Panel makers such as Suntech Power Holding, SunPower Corp and Yingli Green Energy suffered from a glut of supplies that pushed prices for solar panels down 50 percent last year, sending their share prices crashing.

But those cheaper panels meant lower costs for the installers who buy them, such as SolarCity, the market leader in residential and commercial installations, which is expected to seek an initial public offering this year that could value the company at about $1.5 billion.

An IPO would make SolarCity and Real Goods Solar Inc the only two publicly traded companies solely focused on that market. Their success, and that of privately held rivals such as SunRun and Sungevity, could lead to “exponential growth” of the market, according to Neil Auerbach, founder of private equity firm Hudson Clean Energy.

“SolarCity is not going to be the only company to enjoy the benefit of that,” he said. “We definitely believe that this is an attractive area. We have been looking at it. We haven’t found the right horse.”

Total solar installations in the United States are believed to have nearly doubled in 2011 from the previous year to between 1,500 and 2,000 megawatts of capacity. About 16 percent of that went to residential rooftops and 40 percent for installations at commercial sites, according GTM Research.

Much of solar’s recent growth has been from large-scale power plant projects designed to feed the wholesale electricity market in California. But with the state’s demand for large projects likely full through at least the middle of the decade, investors are looking at the spread of smaller installations, which may offer better returns.

Bank of America Merrill Lynch is backing about one-third of SolarCity’s $1 billion “SolarStrong” project to put panels on military housing, and developer Borrego Solar secured $47 million this week from U.S. Bank and East West Bank for projects on corporate, educational and municipal sites in California and Massachusetts.

Companies such as Google Inc have also invested in funds that provide new financial tools for companies that have helped make the residential market one of the fastest growing segments of the industry.

Those financing tools include leasing offers for homeowners or businesses, which can install the renewable energy systems on their rooftops without spending the tens of thousands of dollars a small-scale installation can cost.

Under the lease system, the installer brings outside financing, similar to that used by car dealers for auto leases, and the homeowner spends little or no money up front while still getting lower power costs.

Utility company PG&E and U.S. Bancorp have sunk $400 million into SunRun to fund their solar lease program.

ROLL-UP STRATEGY

Still, the solar installation market is very fragmented, with hundreds of small companies in California alone. Many experts believe that may open the door for a “roll-up” strategy in which well-financed companies buy up competitors.

“The competition is somewhat regional. There are not a lot of other national developers,” said Borrego Chief Financial Officer Bill Bush. “I think that will probably change over time.”

SolarCity is the market leader in residential installations with a 14 percent share, followed by Real Goods Solar with a 6 percent share, according to GTM Research.

Real Goods expanded from its base in Colorado last year with the acquisition of Alteris, giving it access to the fast-growing East Coast markets, where state incentives and high-power prices are expected to boost business.

Several larger solar companies have recently began offering solar leases, including MEMC Electronic Material’s SunEdison and SunPower, although those companies have also focused on larger-scale projects.

Those large projects and “utility” projects have dominated the market over the last two years because they are more cost-effective to build. Small projects on a single home or business tend to cost more than double the larger utility projects, often as much as $6-$7 per watt.

Despite the drop in panel prices, costs for residential and small commercial solar installations have seen little change in the last year, experts said, and can be about 50 percent more expensive than comparable installations in Germany, the world’s largest solar market.

“What has happened in the industry in the last two years hasn’t really gotten to the end customer. The homeowner is still waiting,” said Deep Chakraborty, chief executive of CentroSolar America, a unit of Germany’s Centrosolar Group AG.

Nearly a $1 per watt of the cost for residential or small business solar installation is due to “customer acquisition,” he said, or the marketing and outreach needed to close a deal.

And since most installers are very small companies, they typically purchase panels and other equipment such as wiring, power inverters, mounting racks and hardware separately, driving up costs.

Centrosolar is targeting that area for cost cuts, an effort Chakraborty says is key to creating a more cost effective “channel” to drive down the price of solar systems.

Still, building a network of installers that can reach thousands of homeowners can be expensive, and some players, such as Borrego are focusing on the “commercial” segment that includes businesses and government building for projects that are typically larger than residential installations.

“Relying on the residential market — I just don’t see how it could be scaled dramatically unless you can make it less expensive and it requires cutting out some of the parties involved, such as outside financing,” said Mehdi Hosseini, solar analyst at Susqehanna.

“If you can combined commercial with residential rooftops then you have a business model that can be scaled,” he said.

(Reporting By Matt Daily, additional reporting by Nichola Groom in Los Angeles. Editing by Gunna Dickson)

http://www.reuters.com/article/2012/02/17/us-solar-installers-idUSTRE81G27520120217?feedType=RSS&feedName=environmentNews&rpc=76

A PV array is made up of rectangular modules (or panels) that measure between 2 and 5 feet on a side. The most common type of PV module has an aluminum frame and a glass cover protecting a collection polycrystalline PV cells. When exposed to light, each PV cell produces 0.5 volt DC — so if you add up the number of cells and divide by 2, you know the voltage of the module. The best performing commercially available PV cells are roughly 20% efficient at converting solar energy into electricity.

Unlike polycrystalline PV cells, thin-film (amorphous) PV products are manufactured on a flexible sheet. These thin-film PV products have many applications; for example, they are used to make PV roof shingles and peel-and-stick membranes designed for use on metal roofing. Thin-film PV products have relatively low efficiencies — usually in the range of 10% to 12% — so they require almost twice the area required for a polycrystalline PV array with the same electrical output.

Both polycrystalline and thin-film PV arrays produce DC power. This DC electricity can be used directly to charge a battery; in most homes, however, the solar electricity is sent to an inverter that converts the DC power to AC. The inverter’s AC output can then be used directly by the homeowners or fed into the power grid.

Most grid-connected PV systems won’t provide any electricity during power outages, for two reasons: first, the type of inverter used for a grid-connected PV system won’t operate when the grid is down, and second, you can’t provide your home with electricity at night unless you have a big, expensive battery.

Of course, you can buy a battery and a special inverter if you want to, but that will add at least $6,000 to $15,000 to the cost of your PV system. Most homeowners who want backup power conclude that a gas-powered generator is cheaper than a big battery system and a special off-grid inverter.

Designing a PV system

The basics of PV system design can be quickly summarized with a few rules of thumb:

• Although some homeowners size a PV array to meet a specific electrical load, it is far more common to size a PV array to meet a specific budget. Residential PV systems now cost about $4.50 a watt, although prices can be higher or lower, depending on many factors.
• Polycrystalline PV arrays have a peak rating of 10 to 12 watts per square foot, while amorphous PV arrays have a peak rating of 5 to 6 watts per square foot.
• Solar electric potential varies by climate, from an average of 0.029 kWh per square foot per day in Seattle to an average of 0.049 kWh per square foot per day in Phoenix.
• A 1-kW PV system will generate an average of 970 kWh per year in Seattle and 1,617 kWh per year in Phoenix. (A useful free online tool for estimating the output of a PV array in different U.S. locations is PVWatts.)
• It’s almost always cheaper to buy very efficient appliances and a small PV array rather than ordinary appliances and a larger PV array sized to handle the increased load.
• Most buildings have a roof that is too small to accommodate a PV array sized to supply all of the building’s electricity.

Where should I mount the array?

A PV array can be roof-mounted, ground-mounted, or building-integrated. Most roof-mounted modules are installed on aluminum racks. These racks are best installed on an unshaded, south-facing roof parallel to the roofing, with an intervening air space of 3 to 4 inches. The air space under the array helps lower PV module temperatures; cooler modules produce more electricity than hotter modules. Maximum PV production usually occurs on clear winter days; ideal conditions require snow on the ground (but not on the modules) and a few fluffy cumulus clouds to reflect additional sunlight on the solar array.

Roof-mounted arrays dominate the PV retrofit market, but they aren’t the only option. Installing a ground-mounted array avoids one of the major drawbacks of a roof-mounted array — the need to disassemble the array when the roofing needs to be replaced. It’s also usually easier to remove snow from a ground-mounted array than a roof-mounted array.

Ground-mounted arrays require a site without any nearby trees or buildings to the east, south, or west. Such an array can be installed at a fixed angle or on a pole-mounted tracker that automatically adjusts the array’s angle as the sun moves across the sky.

Although trackers can increase the output of a PV array by 15% to 30%, they add complexity, cost, and potential maintenance headaches. Many PV installers advise homeowners to use the money that they would have spent on a tracker to simply buy more PV modules; in many cases, the end result is a simpler system with about the same electrical output.

PV roofing

PV arrays can be integrated into a variety of building components, including roofing, vertical façade components, translucent glazing, and awnings. Of these, roof-integrated PV arrays are by far the most common.

Manufacturers sell PV roofing products designed for integration with concrete tile roofs, asphalt shingle roofs, metal roofing, and low-slope membrane roofs. Since these products don’t stand proud of the roof, they make residential PV arrays less conspicuous; however, all of these roof-integrated products are more expensive than a conventional polycrystalline PV array.

Net metering

Many states have net-metering regulations that compel utilities to offer two-way electricity meters to customers with renewable energy systems; these meters credit customers for any on-site electricity production. While there is currently no federal mandate requiring utilities to offer net metering, 42 U.S. states have established net-metering mandates or guidelines. The details of these diverse net-metering programs vary widely.

The Network for New Energy Choices, a New York nonprofit group, issues an annual report, “Freeing the Grid,” that rates states on the friendliness of their net-metering laws and interconnection standards. According to the most recent report, the states with the best net-metering and interconnection regulations are Delaware, Massachusetts, and Utah, while the worst states are Georgia, Minnesota, Oklahoma, and South Carolina.

Here’s an example of how net metering usually works: If you have a PV array that generates 200 kWh during a month when your home uses 500 kWh, you’ll receive a bill for only 300 kWh. Some utilities roll over credits indefinitely, but most allow credits to roll over for only 12 months.

In most cases, homeowners can’t get a check from the utility for excess power production. That’s why grid-connected PV systems are rarely sized to generate more electricity on an annual basis that a home is expected to use.

PV payback

With Chinese factories now churning out PV modules at a furious pace, the cost of PV modules has been dropping fast. As Jesse Thompson, an architect in Portland, Maine, pointed out in his recent GBA blog, PV Systems Have Gotten Dirt Cheap, the installed cost of a grid-connected PV system now ranges from $4.10 and $4.50 a watt. At that price, PV-generated electricity is now cheaper than grid power in many areas of the country.

The financial case for PV systems is boosted by a variety of federal, state, and local incentives. Every U.S. taxpayer is eligible for a tax credit equal to 30% of the cost (including labor) of installing a residential PV system. New homes as well as existing homes are eligible for the credit, and there is no upper limit to the size of the credit.

Some state and local governments (and some local utilities) also offer further PV incentives. To learn more about the incentives available in your area, check out the Database of State Incentives for Renewable Energy (commonly known as the DSIRE website).

Although Jesse Thompson calls PV systems “dirt cheap,” most Americans swallow hard when they learn how much they cost. The typical zero-energy home needs a PV system rated at 5 to 10 kW; such a system costs between $21,000 to $42,000. Of course, tax rebates and utility incentives can significantly reduce that cost.

Let’s say you can afford a 6-kW PV system; how much electricity will that system produce? The answer depends on your location. In Chicago, Illinois, such a system would generate an average of 7,056 kwh per year — or $1,086 worth of electricity at the local rate of 15.4¢ per kWh. So if the system costs $17,500 after your federal tax rebate, you’ll break even if the system lasts about 16 years — assuming, of course, that you don’t have any maintenance costs.

Rising electricity costs would shorten the payback period, and if the system lasts longer than 16 years, you end up with cheap electricity. (For more information on payback, see Payback Calculations for Energy-Efficiency Improvements.)

Homeowners don’t have to make their own power

Before you invest thousands of dollars in a PV system, you need to ask yourself whether you really want the responsibility of maintaining power-generating equipment. Many energy experts argue that electricity generation is best done on the scale of a neighborhood or town rather than a single building.

Most homeowners have no interest in troubleshooting inverter problems or figuring out how to dismantle their PV array when it’s time for a new roof, so they’re happy to leave the job of power generation to their local electric utility. That’s just as well, since utility-scale wind or solar projects are almost always more cost-effective than residential-scale PV systems.

For some building owners — especially those willing to make a significant investment to reduce their carbon footprint or those living in states with generous PV subsidies —investing in a PV system makes sense. Many hobbyists get a kick out of watching the meters on their PV system spike on a sunny day, and some homeowners appreciate the security that comes from paying up front for 30 years’ worth of electricity.

Of course, an on-site renewable energy system is not a prerequisite for green construction. “I always tell clients that solar is the last thing I want you to do,” said Steven Strong, the president of Solar Design Associates in Harvard, Massachusetts. “Build the envelope with the best materials you can. Buy the best windows — don’t even tell me what they cost. I don’t care.”

Remember: many energy-efficiency measures — including air sealing work and investments in energy-efficient appliances and lighting — have a much faster payback than a PV system. Such measures, often referred to as “the low-hanging fruit,” should always be implemented before you make an investment in PV.

What about an off-grid system?

If you’ve ever dreamed of building or owning a zero-energy house, perhaps you’ve also dreamed of living off the grid. Here’s the fantasy: you build a cabin in the woods with its own well and septic system, and you obtain all of your electricity from a PV array on the roof. What could be better? You’re self-sufficient!

Well, not quite. In most climates, it’s actually quite difficult (and expensive) to be electrically self-sufficient. First of all, you’ll need a bank of lead-acid batteries to run your appliances at night and on cloudy days. Most off-grid homeowners pay between $1,200 and $8,000 for a set of batteries. The batteries usually have enough capacity to run the house for only two or three days. And they don’t last very long; every 8 or 9 years, you’ll have to invest in a new set.

If you anticipate three weeks of cloudy weather in November — a typical occurrence where I live in northern Vermont — you could theoretically purchase a battery bank large enough to get your house through three cloudy weeks. However, the batteries would probably cost $40,000 or more — far more than a gas-powered generator and a lifetime supply of gasoline. That’s why most off-grid homeowners don’t size their battery bank to get them through the winter.

Another problem with an off-grid PV system is that much of the electricity produced during the summer is wasted. How is that? Since most off-grid homes don’t have an air-conditioner — air conditioning uses far more electricity than the typical off-grid array can supply — these homes don’t require much electricity during the summer. Days are long, and the need for lighting is greatly reduced. So on a sunny June day, the battery systems of many off-grid homes are completely full by 10:00 a.m. At that point, the system’s charge controller disconnects the PV array from the battery, and all of the electricity produced for the rest of the day is wasted.

Grid-connected systems solve the summer problem as well as the winter problem. During the winter, when sunlight is rare, grid-connected homeowners can buy electricity from the local power company. During the summer, when their PV array produces a surplus, they can sell the power to the grid. It’s a win-win situation.

The last $10,000

When energy nerds gather for conversation, they often discuss how to spend “the last $10,000” when designing a new home. As PV systems continue to drop in price, designers need to keep their pencils sharp and rethink their assumptions about the last $10,000.

The “last $10,000” question assumes that you’ve already designed a “pretty good house,” meaning that you’ve paid attention to air sealing, have installed insulation in a conscientious manner, and have installed windows that at least meet Energy Star requirements.

Ten years ago, the answer to the “last $10,000” question almost always involved more insulation or better windows. These days, however, it often makes sense to spend the last $10,000 on a PV array.

So, the next time a client asks you a question about “last $10,000,” you should be ready with an educated answer that applies to your climate and your local utility costs. Before you recommend installing R-60 attic insulation, triple-glazed windows, or a condensing gas water heater, do the math. The answer you get may surprise you.

BY MARTIN HOLLADAY, GBA ADVISOR

http://www.greenbuildingadvisor.com/blogs/dept/musings/introduction-photovoltaic-systems?utm_source=email&utm_medium=eletter&utm_term=electrical&utm_content=20120217-gerstel-interviews&utm_campaign=fine-homebuilding-building-business

Opinions differ among glass and glazing professionals regarding whether Congress should have extended tax incentives used by developers and remodelers that, in turn, influenced the glass industry.

The incentives in question: the New Energy Efficient Home Tax Credit (45L) and the Existing Home Retrofit Tax Credit (25C). The 45L was the only federal incentive available for efficiency in new home construction, and provided a $2,000 tax credit to builders and developers for the construction and sale of homes that achieved a 50 percent improvement in energy efficiency over the 2004 International Energy Conservation Code (IECC). The 25C provided consumers a tax credit of up to $500 for the purchase of qualifying energy-efficient products. Remodelers often leveraged 25C tax incentives when working with clients. Both tax credits expired on December 31, 2011.

“The December 31, 2011, expiration of the Energy-Efficient Home Credit (45L) will have very little, if any, impact on new home construction as the portfolio of existing unsold new homes continues to compete with the glut of severely devalued properties that blanket the U.S.,” says Rich Walker, president and CEO of American Architectural Manufacturers Association of Schaumburg, Ill. “Banks continue to unload foreclosed homes at severely distressed prices. These prices then form the basis for local real estate ‘comparable,’ which serve to further reduce the opportunity for builders to recover the cost of construction built to exceed the energy-efficiency standards set within the IECC. The $2,000 credit offered to builders does not compensate for the tens of thousands of dollars lost in new construction value due to the current saturation of homes being sold at prices far below fair market.

“Until Congress acts uniformly to enact a well thought out initiative to jumpstart job growth and offer substantive homeowner energy-efficiency incentives, the ongoing U.S, housing crisis will continue to languish along a painful recovery path measured in years, not months,” Walker adds.

Brian Pittman, director of marketing and communications at the Glass Association of North America in Topeka, Kan., has a different opinion. “These tax credits are a vital part of keeping the United States moving forward on energy-efficient products in homes and, ultimately, in commercial construction,” he says. “Consumers use the incentive provided in 45L as a reason to purchase these products for their home, and they learn a valuable lesson when the true benefits kick in. President Obama and the U.S. Congress clearly need to keep this train moving, as it benefits our economy, the glass and glazing manufacturers, fabricators and installers who make and sell these products, the consumers who buy them and the environment in general. To remove this specific incentive, among others, can slow the adoption of energy-efficient, high-performance glazing among consumers, which could negatively affect one of the bright points of the glass and glazing industry right now.”

Robert Dietz, an economist with the National Association of Home Builders of Washington, D.C., says that 45L is an important energy tax incentive. “The tax credit helps offset the cost of constructing an energy efficient home, which results in both lower utility bills for the residence over the life of the property, which can be 60 years or more, as well as the direct construction impact,” he says. NAHB estimates that the construction of an average, single-family home creates three full-time jobs. “An extension of the 45L program is an important policy goal of NAHB for 2012,” he says.

NAHB has also estimated the jobs and remodeling sector impacts associated with the 25C program. Click here to see its Eye on Housing Economics blog.

Ben Gann, director of legislative affairs & grassroots activities at the Window and Door Manufacturers Association (WDMA) in Washington, D.C., agrees with Pittman. “Expiration of the energy efficiency tax credits for both existing homes (25c) and new homes (45L) will decrease sales of all higher-energy-efficient products, including windows, doors and skylights,” he says. “The 25C tax credit creates jobs and benefits homeowner by reducing energy use, and WDMA is leading an industry coalition seeking an extension of the energy efficiency tax credit for existing homes. As for 45L, incentives for construction of new homes should remain in place given the current state of the housing market.”

Kim Flanary, sustaining, manufacturing and quality engineer at Milgard Windows & Doors in Tacoma, Wash., is of the same opinion. “The New Energy Efficient Home Tax Credit is good for the consumer, as well as the glass and glazing industry,” he says. “The tax credits of the past few years have helped our industry through very difficult economic conditions. Consumers have been given an incentive to invest in home improvements that will improve the energy efficiency. This has driven sales within the industry that helped many companies through very difficult times.”

To be sure, a heavier (and accepted) dose of government regulation, more stringent (and mandated) energy-use and carbon-emission standards, and a deeply embedded cultural ethos that champion the collective good over individual aspirations all seem as foreign (and frightening) to American builders as wearing a kilt and eating the traditional Scottish dish haggis—and something they are even less likely to try.

But political and social differences aside, there’s a lot to be learned and applied from the European model of low-energy and low-carbon, yet comfortable and durable, residential design and construction. All it takes is a better understanding and some American initiative to bring it across the pond.

Off-Site Construction

How Europeans define “off-site” or factory-built housing differs greatly from the “component framing” manufacturing that is employed in the United States.

Gerry McCaughey, who previously owned Kingspan Century, a SIPs-based, whole-house building system manufacturer in Ireland that produces 8,000 units a year, likens it to the difference between crafting a Mercedes and supplying steel to the factory. He bemoans the American model of local lumberyards providing open-frame roof trusses and wall panels that are assembled on site by stick-trained framing crews.

“It’s just a way for lumberyards to sell more sticks, not produce housing,” he says, and certainly not to a higher performance or environmental standard.

The European model, which accounts for about 30% of all new housing in England and perhaps 70% in Ireland, with similar market shares across the European Union, delivers precision that can’t be matched in the field. “In Europe, it’s an accepted fact that factory-controlled conditions result in higher quality,” he says. “And the higher the energy- and carbon-efficiency standards, the harder they are to achieve with on-site construction.”

In the United States, HUD-code and modular home shipments combined for 10% of the new-housing pie in 2010, a share that’s falling despite a greater emphasis on green building at a lower price point.

The key is accuracy through automation. Kingspan Century, for one, achieves framing tolerances equal to the width of a thumbnail, and its machines perfectly shoot six nails a second to secure a sheathing panel—a speed that enables the manufacturer to double the number of fasteners beyond the code-required pattern to deliver a stronger and airtight structure. “In the factory, the saw blade always comes down on the correct side of the line,” says McCaughey.

It doesn’t end there. European housing manufacturers are one-stop shops for entire home packages, at least to the drywall stage inside and the application of exterior finishes.

In addition to certified, four-man crews that can dry-in a two-story, 2,000-square-foot house in a day, companies deliver and stage drywall stacks across the slab and second-floor floor deck before the walls arrive, among other efficiencies that save time and reduce construction waste, the latter by perhaps 40%.

To match that performance, says McCaughey, American companies must accept and apply the whole package and philosophy of European automated home production. “The technology and machinery is available, but it’s just a tool,” he says. “You have to tell it what to do, and that means engineers instead of framers in the factory. It’s a fundamental difference.”

No one is suggesting that the United States blindly adopt the socialist models of its EU counterparts with regards to sustainable housing or otherwise, but there are some lessons and tactics that could build on what’s been done domestically to date.

In 2005, the U.K. government engaged the country’s largest home builders in a competition to build model homes that were 20% better than current energy codes and priced less than $100,000 (U.S.) to prove that high performance and low cost could coexist. “It was prestigious to win,” says McCaughey. “The whole housing industry engaged.”

When that same government offered prime real estate from shuttered military bases and state-run educational and health-care facilities to private developers, the bidding process required a plan to deliver homes with higher energy efficiency and lower carbon emissions, greater housing density, a certain percentage of homes priced below market rate, and the use of off-site or modern methods of construction in addition to the proposed purchase price for the parcel.

But what’s really driving energy-efficient, low-carbon housing development across Europe is the EU’s adoption of the Kyoto Protocol, a legally binding global agreement ratified in 2002 to reduce greenhouse gas levels among countries who signed on, which the United States did not.

The Kyoto Protocol forced EU governments to expand their focus beyond emissions from cars to include buildings of all types, which contribute about 40% of the greenhouse gasses emitted into the atmosphere.

Its ratification led directly to the Energy Performance of Buildings Directive (EPBD), an EU standard that each member country was charged to implement and enforce. Ireland, for one, boosted its energy codes in 2008 to achieve a 40% improvement and tightened the standard by another 20% two years later.

In turn, the EPBD begat the Energy Performance Certificate, a label on all homes, new and existing, that indicates its predicted energy use per square meter and annual CO2 emissions. “[The certificate] helps shape the awareness of each home buyer that energy efficiency is related to every single house and that everyone is responsible,” says Georg Driendl of driendl*architects in Vienna, Austria. “Laws and regulations are advanced to a point that the basic quality [of] sustainable living is guaranteed.”

For Americans that point to the ANSI-approved National Green Building Standard or the LEED for Homes or Energy Star Qualified Homes programs—not to mention federal, state, and local green building tax credits and subsidies—as evidence of similar initiatives, the difference is those programs and incentives are voluntary, while the EPBD is mandated across an entire continent with enviable results in terms of housing performance.

“In Western Europe, people expect the government to regulate,” says Jerry Yudelson, a green building consultant in Tucson, Ariz., and author of Green Building Trends: Europe. “People there don’t expect the market to deliver the magic.”

Market Drivers

That being said, independent European architects, builders, research entities, and building products suppliers have taken the initiative to showcase advanced energy and resource efficiencies and modern construction methods that meet or exceed current standards; in fact, often advancing them further.

In his book, Yudelson recalls a research facility in Germany that tested 12 different building façades for their environmental performance, a practice that is “historically the backbone of building regulations” across the EU.

Model homes, often placed in public venues to garner attention, also play a key role. “Demonstration projects drive the development of codes and standards in the Netherlands, especially when they come from the market,” says Lone Feifer, strategic project director for the Model Home 2020 program initiated by VELUX, a Dutch-based global supplier of roof windows and solar thermal systems. “They prove viable solutions using available technologies.”

That’s different from most green-home prototypes in the United States, which tend to exhibit products and systems not yet available or affordable to the mainstream. “Our directive is to use market-available products that you can get from the local DIY,” says Feifer. “The goal is to develop a new model that makes the old one obsolete,” while still affordable and marketable to the masses.

Feifer, an architect by trade, also respects the importance of design appeal and comfort when considering sustainable building performance. “It can’t just be a technocratic approach,” she says. “You have to design for occupant behavior and comfort. The main point of a house is to live in it, not to save energy.”

Little Differences

In addition to lessons from Europe’s advanced automation, tighter regulation, and large-scale initiatives toward better-built, market-rate housing, there are some smaller nuggets to mine that can help advance America’s efforts.

Europe’s respect for smaller units comes to mind. “How many square feet do you actually need?” asks Feifer, echoing a common refrain about U.S. housing. “That’s the necessary discussion for the United States,” if it hopes to significantly reduce the environmental footprint of its built world.

Hand-in-glove is Europe’s creativity with space, such as designing with no load-bearing interior walls to easily allow changes in use in the same building. Consider also the practice of putting common living spaces upstairs in a two-story plan to better leverage daylight and passive ventilation, which are less critical (or desired) for bedrooms and other private-use spaces.

Europeans also require products and systems to multitask, such as a chimney that serves as a passive ventilator, a natural light source, and a thermal mass. Technologies such as solar-powered whole-house heat exchangers and underfloor air distribution exemplify increasingly common practice in Europe, but new thinking in America.

“At some point, someone [in the United States] will start doing it this way and prove it works,” says McCaughey. “And they will inspire the rest of the industry to follow.”

Rich Binsacca is a contributing editor to EcoHome.

Reader and financial blogger Philip J. Anderson sent us an illuminating analysis of real estate bubbles through U.S. history.

“For the first 144 years of real estate enclosure in the U.S., land sales and/or real estate construction peaked almost consistently, every 18 years,” Anderson writes. “The world’s worst downturns are always preceded by land speculation (the chasing of the economic rent) fueled by misguided credit creation courtesy of the banks.”

First, the big picture: The U.S. federal government began selling off land in the year 1800. Since then, there have been peaks and valleys of land sales and speculation roughly every 18 years.

Philip J. Anderson

Rewind to the first major boom-and-bust, in 1837. The stock market peaked just prior to the bust, a trend we recognize in our own era.

Philip J. Anderson

As a result, banks hoarded gold, silver and cash for years afterwards:

Philip J. Anderson

Bank lending picked back up after the 1849 gold rush, putting credit back into expansion mode:

Philip J. Anderson

By the 1850s, another boom-and-bust cycle had begun. It took the American Civil War to pull the economy out of its dive:

Philip J. Anderson

Check out the spike in interests rates in 1857, and their uncharacteristically low level in the following years:

Philip J. Anderson

Once again, banks hoarded their assets and rebuilt their base with gold and silver:

Philip J. Anderson

In 1873, another crisis (predicted once again by falling stocks prices) resulted in four long years of turmoil before hitting rock bottom. Interest rates stayed below average during that time.

Philip J. Anderson

And again in 1893, with little recovery seen until five years later:

Philip J. Anderson

Accordingly, interest rates remained low for the rest of the 1890s:

Philip J. Anderson

The most memorable crash came in 1929, resulting in the Great Depression. Bank lending, and the land prices that served as collateral, fell throughout the 1930s.

Philip J. Anderson

It wasn’t until the 1950s, after World War II had ended, that the economy and the real estate cycle was able to reset. The stock market low of 1974 was the next biggest crash since that time.

Philip J. Anderson

The next real estate cycle was 1974 to 1992, with the second half of the cycle being buoyed by credit creation and real estate collateral:

Philip J. Anderson

The stock market lows of 1991 turned into all time highs in 1992, and interest rates remained low until 1994:

Philip J. Anderson

And the trend continues: Here is the same chart, as of September 16th, 2011. Historical repeats of note include the retracement by half of the entire up move after the bust, the strong recovery of the index once the Federal Reserve got involved and new all time highs in the Dow.

Philip J. Anderson

Anderson notes at the end of the report that “if markets go lower than the lows of 2009, this current cycle has further to run.”

Philip J. Anderson

The opportunity for savings — and to draw down some energy-related federal stimulus dollars — has spurred action by state and local officials. In January, Texas will adopt a statewide building code that should cut the energy consumption of new single-family homes by more than 15 percent, according to the Energy Systems Laboratory at the Texas A&M University System. The state tightened codes for commercial, industrial and other residential buildings in April.

Big Texas cities tend to jump out ahead of the statewide building codes, which have often lagged nationally. This month, the Houston City Council passed a measure requiring new homes to be about 5 percent more efficient than the forthcoming statewide code, an effort to cut down on homes’ energy use and burnish Houston’s green credentials. Over the next few years, Houston will consider more requirements that could put the city some 15 percent above the state code in terms of energy savings.

Environmentalists welcome the stronger codes, but builders have concerns. Scott Norman, executive director of the Texas Association of Builders, said his group supports Houston’s recent action. But he said further efficiency increases the need to balance energy savings with economic considerations.

Energy-saving requirements can easily add a few thousand dollars to the upfront cost of a new home, Norman said, and that can price people out of the market.

Luke Metzger, director of Environment Texas, said the code changes are crucial to saving energy in both new and existing structures. “Homes we build today are going to last another 70 years,” he said.

But crafting codes is easier than making them effective. A report this year by the nonprofit Building Codes Assistance Project with input from Texas’ State Energy Conservation Office noted that “many local governments will see the mandatory statewide code as an unfunded mandate set by the state.” Enforcement capabilities are often lacking, especially in small jurisdictions, the report said.

Even big cities struggle. In Austin, where codes have already gone beyond the upcoming statewide requirements, the number of annual building inspections fell from 226,000 three years ago to about 165,000 today — a casualty of budget tightening, according to Dan McNabb, the city’s building inspections division manager. Austin’s inspectors do not just address energy issues; they also spend time looking at safety matters like stairs and glass.

“Every project is different,” McNabb said.

“Housing is a giant job creator,” said Scott Norman, an Austin mortgage broker and past president of Texas Mortgage Bankers Association. “There are a lot of people whose livelihoods depend on a house being bought and sold.”
Contributing factors
Several factors contributed to the relative stability of the Central Texas housing market during the downturn. They include stricter home-equity lending laws in Texas than some other states, the diverse local economy, and continued job and population growth, housing experts and economists say.
The region also has a more plentiful supply of land and lots — and fewer impediments to developing it — than in some of the boom-bust states, said Eldon Rude, director of the Austin office of Metrostudy, a housing market research firm. This resulted in lower price appreciation in our housing market during the most recent housing boom, he said.
In contrast, a run-up in demand in the hardest-hit states, coupled with a limited supply of land and lots, resulted in significant appreciation of those lots, which made the homes more expensive, Rude said.
Rude said several key indicators provide “powerful insight” into the differences in the housing industries and underlying economics of the Austin area when compared with the boom-bust markets.
• Pricing: Home prices locally didn’t experience a big boom-bust cycle like they did in Las Vegas, where prices went up 44 percent per year at the peak ; Phoenix, up 41 percent per year at the peak; and Orlando, which saw 33 percent annual appreciation at the peak, according to the Federal Housing Finance Agency. By contrast, Austin’s peak annual home price appreciation was 10.5 percent, according to the agency’s data.
On the flip side, prices have dropped sharply, down 16 percent in Las Vegas from mid-2010 to mid-2011, and by 15 and 10.7 percent in Phoenix and Orlando, respectively. The decline in the Austin area was much lower at 2.3 percent during the same 12-month period.
• New-home construction: Home starts plunged nearly 90 percent from early 2007 (roughly the housing peak) through September of this year in Las Vegas. Phoenix and Orlando also saw dramatic declines, nearly 85 and 72 percent, respectively.
By comparison, the Austin area registered a 61.4 percent decline, the lowest during that period among major Texas cities and well below the most troubled markets.
• Construction employment: Comparing September 2006 — roughly the peak of new home construction — with this September, construction employment fell 62 percent in Las Vegas, and Phoenix and Orlando each lost more than half of their jobs in the sector. During the same period, construction employment in Austin dropped slightly more than 8 percent.

Government agencies say the benefits of energy-saving construction are recognized by private lenders, but builders say otherwise.

Last week, HUD Secretary Shaun Donovan and U.S. Department of Energy Secretary Steven Chu met at an energy auditing company on Long Island to announce the launch of the FHA’s new PowerSaver pilot program.

Working with 18 lenders across the country, the program will allow homeowners to borrow up to $25,000 to finance energy improvements in an existing home, including improvements to insulation, duct sealing, replacement doors and windows, HVAC systems, water heaters, solar panels, and geothermal systems. Terms can go up to 20 years, and rates will be lower than standard. The FHA will guarantee up to 90% of the loan.

The idea is to generate interest in the private sector, which Donovan is hoping will get on board by providing these types of loans more readily.

Fannie Mae recently came out with a similar offering, a new Energy Improvement feature for mortgage loans. Fannie had already stopped offering its Energy Efficient Mortgage feature, which could have been used to finance the purchase of a new energy-efficient home. The replacement program can only be used to make energy improvements to an existing home.

The financing will cover energy improvements deemed cost-effective by a RESNET home energy rating, and amounts can go up to 10% of the post-improvement appraisal.

Unlike Fannie, the FHA still has a program for buyers of energy-efficient new homes intact. Its Energy Efficient Mortgage program can be used to help home buyers finance energy-efficient features in a new home as part of an FHA insured mortgage.

However, the increasing shift in emphasis toward improving the energy efficiency of existing homes rather than new homes is symptomatic of the disconnect between what government entities see as the market reality and what builders are seeing in the field.

According to a Fannie Mae spokesperson, the company feels that private lenders are meeting the needs of buyers of energy-efficient homes, suggesting that lenders will value energy-efficient features appropriately.

Shaun Donovan agrees. When Builder questioned Donovan after the PowerSaver announcement about why the government seemed to be moving its focus to existing homes, Donovan emphasized that the benefits of energy-efficient building are being recognized by private sector lenders and appraisers.

“We’ve seen greater progress in the new-home market through local building codes,” Donovan told Builder. “What we’ve seen more and more are appraisers and Realtors who see the value in [energy-efficient construction], and lenders are recognizing that.”

But that’s not what builders are saying.

About two years ago, Meritage Homes decided to go all-in with energy efficiency. “We took the approach that we were going to start over and change the way we build,” C.R. Herro, vice president of environmental affairs at Meritage, told Builder. “We frame different. We build different. We use different appliances and features.”

As a result, Herro reports that Meritage can build a home that uses half the energy and half the water of a traditional home with only a 10% increase in the cost of construction. The energy-saving upgrades Meritage includes can save the homeowner between $1,200 and $3,600 a year in utility bills, depending on the home (some of Meritage’s homes achieve net-zero energy efficiency).

But when asked if appraisers and banks recognize the value of the energy-efficiency benefits Meritage includes, Herro replied emphatically, “Absolutely not! We’re building a lot of significant improvements into our homes. We’re doing net zero. We’re doing solar. And we’re struggling to get a penny out of it.”

“Conventional construction is leaky,” Herro said. “A traditional home will have to recondition all of the air in the entire house 70 times a day. When you rebuild [to high energy-efficiency standards], you can cut that down to five.” According to Herro, such a reduction would cut heating and air-conditioning costs down by 60%.

The trouble, Herro said, is that the people consumers look to when trying to gauge the value of a home—appraisers and lenders—are failing to recognize the value in the energy-efficiency upgrades the homes include, and as a result, the builder is forced to absorb that additional cost.

Despite these challenges, Meritage has been able to make energy-efficient building work as a business model, largely because of customer awareness that sees the value in it. Also, as one of the largest builders in the country, Meritage is able to achieve economies of scale by building all of its homes to energy-efficient standards. “But the average builder is incentivized to build a less energy-efficient home,” Herro said. “It’s ridiculous that you can build to [a high] level of efficiency, but it has a negative effect on your income statement.”

In an effort to remedy the problem, Herro is promoting the Sensible Accounting to Value Energy (SAVE) Act, a proposal supported by Sen. Michael Bennet (D-Colo.) that would require federal loan agencies to take into account the expected energy costs of a home when assessing a mortgage loan application.

“Homeowners who spend less on energy will have more money to make mortgage payments and to maintain and repair their homes,” SAVE Act press materials say. “A person will be less likely to have to choose between paying the utility company or his or her lender.”

The materials also point out that the average U.S. household will spend more than $2,300 in energy costs over the course of a year, “more than the average cost of property taxes or homeowners insurance, two expenses that are routinely underwritten in a mortgage loan. Energy costs are not accounted for in this process.”

“If you take all the things out of a home that waste resources and money, that innovation costs a little bit more,” Herro said. “The problem is that building better, until the average consumer recognizes the benefits, is disincentivized by the establishment.”

Claire Easley is senior editor, online, at Builder.

President Obama says the Occupy Wall Street protests show a “broad-based frustration” among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis.

“You’re seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place,” he complained earlier this month.

But what if government encouraged, even invented, those “abusive practices”?

Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rate, and launched what would prove the costliest social crusade in U.S. history.

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

Bubble? Regulators Blew It

The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

“The agencies will not tolerate lending discrimination in any form,” the document warned financial institutions.

Ludwig at the time stated the ruling would be used by the agen cies as a fair-lending enforcement “tool,” and would apply to “all lenders” — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial “discrimination.” But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower’s credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

President Obama says the Occupy Wall Street protests show a “broad-based frustration” among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis.

“You’re seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place,” he complained earlier this month.
But what if government encouraged, even invented, those “abusive practices”?

Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rate, and launched what would prove the costliest social crusade in U.S. history.

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.
Bubble? Regulators Blew It

The threat was codified in a 20-page “Policy Statement on Discrimination in Lending” and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.
The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

“The agencies will not tolerate lending discrimination in any form,” the document warned financial institutions.

Ludwig at the time stated the ruling would be used by the agen cies as a fair-lending enforcement “tool,” and would apply to “all lenders” — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial “discrimination.” But it was simply good underwriting.
It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower’s credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants’ net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

For the first time, Washington’s bank regulators put racial lending at the top of their checklist. Banks that failed to throw open their lending windows to credit-poor minorities were denied expansion plans by the Fed in an era of frenzied financial mergers and acquisitions. HUD threatened to deny them access to Fannie Mae and Freddie Mac, which it controlled. And the Justice Department sued them for lending discrimination and branded them as racists in the press.

“HUD is authorized to direct Fannie Mae and Freddie Mac to undertake various remedial actions, including suspension, probation, reprimand or settlement, against lenders found to have engaged in discriminatory lending practices,” the official policy statement warned.

The regulatory missive, which had the effect of law, advised lenders to bend “customary” underwriting standards for minority homebuyers with poor credit.

“Applying different lending standards to applicants who are members of a protected class is permissible,” it said. “In addition, providing different treatment to applicants to address past discrimination would be permissible.”

To that end, lenders were directed to “make changes in marketing strategy or loan products to better serve minority segments of the market.” They were also advised to “change commission structures” to encourage brokers and loan officers to “lend in minority and low-income neighborhoods” — a practice Countrywide Financial, the poster boy of the subprime scandal, perfected. The government now condemns the practice it once encouraged as “predatory.”

FDIC warned banks that even unintentional discrimination was against the law, and that they should be proactive in making “multicultural” loans. “An ounce of prevention is worth a pound of cure,” the agency said in a separate advisory.

Confronted with the combined force of 10 federal regulators, lenders naturally toed the line, and were soon aggressively marketing subprime mortgages in urban areas. The marching orders threw such a scare into the industry that the American Bankers Association issued a “fair-lending tool kit” to every member. The Mortgage Bankers Association of America signed a “fair-lending” contract with HUD. So did Countrywide.

HUD also pushed Fannie and Freddie, which in effect set industry underwriting standards, to buy subprime mortgages, freeing lenders to originate even more high-risk loans.

“Lenders should ensure that their loan processors and underwriters are aware of the provisions of the secondary market guidelines that provide various alternative and flexible means by which applicants may demonstrate their ability and willingness to repay their loans,” the policy statement decreed.

“Fannie Mae and Freddie Mac not infrequently purchase mortgages exceeding the suggested ratios” of monthly housing expense to income (28%) and total obligations to income (36%).

It warned lenders who rejected minority applicants with high debt ratios and low credit scores to “be prepared” to prove to federal regulators and prosecutors they weren’t racist. “The Department of Justice is authorized to use the full range of its enforcement authority.”

It took a little more than a decade for the negative effects of the assault on prudent lending to be felt. By 2006, the shaky subprime mortgages began to default. In 2008, the bubble exploded.
Clinton’s task force survived the Bush administration, during which it produced fair-lending brochures in Spanish for immigrant home-loan applicants.

And it’s still alive today. Obama is building on the fair-lending infrastructure Clinton put in place.

As IBD first reported, Attorney General Eric Holder has launched a witch hunt vs. “racist” banks.

“It’s a more aggressive fair-lending enforcement approach now,” said Washington lawyer Andrew Sandler of Buckley Sandler LLP in a recent interview. “It is well beyond anything we saw during the Clinton administration.”

Tom Perez, assistant attorney general for civil rights, recently testified that his division “continues to participate in the federal Interagency Fair Lending Task Force.” And he and the task force are working with the newly created Consumer Financial Protection Bureau to “enhance fair-lending enforcement.”

The fair-lending task force’s original policy paper undercuts the notion the financial crisis was all about banker “greed,” though it certainly played a role after the fact. Rather, it offers compelling evidence that the crisis evolved chiefly from government mandates and threats to increase lending to applicants who could not afford them.