Social innovation rarely comes easily. Particularly when you’re searching for a novel solution to a complex challenge. It can be a journey fraught with unexpected dead ends, dashed hopes and a high probability of failure.
This is the landscape that faces many would-be innovators. The following describes how four organizations, each with a distinct expertise, came together with a common purpose. That is to bring sustainability measures to an underserved housing segment.
Here is that team’s social innovation recipe:
Start with One Common Purpose:
A good purpose serves to galvanize a team to overcome all barriers when tackling a complex challenge. That’s why it’s well worth the time it takes to integrate team expertise and find unity of purpose. Our team’s purpose was to bring the benefits of water and energy efficiency to affordable housing. By doing so, we could reduce utility costs and moderate rents. We could lower carbon emissions, increase building resiliency, and improve the living environment for residents. Our challenge was formidable because multi-family affordable housing owners have limited access to capital. And they have a limited ability to assume the risk of a loan or lien.
Stir in Necessary Domain Experts:
Diversity of thought and experience are key drivers of innovation. They allow teams to tap into a collective pool of knowledge. And they enable partners from one domain to see another domain’s issues with fresh eyes.
These are the experts who set out to create the first no-risk model for retrofit projects:
- Mercy Housing: As one of the nation’s largest affordable housing nonprofits, Mercy Housing knows the ins-and-outs of operating and managing affordable housing. As part of its commitment to social responsibility, Mercy Housing set a bold vision of a 20% utility reduction by 2020.
- Affordable Community Energy Services (ACE): With experience in real estate development and finance, ACE has a vision to create a new kind of Energy Service Company (ESCO). One that could work with affordable housing owners with limited access to the capital or ability to take on risk.
- Bright Power: Dedicated to energy and water efficiency, Bright Power is a leader in energy analysis, general contracting, maintenance, resiliency and tracking of its water and energy reductions in order to maximize savings for its clients.
- Reinvestment Fund: In its belief that organized people, organized capital and organized data can align in transformative ways, Reinvestment Fund has paved new ground as a socially conscious lender. Particularly to people and projects that promise great social impact, but lack the needed funding.
Mix with Relevant Data:
Core to any social innovation recipe is measurement. It enables teams to track success and make mid-course corrections when a project hits a bump. It also enables them to identify new opportunities that the data might uncover. Ultimately, it’s the relentless analysis of baseline and ongoing data that is key to maximizing success.
The data for our team’s work is a Bright Power state-of-the-art tracking tool called EnergyScoreCards. With this tool, we can access historical and current utility consumption data. We use the data to identify the best opportunities for energy and water savings throughout Mercy Housing’s California portfolio. We can then project the savings each building will achieve, thereby confirming the viability of the retrofit project. By tracking bills monthly, we can identify and repair existing issues or uncover new issues at the property. Hence, additional opportunities for savings!
Add Leaps of Faith as Needed:
Social innovation almost always requires leaps of faith. To be innovative, you must produce something that no one has seen or done before. In our project, every member of the team was required to take some risk. However, with a unified purpose, our resolution was strong. So challenges (of which there were many) were more readily solved. Here are just a few of our leaps of faith:
Mercy Housing has to be confident that our work will help achieve its goal of a 20% reduction in utility use by 2020. Then believe its stakeholders will mobilize to embrace this ambitious project amid the other daily pressures they face.
Bright Power has to guarantee its analysis, implementation and maintenance to a level that makes the loan tenable. And then stay committed to its work for the 10-year life of the loan.
Reinvestment Fund has to make its loan based on little physical collateral. Instead, just the promise that ACE’s portion of the shared energy and water savings over 10 years—bolstered by assurances from Mercy Housing and Bright Power—will cover the debt service.
ACE has to take on a 10-year loan with confidence that actual energy and water savings will cover:
- All of Bright Power’s costs for analysis, implementation, operations and maintenance
- Reinvestment Fund’s debt service
- Insurance, legal, consultant and other fees
And have enough left over to run its business at a modest profit.
The Social Innovation: A Model that Serves Many Multi-Family, Affordable Housing Owners and Residents
Because our team has come together, ACE has been able to transform itself. Once a regular ESCO (Energy Service Company), now it’s the first independent RESCO (Risk-Free Energy Service Company).
This means affordable housing owners enjoy:
- Free comprehensive energy and water retrofit improvements without the requirement of a real estate lien or the risk of a loan
- 20% of the savings in utility costs resulting from the improvements
- 10 years maintenance of all ACE retrofit measures
- An improved real estate asset with reduced carbon emissions and water consumption
- A more comfortable living environment
- An updated and more resilient building infrastructure
- Diminished impact from rising utility rates on rent
Our Work Today
After 18 months of trial and error, adjustments, new thinking and perseverance, our team has refined the ACE RESCO model. Now we’re implementing retrofit projects at nearly 90 properties for almost 6,000 units throughout the Mercy Housing California Portfolio.
Therefore, we’re delivering on our purpose to bring the benefits of water and energy efficiency to multi-family affordable housing.
Like with any social innovation, opportunities open up for early adopters who want to avoid growing the pains of an unproven model. In other words, there’s more work to do with other multi-family affordable housing owners who share our purpose.
ACE’s innovative RESCO model is proving to be a recipe for success.
For more information about this topic, please contact Dan Greenberger at dan@affordablecommunityenergyservices