Jen Weiss is Senior Finance Analyst at the Environmental Finance Center.
Sustainability on college campuses is on the rise. More than 675 colleges nationwide have become signatories of the American College & University Presidents Climate Commitment, a network of college and university presidents and chancellors dedicated to promoting sustainability efforts on college campuses. Today, 22 colleges and universities in North Carolina – including UNC-Chapel Hill, Duke University and NC State – are part of the commitment. But it’s not just the large universities that are focused on sustainability. Increasingly, small liberal arts colleges are becoming leaders in sustainability and are searching for innovative ways to invest in energy conservation, energy efficiency and renewable energy projects on campus.
The Environmental Finance Center recently teamed up with the Jessie Ball duPont Fund to develop a guide that provides small colleges and universities with a tool-kit to use when considering investment in sustainable energy projects. “Financing Sustainable Energy Projects at Small Liberal Arts Colleges” outlines the steps each school can take to prioritize the projects, understand the financing options available and evaluate the results. By considering these steps and reviewing the available financing mechanisms and case studies provided in the guide, a college will be able develop an implementation strategy that will help it achieve its long-term sustainability and financial goals.
Step 1: Identify “Fundable” Sustainable Energy Projects
Colleges have many reasons for implementing projects, including lowering operating costs, reducing carbon emissions, improving building comfort and creating learning opportunities for students. Each college should develop its own prioritization criteria to match its particular needs, but a college’s financial position must always play a role in the prioritization of projects.
Step 2: Identify and Analyze Implementation Challenges
Implementation challenges can stymie reaching sustainability goals. Common challenges facing small colleges include inadequate or limited capital, operating budget constraints and limited access to debt financing. These challenges and potential solutions are described below. Other challenges and solutions can be found in the guide book.
- Challenge: Inadequate or limited capital.
- Solution: Financing strategies that combine sustainable energy projects with large capital projects can lead to higher long-term returns on investment and improved cash flow.
- Challenge: Operating budget constraints.
- Solution: Some donors and alumni are willing to commit funds to cover energy project costs as a way of investing in the future of the college.
- Challenge: Limited access to debt financing.
- Solution: Tapping into off-balance sheet financing systems, such as properly designed on-bill repayment, energy service agreements or third-party equipment leasing, may enable a school to take on a project as an operating expense.
Step 3: Find the Right Financing Mechanism
Colleges are not new to innovative energy projects or energy finance. In fact, select colleges have been piloting innovative finance initiatives on their campuses for years. A long list of financing mechanisms is available to help colleges fund their sustainable energy projects, however not all mechanisms are right for every college. Some of the most promising financing mechanisms for colleges and universities include:
- Green Revolving Fund – A financing mechanism designed to leverage investment from one or more sources. The energy savings – calculated as the avoided energy costs resulting from each project – are tracked and returned to the green revolving fund and can be used to finance new projects. More detail on green revolving funds can be found in my blog post: “Revolving Credit – All Grown Up.”
- Energy Savings Contracts – A partnership between a school and an energy service company (ESCO). The ESCO conducts a comprehensive energy audit for the school, identifies projects that reduce energy use and save energy costs, designs and constructs the projects and arranges the necessary funding. In most cases, the ESCO guarantees that the improvements will generate energy cost savings sufficient to pay the full cost of the project.
- Energy Services Agreements – Sometimes referred to as “Pay for Performance” financing, energy services agreements are structured so that the payment for third-party services (project development, financing and equipment installation) can be considered a pass-through operating expense as energy costs are avoided.
- On-Bill Repayment – On-Bill Repayment programs enable building owners to repay loans for eligible energy efficiency and renewable energy projects through their monthly utility bill. The goal of many of these programs is for the customer’s bill to remain “payment neutral” – the total amount paid to the utility remains the same until the loan for the improvement is paid off.
Step 4: Measure and Verify the Project’s Impact
A key to measuring the success of the project is to calculate the actual reduction in energy use. This will not only help with the internal accounting for self-financed projects and green revolving funds, but it’s a necessary component for the repayment of many third-party financing mechanisms. A measurement and verification plan can help the college accurately assess energy savings, monitor equipment performance and help to reduce the risk and uncertainty of financing the cost of the project.
By considering the four steps outlined above, the guide can help each college prepare a prioritized list of projects, compare applicable funding mechanisms and develop an implementation strategy that will help it achieve its sustainability goals. Download the Complete Guide
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