And it doesn’t correlate with the stock market, so it’s an interesting new kind of investment. Machine learning, cloud computing, mobile computing — the cost of those technologies has declined dramatically. The cost of solar, the cost of smart, green heating systems in urban buildings has declined. That allows us to create this new asset class where banks and pension funds can finance these assets.

Wood: But it seems to me that on its face, like, a 12-to-15-year return timeline is long. These are very capital-intensive buildouts. The returns might not be huge. It sounds to me like you have a sort of data-and-this-asset-class play that, long term, could really be impactful.

Baird: Yeah. You can think about it as a green infrastructure bond for urban, clean energy. So the returns will be bondlike. They’re not going to be like the stock market, but they’ll be stable — you, as an investor, financing a particular asset out there in the real world that’s going to have some financial returns. So it’s a different kind of instrument, but it can be really huge. And if you’re talking about introducing environmentally sustainable technologies to the real estate sector, across the world, I mean, that’s just a massive investment opportunity, so we think it’s going to be a great, new asset class.

You can hear more about BlocPower in the Marketplace Tech special, “How We Survive: Adapting to Climate Change,” later this week at marketplace.org and on select local public media stations.