The Carbon War Room’s approach opens the door to zero-upfront-cost deals for mid- and small-scale retrofits, where in the past only a limited group of larger projects could land financing for such deals.

To turn this trick, the new plan upgrades an existing financing model known as PACE. It also relies on private capital, rather than public subsidies.

“This is game changing. It has the potential to solve the problem of the commercial retrofit market that has lingered for 35 years,” said Jigar Shah, CEO of The Carbon War Room at the BusinessClimate 2011 event today in New York City.

Across the country, older buildings are ripe with some of our economy’s largest concentrations of energy waste, and thus offer some of the least-costly fixes. Improving the world’s building stock offers the opportunity to save 5 gigatonnes of greenhouse gas emissions per year, and amounts to a $2.5 trillion investment opportunity, said Shah.

Dubbed PACE Commercial Consortium, or PCC, the approach brings into alignment the interests of a series of players that in the past have failed to find the right profit motives, risk levels, or technologies to get beyond one-off, complex deals to finance major green commercial retrofits.

For commercial building owners, the PCC offers a turnkey model that delivers financing, the building upgrade and deal insurance, all paid through a increased tax assessment that is more than offset by reduced energy costs.

The players debuting today with the PCC’s first round of deals are:

• Lockheed Martin (Bethesda, Md.) will provide building technology and services to audit, install and authenticate efficiency gains.
• Energi (Peabody, Mass.) insures the deals, using proprietary
 energy engineering underwriting standards, to help guarantee the savings promised by Lockheed. As a reinsurer, Hannover Re will back Energi’s policies.
• Barclays Capital will raise the capital to finance these deals and Ygrene Energy Fund (Santa Rosa, Calif.) will administer the financing.

The new program builds on an older model of retrofit financing known as the property-assessed clean energy program, or PACE. As pioneered in California in 2008, PACE legislation enables property owners to accept a voluntary tax assessment as a means of repaying upfront financing of energy efficiency and renewable energy improvements. Twenty-six states in the United States have enacted legislation enabling the secure and scalable financing PACE structure.

Because they are repaid alongside tax assessments, PACE assessments are already considered a very low risk financing option. The PCC goes further in a number of ways, according to Murat Armbruster, a senior advisor who led the Carbon War Room’s involvement.

First, PCC lowers the risk of retrofit deals by having Energi insure the energy savings contracts that Lockheed signs with building owners. With reduced risk on the payment stream derived from these energy savings deals, Barclays Capital and Ygrene Energy Fund can offer lower-cost funding by bundling a number of these deals into an investable asset sought out by pension funds and institutional investors.

How do the players make money in this complex relationship? Here, I’ll crib from the New York Times, which has the best explanation of this process I could track down. (There’s also a graphic from Ygrene at the bottom of this post showing the process graphically.)

Ygrene and its partners will gain exclusive rights for five years to offer this type of energy upgrade to businesses in a particular community. They will market the plan aggressively, helping property owners figure out what kinds of upgrades make sense for them. Lockheed Martin is expected to do the engineering work on many larger projects.

The retrofits might include new windows and doors, insulation, and more efficient lights and mechanical systems. In some cases, solar panels or other renewable power might be included. For factories, the retrofits might include new motors or other gear.

Short-term loans provided by Barclays Capital will be used to pay for the upgrades. Contractors will offer a warranty that the utility savings they have promised will actually materialize, and an insurance underwriter, Energi, of Peabody, Mass., will back up that warranty. Those insurance contracts, in turn, will be backed by Hannover Re, one of the world’s largest reinsurance companies.

As projects are completed, the upgrade loans, typically carrying interest rates of 7 percent, will be bundled into long-term bonds resembling those routinely issued by governmental taxing districts. Barclays will market the bonds. Retirement funds have expressed interest in buying these bonds, which will be repaid by tax surcharges on each property that undergoes a retrofit.

At a time when public funding for green retrofits is drying up, tapping private capital pools holds great allure. “These investments are 100 percent private capital. There is no government debt or cost involved. The markets can supply this financing because the economics are sound, engineering performance is insured, the security is strong, and clean energy capital assets are profitable,” said Brian McCarthy, CEO of Energi Insurance Services in a prepared statement.

In the deal announced today, the Carbon War Room unveiled details about the size and location of the first round of investments to be place: $650 million in PCC deals will be focused on two commercial markets.

First, Miami-Dade County, Fla., a market estimated to have $550 million in retrofit funding potential. This funding can, in turn, generate up to $1.8 billion in economic activity in the Miami-Dade region.

The second site the consortium is focusing on in this first round is the city of Sacramento, Calif. where there’s an estimated $100 million market and another $530 million in potential economic activity.

As a side note, least year, the Federal Housing Financing Agency (FHFA) — which oversees Fannie Mae and Freddie Mac — issued a letter that all but froze PACE financing for residential mortgages.

However, because they are not backed by the housing agency, commercial PACE deals were not impaired by the ruling. That said, the ruling has had a broad chilling effect on PACE backed business models. In the meanwhile, court challenges to FHFA’s ruling are proceeding in California and elsewhere.

_{Top photo courtesy of Serious Materials; chart courtesy of Ygrene.}

In the process, the 125-year old cosmetics company set a record for New York City, with a 17 percent female-crew ratio for the duration of the project. “We were proud this project was built by so many women, from the cabinet makers to the electricians,” said Louise Matthews, Avon’s Vice President, Global Real Estate at a press introduction to the building.

On site, women’s construction hats were pink, the color Avon has transformed into a global symbol of its long-running effort to boost awareness of and research funding to beat breast cancer.

The results of those pink-hatted laborers were unveiled today at 777 3rd Avenue, Avon‘s new US headquarters.

At its 275,000 square-foot quarters, occupying the bulk of a 38-story, early ’60s modernist tower, Avon retrofitted its new home to hit the Gold standard for commercial interiors under the U.S. Green Building Council‘s Leadership in Energy and Environmental Design (LEED) rating system. The designation will be granted once LEED has reviewed the project’s scorecard.

Eighteen months in the making, the project’s design and construction was led by HOK, a St. Louis-based architecture firm that specializes in sustainable design. HOK collaborated with Avon’s internal design committee to help select a light color palate for a somewhat feminine, timeless feel to the interior, said Doug West, an HOK architect. The firm worked to keep the green features and technology systems behind the scenes, he added.

In making a move from its recently vacated former headquarters, just a few blocks to the west, Avon focused on saving energy and water, while improving the work environment for its staff:

Lighting. To save power, the headquarters turned to high efficiency lighting, which cut energy use by 22 percent compared with a conventional system. Motion sensors in private offices and meeting rooms shut off lights. To maximize the use of natural daylight, work-station dividers are low, permitting light to penetrate deep into the floor plate. Some 96 percent of working positions have views to the outside.

Water. In bathrooms and pantry areas, high efficiency fixtures are the norm, saving about a third of water compared with regular designs.

Waste. During construction, 84 percent of waste was recycled, minimizing landfill demand.

Sustainable materials. Consistent with LEED goals, HOK sourced local building materials wherever possible. New York-area manufacturers produced the offices’ wood flooring, glass-paned office fronts, and ceiling panels, for example. Over 91 percent of the wood used throughout the project is certified as sustainably harvested by the Forest Stewardship Council.

Transport. Avon negotiated with the building owner to include bike racks and showers in the basement to spur bicycle commuters. The building is just a few blocks north of the Grand Central Station rail and subway nexus, as well.

Energy. Avon committed to buy electrify for its headquarters produced from 100 percent renewable sources.

The U.S. headquarters joins a growing portfolio of green buildings in Avon’s network. Earlier this year, the company launched its “Avon Green Building Promise,” a worldwide commitment to achieve at least a “certified green” level in every major new construction or significant renovation project, and to seek a higher level, such as Gold or Platinum (or local equivalent), where possible.

Towards this goal, Avon has also built or converted five other notable sites:

• Medellin, Columbia: Avon’s Ecobranch Distribution Center is the first building to achieve LEED Gold certification in all of Colombia.
• Cabreuva, Brazil and Zanesville, Ohio: Distribution centers both earned LEED Gold certification.
• Shanghai, China: Avon’s R&D Center achieved LEED Platinum certification
• Northampton, U.K.: Avon’s administrative headquarters achieved a “Very Good” rating under the UK’s version of LEED, known as BREEAM, short for Building Research Establishment Environmental Assessment Method.

Avon’s green building spree is likely to continue. “Our Green Building Promise ensures that we continually work to minimize the impact of our buildings worldwide,” Matthews said. “We hope this will serve as an inspiration to other companies in New York City and around the globe.”

Answer: Both are being watched over by some of IBM’s most advanced smart building systems.

Last week, as part of a roll-out of a broader suite of smart building technologies, I got to enjoy a dose of high culture and high technology, catching Big Blue’s announcement of novel collaboration with New York City’s Metropolitan Museum of Art.

IBM is supplying a suite of hardware and software as part of its Intelligent Building Management system to help the Met fine-tune the maintenance and preservation of its one-of-a-kind collection of medieval artwork.

The move adapts technology developed originally to monitor and manage energy-intensive data centers — cutting-edge technology of the 21st century — to help care or for some of the most priceless, hand-made religious and secular artifacts dating back to 800 AD.

At the announcement, Dr. Paolo DionisiVici, an Associate Research Scientist at the Met, made clear why doing the latter represents the greater challenge.

The Met’s main medieval collection is housed in The Cloisters Museum & Gardens, an assemblage of medieval French abbey structures, transplanted nearly a century ago (more on that below).

Authentic as the setting is, the challenges of managing temperature, humidity, and other variables are daunting: castle-like thick rock walls define a space that sees tens of thousands of visitors each year.

The artwork itself also offers up material preservation challenges of a stupefying variety.

The tapestries, like the most-famous-of-all Unicorn hanging, are made of a combination of wool, linen, metal threads, vegetable dyes and other delicate materials. After 600 years, they remain remarkably vivid.

Nearby in the museum are painted wooded religious artifacts that require different preservation conditions.

“Every object is unique,” DionisiVici said.

That’s where IBM comes in. To monitor this menagerie, IBM is deploying a network of low-power motes — small electronics packages fitted with sensors and antennae for communication. [An example of a type of mote IBM has developed, the MEMSIC IRIS mote, is pictured at left.]

“The motes can sense temperature, humidity, corrosion, contamination, light levels, air flow, pressure and more,” said Dr. Hendrik F. Hamann, one of IBM’s research scientists working on the project. The motes are also very energy-efficient and self-configure into a “mesh” network, he explained, by independently figuring out how to route data from one to the next.

For now, the technology covers seven rooms, a portion of the Cloisters’ overall layout, but including the famous Unicorn tapestries.

What can motes do when overseeing a vaulted-ceiling room filled with priceless art? In a way the museum cannot today, the sensors and analytic software can tap into real-time data to observe and model microclimates, revealing with greater precision areas of higher heat, or dryness, or other variables that can conventional sensor systems.

IBM’s analytical models can even guide how to place particular works of art, given better understanding of a room’s thermal dynamics. Wooden materials, for example, need steady humidity for optimal preservation.

“This is the first large-scale deployment of a smart sensing infrastructure coupled with deep analytics in a museum environment,” said Hamann.

IBM’s pairing with The Cloisters continues a century-old tradition of one-of-a-kinds that define the site.

About a century ago, craftsmen in France painstakingly dismantled five cloisters — essentially, abandoned convents or monasteries designed for secluded, contemplative living — packed the pieces in boxes, and shipped them via boat across the Atlantic.

Once landed, the crates were hauled up to the highest promontory of Manhattan, to land owned by John D. Rockefeller — the wealthiest man in U.S. history. Through the years of the Great Depression, some of those same craftsmen methodically reassembled the stones into a meticulous recreation of an abbey complex.

To complete the setting, Rockefeller bought up scores of acres of Manhattan land around the Cloisters and — just for good measure — also acquired the ridge of land immediately across the Hudson River, so as to protect the view from his creation.

Rockefeller had no interest in living in the transplanted abbey. In fact, he died a year before the complex was completed.

It was built strictly as a home for the more than 5,000 pieces of medieval art he collected in his twilight years, with the intention of donating the entire complex — building, land and artwork — to the Met.

If visiting New York City, The Cloisters is a must see — one of the best and least-known treasures the city has to offer. With IBM’s help, the masterworks there will be around to enjoy for a long time to come.