Financing Campus Central Utility Energy Projects: Your Goose That Lays Golden Eggs

Posted by Bryan Haag on Thursday, February 04, 2016

Golden Goose Eggs

It isn’t any secret to facility managers that campus central utility projects can offer quick paybacks and sizeable annual savings for your campus, through energy reductions. Furthermore, those annual savings can be used as a funding mechanism for other energy or sustainability projects, creating your “Goose that Lays Golden Eggs.”

The question is how to fund these central utility energy projects when utilities are often “out of sight, and out of mind” and bypassed, in lieu of other energy projects that are more noticeable to students, stakeholders, and donors alike.

The first step as a facility manager is to arm yourself with the data about energy savings opportunities in your central utilities. Two ways to get the data are through a utility master plan (UMP) or energy use index benchmarking. A UMP provides the data by analyzing your system, usage, and bills, to identify projects, costs, and energy and emissions savings, forming the life cycle cost of the project(s), the baseline of your case for funding. A more lightweight approach is to use your campus energy use index to benchmark your campus and see your savings potential at a high level, which may be helpful in determining if enough savings could exist to proceed.

Putting this information into the hands of your administration may be enough to receive funding, but if you’re relying on your utility projects’ savings to serve as a funding mechanism for the next round of energy projects, and internal funding sources are scarce, you need to present options and savings data to help your institution fund the projects, and feed the goose, so it can begin laying those golden eggs.

There are many funding options available, which is the good and bad news all rolled into one. While having options is a good thing; having too many can lead to confusion between each option’s nuances. While the lines between the options are continually blurring, as vendors, lenders, manufacturers, and regulators all continually adjust their offerings to meet customers’ needs. We’ve developed a helpful chart to lend clarity and give you a quick overview of some of the typical options for financing your utility energy project(s), so you know which options might be viable for your situation, and can focus your search.

There is no “one size fits all” solution when it comes to funding your central utility energy projects. Two things are for sure, (1) in every energy project you should always see what grants and incentives are available first, and get as much “free money” as possible to reduce the project costs that need to be financed and (2) you want those golden eggs!

Self Funding
Concept: Use your available capital or credit to fund your own projects
Performance (or lack thereof) risk: Owner
Project Size: Small to Large
Equipment Ownership: Owner
Maintenance & Repairs: Owner
Initial Capital Outlay: Full to None
Loan/Lease Period: Varies
Measurement & Verification (M&V): Owner Optional
Energy Performance Contract (Guaranteed Savings)
Concept: An Energy Service Company (ESCO) audits your facility, identifies energy savings implements, and provides upgrades, guaranteeing the energy savings. You pay a fixed amount, less than or equal to the energy savings, for a fixed term to the ESCO. Funding can originate from ESCO or 3rd party lender directly.
Performance (or lack thereof) risk: Provider
Project Size: Large
Equipment Ownership: Owner (after contract term)
Maintenance & Repairs: Provider or Owner
Initial Capital Outlay: Negotiable
Loan/Lease Period: Up to 20 years
Measurement & Verification (M&V): Provider For Set Term
Utility On-Bill
Concept: Your energy utility provider pays for the energy project and you repay them through the energy savings difference until project is paid off.
Performance (or lack thereof) risk: Owner
Project Size: Small
Equipment Ownership: Owner
Maintenance & Repairs: Owner
Initial Capital Outlay: None
Loan/Lease Period: Varies
Measurement & Verification (M&V): Owner Optional
Operating Lease
Concept: Equipment is leased by the manufacturer to the owner for a period of time, and operated by the owner.
Performance (or lack thereof) risk: Owner
Project Size: Small to Medium
Equipment Ownership:

Provider

Maintenance & Repairs: Provider
Initial Capital Outlay: None
Loan/Lease Period: Up to 10 years
Measurement & Verification (M&V): Owner Optional
PACE
Concept: Local governments fund the building's energy improvement project(s), a lien is placed on the property and paid down with the annual property taxes.
Performance (or lack thereof) risk: Owner
Project Size: Large
Equipment Ownership:

Owner

Maintenance & Repairs: Owner
Initial Capital Outlay: None
Loan/Lease Period: Up to 20 years
Measurement & Verification (M&V): Owner Optional
Grants and Incentives
Gist: Governments and utility providers give you money towards energy projects and upgrades that reduce your energy demand for qualified projects.
Performance (or lack thereof) risk: Owner, if M&V is required, and the performance doesn't meet grant/incentive standards, they will not be issued.
Project Size: Small to Large
Equipment Ownership:

Owner

Maintenance & Repairs: Owner
Initial Capital Outlay: Reduced
Loan/Lease Period: n/a
Measurement & Verification (M&V): None or Owner Required

If you want more information on any of the funding options, we’d be happy to help further explain; simply reach out to us or comment below. Also, be sure to join our energy planning and management eNews list to get other energy news and updates from us.

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If you prefer the more anonymous audience member approach, I’ll be co-presenting on funding central utility projects and the path to sustainability, where we will be focusing on three of the funding mechanisms through case studies and testimonials at the Smart & Sustainable Campuses Conference. The conference runs April 4-5, 2016 in Baltimore, MD, (which may or may not be relevant, depending when you’re reading this).


Categories: Buildings & Campus

Tagged: Energy Planning & Management  |  Environmental  |  Mechanical  |  Engineering

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Comments
I'll tell you this....Albany High School and Watervliet High School in upstate NY, need to have more revenue "at hand"...and perhaps someone savvy enough to realize that energy savings implementation could help create a sustainable economic picture; or at least, lessen the extreme poverty of these schools. What these two school systems are facing is an "all out war" on funding and/or maintaining a "bare minimum" of sustainability for our future leaders - our kids. How can we truly empower anyone...when ceilings are leaking,....boilers are 45 years old and floors are broken up and degraded due to time? Answer; We need educational parity....not just in big Suburban schools in this nation. It's ridiculous. These kids might as well be studying in "grass huts" somewhere.
Posted by Frank Berry on Friday, February 05, 2016, 8:57 AM

Frank, thank you for your response. Many school districts across the nation are facing the same funding issues. School districts in Pennsylvania continue to operate with shrinking capital budgets. I believe performance contracting, which funds projects through energy savings, is a viable solutions to some of the issues facing the school districts. The struggle with performance contracting today is the low price of energy.
Posted by Bryan Haag on Friday, February 05, 2016, 1:28 PM
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