Page 1 of 5 City Sustainable Energy Plan (SEP) Financing Item 6B March 24, 2017 Board of Directors Report: To: TCHC:2017-22 Board of Directors From: Building Investment, Finance and Audit Committee (BIFAC) Date: March 24, 2017 PURPOSE: To seek the approval of BIFAC and Board to enter into an agreement with the City of Toronto to receive $35M in financing under the Sustainable Energy Plan (SEP). SEP is a 20-year loan at 3.5% interest. The funds will be used to implement energy measures in nine buildings in conjunction with a $28M grant under the province s Social Housing Apartment Retrofit Program (SHARP). The combined energy measures will maximize energy savings. The SEP loan will be paid back using energy savings from these implemented measures. At its meeting on March 13, 2017, the BIFAC approved the recommendations in this report. The BIFAC requested that Management update the Internal Rate of Return calculations in Attachment 1 to the report. This report to the Board reflects those updates.
Page 2 of 5 RECOMMENDATION: That the Board of Directors: (a) (b) (c) authorize the Chief Executive Officer or delegate to enter into an agreement with the City of Toronto for $35M in financing under SEP for energy retrofits at nine buildings; direct the savings realized from the energy retrofit projects paid for with the SEP loan and SHARP grant to the debt service fund until the SEP loan is fully repaid, with the savings to be directed into the fund on a quarterly basis and used to repay the SEP loan; and authorize the appropriate staff to take the necessary actions to give effect to the above recommendations. REASONS FOR RECOMMENDATIONS: BACKGROUND: TCHC has developed a multi-year energy management program to realize significant energy savings and reduce GHG emissions. (TCHC Energy Management Strategy presented to BIFAC on November 17, 2016 for information; BIFAC:C2016-149) Implementation of the program can best be realized through deep retrofits that are funded by leveraging grants with long-term low-interest loans from all levels of government to maximize savings and infrastructure improvements to benefit tenants. SHARP GRANT OF $28M: TCHC has secured a grant of $28M under the province s SHARP for highperformance measures. This funding has been included in the 2017 Board approved Capital Plan.
Page 3 of 5 APPLICATION FOR SEP LOAN OF $35M: TCHC has submitted an application to the City for SEP funding ($35M loan, 20 years at 3.5% interest). If the TCHC Board approves this SEP funding proposal, TCHC s application will be presented to Toronto City Council for approval in April 2017. ENERGY RETROFITS AND CAPITAL REPAIRS TO BE FUNDED: A combined $63M in energy measures have been identified for the following nine buildings selected based on their age, condition and potential for energy savings: Kingston/Galloway (4301 Kingston Road). Lawrence/Susan (3847 Lawrence Avenue East). Lawrence/Orton (3947 Lawrence Avenue East). Blake/Boultbee (80 Blake Street). Blake/Boultbee (10 Boultbee Avenue). Willowridge/Richview (44 Willowridge Road). Finch/Tobermory (15 Tobermory Drive). Tandridge Crescent 2 (75 Tandridge Crescent). Dundas/Mabelle (57 Mabelle Avenue). $52M for construction costs and $11M for design, project management, energy audits, and verification and monitoring of measures. Measures include window replacement, building envelope upgrades including insulation, heating and DHW system upgrades, booster pump retrofits, water conservation, lighting retrofit, garage ventilation upgrades and building automation system (BAS) upgrades. The work will address $41M of TCHC s $2.6B capital repair backlog and restore the building envelope and systems in the nine buildings to a Facility Condition Index (FCI) of 10% (not including interiors). Until City Council votes in April, there is no guarantee that TCHC will receive the $35M in SEP funding. Therefore, the SHARP projects have been structured so that they may continue successfully on their own and independent of SEP funding.
Page 4 of 5 PROJECTED ENERGY SAVINGS TO RE-PAY LOAN (Attachment 1): Calculating Energy Savings Projections Third party energy auditors were retained by TCHC through a public procurement process. Auditors conducted investment grade energy audits and produced audit reports for the nine buildings which identified potential energy measures and estimated capital costs in order to target 30% in energy savings. Prime consultants retained by TCHC through a public procurement process are validating the energy savings identified by energy auditors and preparing design packages (design, specifications, drawings, scopes of work) to implement the energy measures. Assurances of Energy Savings The forecasted energy savings are based on third party investment grade audits. These audits have been vetted and confirmed by the City s Environment and Energy Division as a requisite to approval of TCHC s application. TCHC s prime consultant teams are preparing designs that adhere to the audit recommendations and energy goals. The consultants also test their own designs against energy modelling and calculations to ensure that the level of stated savings are achieved. TCHC s construction management team (retained through a public procurement process) is tasked with delivering the construction work and ensuring that it is executed in strict accordance with the project design documents. This includes ensuring proper installation, commissioning and optimum performance of all new and warrantied work. Post-construction, TCHC will implement a 20-year program of Measurement & Verification (M&V). This allows risks to be mitigated by monitoring the buildings in real time for the entire life of the loan to ensure that energy targets continue to be met through ongoing maintenance programs and operations analysis. TCHC also has the option of purchasing an energy warranty to guarantee energy savings. The cost of these third party warrantees are typically 5% of the overall energy savings for a 10-year period. These warranties require a detailed application and approval process.
Page 5 of 5 Re-Paying the SEP Loan (refer to Attachment 1) Current energy costs at the nine buildings (based on the last 5 year consumption average using 2018 rates) is $6.7M per year. The energy savings in the first year are projected to be $2.7M and escalate over the 20-year period to produce cumulative savings of $76.3M. Over the 20-year period, energy savings from combined SHARP and SEP measures will pay back the SEP loan over the 20-year period at a 3.5% interest rate with an annual loan payment of $2.5M and generate a cumulative surplus of $26.7M. The surplus begins in year 1 at $183K and escalates to $2.9M by year 20. The $26.7M surplus savings over the 20-year period can be directed to offset operating costs and/or to fund additional capital repairs. SIGNATURE: Sheila Penny Sheila Penny Vice-President, Facilities Management ATTACHMENT: 1: Projected Annual Energy Savings and City SEP Loan Payback