This blog explores changes in the energy industry from an insider’s perspective as it transitions from the old centralized utility model to the new paradigm of distributed generation.
This blog was previously called Inside the Housing Evolution and focused on energy efficient homes. Ultimately, it’s all linked. Soon, every building will have the potential to generate, store, and sell energy. Welcome to the era of the transactive grid – the greatest shift the electricity sector has seen in over 100 years!

August 23, 2011 No Comments

Green Mortgages

The Ottawa Citizen recently printed an article on the growing popularity of Green Mortgages – where banks offer lower interest rates or other incentives for homes that have achieved a specific level of energy efficiency.  I was pleased to see the article because this is something that I have been promoting to my contacts within the banking industry and the government for a long time.

The biggest obstacle to more energy efficient homes by far is the increased upfront cost of the home.  Sure we can build super energy efficient homes, and sure they save money in the long run, but they cost more to build and if you can’t afford it at the time of purchase that’s often the end of the story.  The problem is an issue of financing.  We need to be able to borrow enough to cover the added upfront costs with the understanding that it will be paid back through the energy savings.  Banks routinely give loans for personal investments that are riskier than energy efficiency investments, but they are comfortable doing so because they have decades of experience to understand and quantify their risks.  With energy efficiency improvements, banks have been slow to get on board because until recently they just didn’t have confidence in the savings.  How would they know how much a homeowner could save from an extra 2 inches of insulation?  All they had was some computer modeling put together by eco-geeks with no way to guarantee or verify the results.  Over time however, the demand for energy efficient housing along with the allure of being able to market themselves as being environmentally conscious has prompted banks to get on board in offering these new products.

When a bank determines how much of a mortgage you will be approved for, they use an equation that looks at your monthly income minus your expected expenses.  It just makes sense that if your expected energy costs will be lower, then that means you will have more money left over to put towards your mortgage payments; therefore, you should be able to afford a more expensive home.  In theory, the banks should be able to determine your expected energy savings (through computer modeling provided by a third party) and then work backwards to determine how much higher your mortgage approval limit should be.  The Green Mortgages offered by the banks mentioned in the Citizen article don’t work this way, but they have a similar effect by offering a lower interest rate (typically 1% lower) for purchasing an energy efficient home.  In my opinion this is not the most effective way for a bank to promote energy efficient homes because it does not draw the direct link between energy savings and monthly mortgage payments, however it is a great start that will hopefully motivate more people to consider energy issues when purchasing a home.

Green Mortgages are still in their infancy.  The more banks learn about the true savings from energy efficiency the more confident they will be to offer better deals to purchasers looking for efficient homes.   One key element necessary for this to happen must be a trusted rating system to model the expected energy use in a home.  The growth of green mortgages could create an industry of unscrupulous energy modelers that claim energy savings that don’t really exist.  If the actual energy savings fall short of the expected energy savings due to poor modeling, then we could see a situation where people can’t afford their monthly payments and are forced to default on their mortgage.  This is why the government needs to play a strong leadership role in certifying the energy evaluators and verifying that the models deliver accurate results.  In a sense, the government needs to guarantee that the savings are real through their regulation of the energy modelers and evaluators.

The idea that an energy efficient home will save you money is well understood.  The idea that you can afford a more expensive home if you purchase an energy efficient home is a relatively new concept that is becoming a reality through these Green Mortgages.  If you are on the market for a new home, be sure to ask your builder if their homes are third party tested for energy efficiency, and then shop around with different mortgage providers to ensure that you’re getting the best Green Mortgage available.

Posted by Matthew

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ABOUT THE AUTHOR:

Matthew Sachs

P. Eng. LEED AP

  • COO of Peak Power since July 2016
  • General Manager of Urbandale Construction (May 2008 – Oct 2014)
  • Vice-Chair R-2000 Renewal Committee
  • Member of Energy Star Technical Advisory Committee
  • Greater Ottawa Homebuilders Green Committee
  • Recipient of Canadian Homebuilder’s Association 2009 R-2000 Builder of the Year Award
  • Participant in Natural Resources Canada’s Technology Roadmap for Sustainable Housing
  • Energy Consultant with Marbek Resource Consultants (Feb 2002 – May 2006)

ABOUT PEAK POWER

Peak Power is a Microgrid project development company focused on delivering innovative solutions to offset the most expensive hours of electric demand. We specialize in optimizing the revenue streams from energy storage, advanced building automation, and renewable technologies for customer sited and utility scale projects. Please visit www.peakpowerenergy.com.