Implementing a Better Homes Loan Program in Ottawa

The City of Ottawa is seeking to launch the Better Homes Loan Program to help homeowners finance home energy improvements, create local jobs, achieve the city’s greenhouse gas emissions reduction targets, and make Ottawa’s building stock more comfortable, healthy and resilient to extreme weather events. This PACE (Property Assessed Clean Energy) program is supported by the province’s amended Municipal Act (2001), which enables program participants to finance energy upgrades to their home and repay the project costs over time through a local improvement charge added to their property tax bills.

Once launched, the program will be available to homeowners with eligible properties, including singles, duplexes, row houses and apartments of three or fewer stories. Participants can select from a variety of eligible improvement categories, including the following: thermal envelope upgrades; heating, cooling and ventilation equipment; renewable energy, energy storage and electric vehicle chargers; water conservation systems and low-flow fixtures; health and safety measures; and other measures, such as drywall and wiring, needed to enable these improvements. Accessory rental units, such as basement apartments and granny suites, can also access up to 30% of the loan amount. The program will feature a Bulk Heat Pump Program, which will reduce the cost to adopt an air-source heat pump by approximately 25%. It will also feature a Retrofit Portal, which will facilitate the decision-making process for homeowners, enable contractor quotes and facilitate applications to utility incentives. Participants can be reimbursed for the required pre- and post-retrofit home energy assessments and finance these costs through the program.

This program is aligned with the city’s Climate Emergency Declaration (2019); Climate Change Master Plan (2020), which set targets to reduce community GHG emissions 100% by 2050; and Energy Evolution strategy (2020), which called for a residential retrofit accelerator program featuring a local improvement charge to finance home energy improvements. The program is also supported by the city’s Finance and Economic Development Committee Report (2020), which recommended that Council do the following: approve in principle the proposed program; direct staff to apply for GMF for funding to launch it; and, if the funding application is successful, formally approve the Better Homes Loan Program, amend the City’s Local Improvement Charge Policy and secure external financing to launch the program.

Financing Terms Extended to Homeowners:

• Loan amount: The minimum loan amount is $15,000, up to 10% of the assessed property value.
• Loan terms and repayment: Terms for loans will be 10–25 years. Light retrofits will be eligible for 10-year terms; bundles of three measures up to 15 years; four or more measures up to 20 years; and, if energy reductions of greater than 60% are anticipated, up to 25 years. Homeowners can pay the local improvement charge on their property tax bills with monthly direct debit payments, prepay up to 30% of the loan amount upfront, and pay off the remaining loan amount at any time without penalty.
• Interest rates: There will be a 3%–4% interest rate on the loans, pending interest charged by FCM and private lenders.
• Underwriting criteria: The city will verify that no outstanding payments were owed to it in the last five years, require proof that all owners on the property title approve program participation, and request evidence of mortgage-lender consent.
• Additional fees or charges to participants: An administration fee of 2% will be added to the loan amount.
• Consumer protection measures: City staff will verify the reasonableness of contractor quotes; maintain the right to inspect homes and documents where necessary; and receive post-retrofit energy assessments and participant utility bills for two years following project completion to enable data-driven verification that retrofits were successfully completed.

Capital project financing will flow from GMF and VanCity to the city. The city will in turn on-lend the funds to the homeowner, who is responsible for paying the contractor. Following the submission of a pre-retrofit home energy assessment and a funding request form, the homeowner will receive up to 30% of estimated project costs to hire a contractor (or contractors) and place security deposits for the work. After project completion, the homeowner will submit a post-retrofit home energy assessment and a Certificate of Completion to receive the outstanding amount. The city will then place the local improvement charge on the homeowner’s property tax bill to recover the total disbursed amount, minus the Bulk Heat Pump Program rebate if applicable.

Environmental Benefits:

The program is anticipated to reduce energy usage 24,179 GJ per year and greenhouse gas emissions by 1,057 tCO2e per year.

Social and Economic Benefits:

• Approximately 200 new, primarily local jobs in supplying, installing, and maintaining energy improvements
• Reduced household energy burdens will keep energy dollars in Ottawa and magnify economic recovery efforts
• Buildings with increased energy efficiency, comfort, and resiliency to climate change
• Increased heat pump adoption, and thereby air conditioning, will reduce the impacts of increasingly extreme and frequent heat waves on the elderly, the vulnerable and those expected to work from home in the coming years due to the COVID-19 pandemic
• Decreased demand for new energy-generating facilities will protect greenspace biodiversity and carbon sinks
• Reduced fossil-fuel combustion for space and water heating will improve indoor and outdoor air quality
• The Retrofit Portal will increase homeowner decision-making capacity and knowledge of home energy improvements
• Training sessions for municipal staff will increase capacity and knowledge of energy retrofits, pricing, data analysis and building permits
• Elected officials will be educated on deep energy retrofits and the new program to encourage uptake
• Training sessions for contractors and energy advisors will build local capacity to support the program and the larger sector
• Information sessions for mortgage lenders will encourage financial institutions to support more homeowner applications

Innovative aspect(s):

• The expansive eligible measures list, which includes a variety of water conservation measures, electric vehicle chargers and funding to retrofit accessory rental units, could raise the bar for other municipalities and help increase the triple bottom-line impacts of programs nationwide
• The Retrofit Portal, which will use EnerGuide data to generate an energy score for the home, offer cost–benefit analyses of eligible energy improvements, and provide ease of access to the contractor network, utility incentives and the program’s loan application, could be reproduced by other municipalities offering similar programs
• Rather than provide a direct-to-customer rebate to encourage air source heat pump adoption, the city will employ a unique strategic-sourcing approach, purchasing the air-source heat pumps in bulk directly from the manufacturers, which should reduce equipment costs by 50% and total installed costs by 25%
• To eliminate financial risk and avoid assuming the role of air-source heat pump distributor, the city will partner with a third party who will develop and deliver the Bulk Heat Pump Program

Replicability:

• The city will deliver presentations to other municipalities through program stakeholder networks, which include the Ottawa Climate Action Fund, the Canadian Urban Sustainability Practitioners, and the Ontario Clean Air Partnership
• By working with VanCity Credit Union, the municipality will build experience on how to partner with private investors and will present at relevant conferences and webinars on lessons learned
• The Bulk Heat Pump Program has high replication potential in municipalities across Ontario and other regions where low natural gas prices and high electricity costs have made air-source heat pumps uneconomical