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CITY OF SAN MATEO
Agenda Report
City Hall
330 W. 20th Avenue
San Mateo CA 94403
www.cityofsanmateo.org
Agenda Number: 3 Section Name: {{section.name}} Account Number: 10-1311 File ID: {{item.tracking_number}} TO: City Council
FROM: Alex Khojikian, City Manager
PREPARED BY: City Manager's Office
MEETING DATE: January 16, 2024
SUBJECT:
Sustainable Buildings Strategy – Project Update
RECOMMENDATION:
Receive an update on the development of "Electrify San Mateo - Building for the Future: City of San Mateo Sustainable Buildings Strategy" and provide direction on the policy options to include in continued project outreach.
BACKGROUND:
Building energy use represents 38% of communitywide greenhouse gas emissions in San Mateo. In January 2022, the City Council prioritized the decarbonization of existing buildings to help meet the City’s climate goals and reaffirmed this priority in 2023. The decarbonization, or electrification, of buildings refers to the transition from gas equipment to electric equipment for space and water heating, clothes drying, cooking and more. In San Mateo, Peninsula Clean Energy (PCE) provides electricity Citywide that is 50% renewable and virtually 100% carbon free, and PCE is committed to delivering 100% renewable and carbon free electricity by 2025. Electrifying existing buildings is critical to further reducing communitywide greenhouse gas emissions and is a key strategy in the City’s Climate Action Plan. Technical analysis and community engagement are needed to develop a roadmap to clean energy buildings in San Mateo.
In late 2022, staff released a Request for Proposals (RFP) seeking an experienced consultant team knowledgeable in decarbonization policy planning, analysis, and implementation, to help San Mateo develop a decarbonization strategy that centers on equity and promotes a collaborative pathway to electrification. After reviewing the proposals and interviewing the consultants, staff selected Rincon Consultants, Inc. because of their compelling approach to analysis and outreach and their experience with developing similar strategies for other cities. The City Council approved an agreement with Rincon for this project at the March 20, 2023 City Council meeting. This project, which is now titled, “Building for the Future: City of San Mateo Sustainable Buildings Strategy,” launched in May 2023. On September 10, 2023, the project team presented to the Sustainability and Infrastructure Commission on the Sustainable Buildings Strategy. The item received a high volume of public comments including 150 written and verbal comments as discussed later in this report.
This report provides an overview of the project and summarizes the local building electrification policy context, upfront electric equipment costs, community feedback staff has received so far, and policy options for San Mateo to consider. Staff is seeking Council feedback on the policy options to include in continued project outreach.
Project Overview
The goal of this project is to develop a long-term strategy document to electrify San Mateo’s existing building stock, including policies and actions for both residential and nonresidential buildings. Electrifying existing buildings is expected to produce many positive outcomes in San Mateo beyond reducing greenhouse gas emissions and helping meet climate goals. Electrification benefits include the added health benefit of reducing gas use in the home. Peer reviewed studies have documented that residences with gas stoves have 50 to 400% higher average nitrogen dioxide concentrations than
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homes with electric stoves.1 Living in a home with a gas stove may increase children’s risk of asthma by 42%.2 Additionally, gas infrastructure carries an inherent safety risk due to the volatile nature of gas, including risk of methane leakage, damage during earthquakes, accidental explosions, or fires. Nationwide, gas ignites over 4,000 home structure fires annually, causing on average 40 deaths and $54 million in property damage each year.3 When coupled with solar and battery energy storage, all-electric buildings can mitigate impacts of power outages and increase community resilience.
There is a common misconception that having gas appliances provides a redundant system during power outages; however, gas appliances like water heaters, stoves, and space heaters typically cannot function without electricity to power the fans and controls needed for operation.
The concept of energy equity recognizes that disadvantaged communities have been historically marginalized and overburdened by pollution, underinvestment in clean energy infrastructure, and lack of access to energy efficient housing and transportation (Department of Energy, Office of Energy Efficiency and Renewable Energy)4. Equity will be centered in the development of the Sustainable Building Strategy and the equity criteria drafted by the project team builds upon the work done by the City of San Mateo’s Diversity, Equity, and Inclusion Committee, and draws inspiration from equity work conducted in conjunction with its housing element from 2022, the DEI Strategic Framework Report, and City Council resolution work. As part of future policy exploration and analysis, staff will address how vulnerable communities will be supported in each electrification policy implementation.
Local Policy Context
As part of the FY 2022-2023 goal setting session, the City Council directed staff to present to them policy options to decarbonize and electrify existing buildings and eliminate natural gas use by 2030. The City’s Climate Action Plan also identifies electrifying existing buildings as a key strategy to reduce communitywide greenhouse gas emissions. The City promotes electrification through marketing electric equipment rebates and incentives and hosting workshops.
Additionally, the City adopted reach codes to encourage and require building electrification. In 2020, the City Council adopted an ordinance requiring all new residential and office buildings be all-electric starting on January 1, 2021. In 2022, the City Council approved an ordinance that expanded the all-electric requirement to all new buildings and requires electric-readiness and electric appliances for specific home remodels as of January 1, 2023. City staff are monitoring federal litigation involving the City of Berkeley’s ban on gas infrastructure and are reviewing recent Ninth Circuit caselaw on this issue.
In addition, the City is working on electrifying appliances at City facilities. The Senior Center kitchen replaced a gas stove with an electric cooktop. Staff are evaluating gas water heater replacement options with heat pump water heaters at multiple City facilities. Staff worked with PG&E’s program implementer, Willdan, and completed site assessments at 17 City facilities. Willdan staff identified seven sites that show the most potential for replacement through the turnkey program that would leverage PG&E and PCE rebates, resulting in new electric equipment replacement at no cost to the City. Staff are also planning to apply for PCE’s Member Agency Energy Grants. There is $11.5 million available, and monies will be disbursed based on customer count in the jurisdiction. The funding must be used for purposes consistent with PCE’s mission, such as efforts to reduce greenhouse gas emissions and support building decarbonization. Staff looks forward to PCE’s release of the grant funding and will allocate funding thoughtfully and strategically to advance the City’s climate and decarbonization goals in alignment with PCE’s grant guidelines.
At the regional level, in May 2023, the Bay Area Air Quality Management District (BAAQMD) adopted zero nitrogen oxides (NOx) standards that will prohibit the sale and installation of gas water heaters starting in 2027 and gas furnaces in 2029 in 1 U.S. EPA. Integrated Science Assessment (ISA) for Oxides of Nitrogen – Health Criteria (Final Report, Jul 2008). U.S. Environmental Protection Agency, Washington, DC, EPA/600/R-08/071, 2008. https://cfpub.epa.gov/ncea/isa/recordisplay.cfm?deid=194645. 2 Weiwei, L., Brunekreef, B., & Gehring, U. (2013). Meta-analysis of the effects of indoor nitrogen dioxide and gas cooking on asthma and wheeze in children. International Journal of Epidemiology, 42(6), 1724–1737. https://doi.org/10.1093/ije/dyt150. 3 Ahrens, M. & Evarts, B. (2018). Natural Gas and Propane Fires, Explosions and Leaks Estimates and Incident Descriptions. NationalFire Protection Association. https://www.nfpa.org/-/media/Files/News-and-Research/Fire-statistics-and- reports/Hazardousmaterials/osNaturalGasPropaneFires.
4 https://www.energy.gov/eere/energy-equity-and-environmental-justice
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the nine-county Bay Area. These standards are the most ambitious in the country and outpace the state’s goal of banning the sale of new gas furnaces and water heaters throughout the state starting in 2030. These policy efforts drive California closer to the ambitious climate goal of carbon neutrality by 2045.
Building Electrification Costs
Upfront costs include all costs to purchase an appliance, install and permit it, and make it operational. This includes wiring, labor, and contractor mark ups. Upfront costs to electrify were analyzed using the most recent and location specific data available for each appliance: water heaters, HVAC systems, dryers and stoves. Attachment 1 includes detailed cost analysis for residential building electrification and Attachment 2 includes cost analysis information for commercial and multifamily buildings.
Attachment 1 provides data for the electrification costs for the entire home, but most building owners are expected to replace appliances one by one, as the original gas appliances approach the end of their useful life and need to be replaced.
This means that the costs or cost savings to electrify will likely happen at the appliance-level, not the whole-home level.
The following table compares electrification costs and available incentives with replacing equipment with the gas equivalent for each appliance (see Attachment 1 for more details and analysis):
Electrification Marginal Upfront Costs + Incentives*
Appliance Electric
Appliance Cost
Combined
Incentives
Electrification
Cost After
Incentives
Gas Equivalent
Costs
Electrification
Marginal Cost
or (Savings)
Electrification Scenario Marginal Cost with Peninsula Clean Energy, BayREN, IRA Incentives Electric heat pump water
heater $6,000 $(7,500)** - $2,800 $(2,800)
Furnace Only without AC
Low-Cost HVAC Scenario $13,965 $(5,900) $8,065 $6,132 $1,933 Furnace Only without AC
Median-Cost HVAC Scenario $17,910 $(5,900) $12,010 $6,132 $5,878 Furnace and AC
Low-Cost HVAC Scenario $13,965 $(5,900) $8,065 $13,632 $(5,567) Furnace and AC
Median-Cost HVAC Scenario $17,910 $(5,900) $12,010 $13,632 $(1,622) Electric dryer $1,963 $(250) $1,713 $925 $788
Electric stove $2,375 $(250) $2,125 $1,155 $970
Panel upgrade (if needed) $3,700 $(1,600) $2,100 N/A $2,100 *Note that IRA incentives take the form of tax credits, while other rebates can be applied upfront by the building owner or contractor after completing program documentation requirements. Please refer to Attachment 1Error! Reference source not found. for a full summary of rebates and incentives by funder.
**Rebates cannot exceed total project cost which is expected to be $6,000 for a water heater replacement.
There are a few main takeaways that influence project cost:
•HVAC systems are a major cost variable: Differences across installation bids for electric heat pump HVAC systems are a major cost variable for the electrification of space heating. Accordingly, ‘low’ and ‘median’ scenarios are provided to detail the significant difference in installation bids for electric heat pump HVAC systems. This discrepancy in installation bids from contractors stems from home-specific needs for ductwork upgrades, locations to site HVAC systems, and labor costs which vary depending on the contractor. •Air conditioning: Most homes in San Mateo do not have air conditioning, though staff have observed an increase in the installation of new air conditioning units. Electric heat pump HVAC provides both space heating and cooling.
If an existing home does not include air conditioning, this is an added benefit but will increase marginal costs. •Panel upgrades: Not all homes will need a panel upgrade to electrify appliances. Panel upgrades can add to project costs, estimated at $3,700 without a rebate and $2,100 with a rebate. •Rebates and incentives: Significant rebates are currently available through the Inflation Reduction Act (IRA),
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Peninsula Clean Energy (PCE), BayREN, and TECH Clean California. When combined, building owners are eligible for $15,500 in incentives. Incentives take the form of both rebates and tax incentives. Tax incentives through the IRA are provided as a credit but require the building owner to have some tax burden to reduce. Future funding through the High Efficiency Home Rebate Act (HEERA) will further reduce costs for low-income and moderate- income households. Rebates are challenging because they change often.
On-bill costs are another important piece of the overall economics of electrification. On-bill costs describe how much the building owner will pay to operate their appliances. PCE and Silicon Valley Clean Energy (SVCE) recently evaluated on-bill cost impacts of whole-home single-family electrification vs. mixed fuel in a September 2023 analysis. The PCE and SVCE Study5 shows that electrification of an average single-family home could lead to savings of ~$380/year when switching from gas to standard-efficiency electric appliances, and even more if high-efficiency systems are installed. More details are provided in Attachment 1 and the PCE and SVCE Study.
Community Feedback
Outreach for this effort is ongoing and will continue throughout the project. To date, outreach has focused on educating the community about the costs and benefits of building electrification and about the project’s general goals. Outreach also focused on gathering feedback on the equity and effectiveness criteria the City will use to evaluate policy options.
At the September 13, 2023 Sustainability and Infrastructure Commission meeting, staff and the consultant team presented the building inventory and market segmentation analysis as well as building electrification cost analysis. Over 120 written public comments were submitted for the item with the majority in support of decarbonization. 24 verbal comments were also provided at the meeting. Proponents of the City’s decarbonization support electrification policy efforts to reduce gas use in the community to combat climate change and to encourage the leveraging of incentives and rebates for electrification. For those opposed, the number one concern about electrification is the costs to the property owner. Other concerns include power outages, growth of the grid to accommodate future electric buildings, and passed on costs to renters. Commissioners' top concern was a robust engagement and outreach approach to make sure all voices of the community were heard.
In Fall of 2023, five General Plan Town Hall meetings were held to solicit feedback on the City’s General Plan Update. Staff had a poster board summarizing the Sustainable Buildings Strategy project efforts and received a mix of both supportive feedback for working on electrification requirements as well as concerns about costs related to electrification. On September 22, 2023, staff presented to the City’s Diversity Equity and Inclusion Task Force. Feedback from the Task Force included: the need to include education, data, and storytelling in outreach. The Task Force’s biggest concerns regarding electrification were related to the electric power outages and costs to homeowners. The Task Force also helped identify follow up opportunities for partnerships and project outreach.
The project team also launched an online survey to assess community priorities for building electrification that was open December 2023 through January 10, 2024. Results of the online survey will be shared orally during the January 16, 2024 City Council Study Session. Early survey results show that the major concerns and values related to building decarbonization are consistent with the feedback received and during fall outreach events as summarized above.
Policy Options
At this point in the project, the project team has focused on education and gathering feedback to prioritize the community’s goals for the Sustainable Building Strategy. The goal of this report is to outline potential policy options to include in continued project outreach, research and analysis, including legal review.
These policies are meant to be considered as a menu of options to achieve the City’s climate goals, while considering implementation and cost challenges for property owners across the City. Most local governments considering a building decarbonization strategy combine multiple strategies together to produce the most comprehensive, and equitable policy 5 Bill Impacts of Decarbonizing Existing Single Family Homes. September 2023. Peter Mustachich (SVCE), Blake Herrschaft (PCE). https://svcleanenergy.org/wp-content/uploads/SVCE-PCE-Single-Family-On-Bill-Impacts-Results-2023.pdf
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result. Potential policy options are summarized below and detailed in Attachment 3:
1) Follow State mandates and BAAQMD Zero NOx requirements for gas water heaters in 2027 and gas furnaces in 2029, continue with adopted reach codes, and focus on outreach and incentives 2) Explore and adopt new reach codes to encourage and require electrification at time of renovation 3) Require electric equipment upon replacement ahead of BAAQMD Zero NOx requirements 4) Establish Building Performance Standards for commercial buildings 5) Adopt an electric first policy for City facilities
Adoption of an “End of Flow Ordinance” was considered but not provided in the ultimate policy options. An “End of Flow Ordinance” establishes a long-term carbon-neutrality aligned target to end natural gas use in a jurisdiction. The adoption of such an ordinance sends a signal to regional planners and utilities that the jurisdiction has taken long-term action to end the flow of natural gas in the community. The City of Half Moon Bay is the only jurisdiction that has adopted such an ordinance; their ordinance requires fuel gas lines to be capped or decommissioned in existing buildings by 2045. This type of approach should not be adopted as a standalone policy because it requires additional short-term actions to electrify existing buildings to meet such a goal.
This list of potential policies includes a range of options to address different building types and equipment. Each policy option requires legal review, further research, outreach and engagement with the community, and cost resource allocation for implementation. In future policy analysis, staff will identify how vulnerable community members may receive the technical or financial support needed to comply with a potential policy.
Staff is seeking Council direction on which of the five policy options to include in its ongoing outreach efforts and future analysis. Building electrification is a complex topic and by providing example policy options for community feedback, the project team hopes to receive deeper engagement and provide a clearer understanding of potential building decarbonization strategy options to the community and for inclusion in the final Sustainable Building Strategy.
Project Timeline and Next Steps
The project team adjusted the original timeline to allow for deeper community engagement. Council feedback will inform the next phase of outreach, which will begin in July 2024. The final Sustainable Building Strategy would return to City Council for adoption in 2025.
BUDGET IMPACT:
This study session has no impact to the City's General Fund. Funding for the "Electrify San Mateo - Building for the Future:
City of San Mateo Sustainable Buildings Strategy" was approved at the March 20, 2023, City Council meeting and funding was appropriated from the Advance Planning Fund (Fund 225).
ENVIRONMENTAL DETERMINATION:
This informational report is not a project subject to CEQA, because it is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. (CEQA Guidelines Section 15378(b)(5).)
NOTICE PROVIDED
All meeting noticing requirements were met.
ATTACHMENTS
Att 1 – Single-Family and Low-Rise Multifamily Building Electrification Costs Att 2 – High-Rise Multifamily and Nonresidential Building Electrification Costs Att 3 – Building Decarbonization Policy Options
Att 4 – Public Comment
STAFF CONTACT
Andrea Chow, Sustainability Analyst
[email protected]
(650) 522-7007