NECSC-Financial Strategies for Sustainability

Campus Financing Strategies for Carbon Reduction Tom Balf Programs Director C2E2

The C2E2 Campus Consortium for Environmental Excellence

10/27/2009

NECSC Conference 2009

2

10/27/2009

NECSC Conference 2009

3

A costly proposition

10/27/2009

NECSC Conference 2009

4

Have We Begun the Conversation?

Started the Analysis?

10/27/2009

NECSC Conference 2009

5

Our Research Method • Looked at Climate Action Plans, or equivalent – C2E2 members – President’s Climate Commitment signatories – “Green” leaders – Sierra “cool campus”, SEI

• Sample of 16 CAP’s reviewed to identify financing mechanisms • Survey asking schools specifically about financing considerations 10/27/2009

NECSC Conference 2009

6

CAP Review • The majority of schools have yet to submit CAPs • Of available CAPs, many contain little or no information regarding financing options • Of schools that do discuss specific financing options, financial discussion tends to be abstract with limited actual numbers presented 10/27/2009

NECSC Conference 2009

7

CAP Review • Revolving Loan Funds are prominent • Other popular tools – tax-exempt bonds – green student fees – power purchase agreements with utility companies – sale of RECs created by on-site renewable energy projects.

• Innovative ideas (e.g., intra campus cap and trade, willing technology pilot) 10/27/2009

NECSC Conference 2009

8

Survey 1. Is your institution developing long term carbon reduction strategies?

2. Is your institution considering specific financing strategies?

3. Which of the following options have you considered?

4. Have you estimated carbon costs?

10/27/2009

NECSC Conference 2009

9

Nearly Everyone Developing Climate Action Plans Fewer are Looking at Financing • 88% of respondents developing climate action or energy master plans • 59% considering specific strategies for financing carbon reduction projects, initiatives or technologies 10/27/2009

NECSC Conference 2009

10

Capitalizing Sustainability Currently Used

Likely to be Used in Future

No Plans to Use

Not Considered

Green Student Fees

13%

13

63

25

Revolving Loan Fund

43

14

43

0%

Grants/direct financial support

71

14

43

0%

Tax-exempt Bonds

33

0

33%

33%

Leasing arrangements

17

33

50

0%

Institutional Assets – Revenue Sources

29

29

57

0%

Performance Contracts

0%

40

60

0%

PPA

50

33

0%

17

Energy Hedges

33

17

17

33

Alumni Giving

50

33

0%

17

10/27/2009

NECSC Conference 2009

11

Final Slide • The conversation is happening • Use of revolving loan funds is already underway, but ultimate success of such programs requires initial capital • Interest in using other people’s money for projects/technologies on campus • “We will find the money when we have to” • Thanks to Jake Elder, Trinity College ‘09 10/27/2009

NECSC Conference 2009

12

GROOM ENERGY SOLUTIONS, INC.

Financing Strategies for Sustainability 6th Annual Northeast Campus Sustainability Consortium Conference Jon Guerster, Groom Energy DESIGN, ENGINEERING AND INSTALLATION OF RENEWABLE AND ENERGY EFFECIENCY TECHNOLOGIES

October 27th, 2009

DESIGN, ENGINEERING AND INSTALLATION OF RENEWABLE AND ENERGY EFFECIENCY TECHNOLOGIES

Groom Energy Solutions • Consulting, Engineering and Installation of sustainability services • Carbon and Energy assessments, programs, installation, maintenance and financing services • Partner with Nexus Environmental Partners for Academic Institutions

2

DESIGN, ENGINEERING AND INSTALLATION OF RENEWABLE AND ENERGY EFFECIENCY TECHNOLOGIES

Learnings from the EPA’s Climate Leaders

• 275+ major corporations • Goal based on tracking and committing to a reduction goal • Provides visibility for achieving goals

• Provides free tools and consulting to get started • Bi-annual meetings for sharing learnings • Encourages centralization of energy use information

3

DESIGN, ENGINEERING AND INSTALLATION OF RENEWABLE AND ENERGY EFFECIENCY TECHNOLOGIES

Presidential Climate Commitment - cost

675 institutions have agreed to:  Complete an emissions inventory. (LOW)  Within two years, set a target date and interim milestones for becoming climate neutral. (LOW)

 Take immediate steps to reduce greenhouse gas emissions by choosing from a list of short-term actions. (MED)

 Integrate sustainability into the curriculum and make it part of the educational experience. (LOW)

 Make the action plan, inventory and progress reports publicly available. (LOW)

4

DESIGN, ENGINEERING AND INSTALLATION OF RENEWABLE AND ENERGY EFFECIENCY TECHNOLOGIES

A Perspective on Carbon Neutrality

• Carbon Neutral – seriously?

• “Institutional commitment” means funding – is there any?

• Do you feel good buying REC’s, white tags, offsets?

• Does your institution want to monetize the tax incentive opportunities?

5

DESIGN, ENGINEERING AND INSTALLATION OF RENEWABLE AND ENERGY EFFECIENCY TECHNOLOGIES

How much do things cost?

Solar PV Wind turbines Combined Heat & Power

Boilers Lighting Pumps, Drives, Compressors Demand Response Behavior changes

6

DESIGN, ENGINEERING AND INSTALLATION OF RENEWABLE AND ENERGY EFFECIENCY TECHNOLOGIES

Financing – 5 options to consider

1. Renewable Energy purchase 

PPA’s for solar, biomass

2. Energy Efficiency Performance contracts 

Campus wide upgrades

3. Capital leases – asset specific 

Lighting, compressors, fans

4. Development sponsored green assets 

“Class of 1982” skylights

5. Behavior change incentives  7

Asset utilization or Wal-Mart procurement

Moving Beyond Simple Payback: The Language of Financial Analysis Richard Donnelly Planning & Development Manager Tim Perrin Business Development 1

Overview • Brief Introduction to Efficiency Vermont

• The College & University Market • The Language of Financial Analysis

2

Efficiency Vermont: Who We Are • Nation’s first statewide provider of energy efficiency services • Created by the Vermont Legislature and Vermont Public Service Board in 2000 • Competitively-bid, performance-based contract managed by Vermont Energy Investment Corp.

3

Efficiency Vermont: What We Do •Technical Assistance & Recommendations •Coupled with Economic Analysis •Collaborate with Architects / Contractors

•Provide ―Objective Expertise‖ •Financial Incentives & Assistance

4

Efficiency Vermont: How We’re Funded • Through an Energy Efficiency Charge (EEC) on all electric bills • Average residential customer ~$2-3 per month

• Most states have energy efficiency services— typically managed by their electric utility • Other programs: charges buried in electric rates

5

Efficiency Lowers Operating Expenses

6

Efficiency Reduces Carbon Emissions ISO-NE Margin Supply 1 kWh =

1.26 lbs CO2

7

Efficiency: Our most cost-effective energy resource

8

Colleges & Universities Market • Market Approach to Delivering Services • The Role of the College • Identifying Barriers

• Seeking Alignment

9

The Role of College & University • 3% . . . 100% • Innovation • Create future leaders • Skills • Engage & Build Community

10

Identifying Barriers • Lack of awareness • Lack of knowledge • Competing Priorities • Lack of feedback • Difficult to make the invisible visible • Perceived need for a quick payback

• Support for efficiency projects hard to obtain

11

Seeking Alignment • President’s Office • CFO • Development & Marketing • Students & Faculty • Facility Managers • Sustainability Coordinators

12

Initial Cost – A Common Barrier • Buy now, get paid later • Competing resource priorities

• Instant gratification • Not considered an investment

13

Financial Terms • Simple payback • Return on investment (ROI) • Cash flow model

• Internal rate of return (IRR) • Net present value (NPV) • Cost of waiting

14

Financial Terms – Simple Payback How long will it take to recoup my initial outlay?

Initial Cost / Periodic Benefit = Payback Cost = $100, Benefit (annual) = $50 Payback = $100 / $50 = 2 years 15

Issues With Simple Payback • Payback period ends…then what?

• Ignores time value of money • Deals with opportunity cost, not financial return • Unfortunately it is ―simple‖ so used frequently

16

Financial Terms - ROI Ratio of money gained (or lost) relative to investment Benefit / Initial Cost = Return on Investment Cost = $100, Benefit = $50 ROI = $50 / $100 = 50% 17

+ Annual

–

+ Cumulative

–

Internal rate of return

=

Equivalent interest rate to achieve return 18

Time Value of Money • Money NOW > same amount in FUTURE • Potential earning capacity • Borrowing costs • Risk aversion • ―Discount rate‖ quantifies that difference

19

+ Annual

–

+ Cumulative

– 20

+ Annual

–

+

Net present value

Cumulative

– 21

Economic Analysis • Example: Athletic Facility – new lighting

Project Cost

Annual Savings

Simple Payback

Rate of Return

$100K

$25K

4 years

21.4%

22

Economic Analysis

23

Spend Someone Else’s Money • Leasing/Financing – pay from operating budget • Bonding for energy improvements • Performance contracting – ESCOs • Reduced utility bills offset payment

24

Spend Someone Else’s Money • Example: Athletic Facility - lighting • Using conventional financing:

Project Cost

Annual Savings

$100K

$25K

Interest Rate Term Length 6%

5 years

25

Spend Someone Else’s Money

26

The Cost of Waiting • $100K project cost • $25K annual savings • Cost of energy is trending upward • $296K avoided over ten years • Paid for project 3 times over

27

Questions?

28

Thank You! Efficiency Vermont 255 So. Champlain Street Burlington, Vermont 05401 _______________________ (888) 921-5990 Phone www.efficiencyvermont.com

29