Financing Energy Efficiency Projects
Efficiency as part of a capital improvement project
Many energy efficiency projects are too small to go to bond; however, they could be added to other bondable projects. For example, if the school district is considering a large capital project like a roof replacement or a major renovation, an efficiency project could be included in the scope of that project. Although districts naturally want to keep bond costs as low as possible, in the case of energy efficiency projects, adding a little can save a lot. Many energy efficiency projects save much more in operating costs than the cost in debt service, making it highly possible that adding an energy efficiency project could help sell the bond and lower annual budgets, even when financing costs are considered.
Efficiency as a stand-alone project
Sometimes energy efficiency projects can be absorbed within an annual budget or scheduled over several years. But often energy efficiency projects are too small to bond, yet too large to squeeze into an already tight annual budget. Energy efficiency projects, however, are an excellent investment—they last a long time and provide energy savings for years into the future. In many cases, they save more than the up-front cost, even when financing is considered.
Some great financing options:
- Tax-exempt Lease Purchase. An innovative funding approach is being used by Vermont schools to turn energy-saving facility upgrades into budget cutters. The approach, called tax-exempt leasing (or municipal leasing), enables schools to make energy-efficiency improvements with no upfront costs. Many Vermont school districts already use tax-exempt leasing for capital expenditures, such as school buses, computer equipment, and playground equipment. When used for energy-saving building improvements, a tax-exempt leasing agreement can be structured so that money a school saves on energy more than offsets loan payments. Tax-exempt leasing also enables schools to make energy-saving improvements without adding an expense to the annual budget and without creating a bond. Loan payments are included as a line in the utility budget.
- Commercial Loans. School districts can borrow the money from a local bank to finance a particular project. As with municipal leasing, financing can often be structured to create positive cash flow for the district. Loans under five years require at least a voice vote at a public meeting. Loans over five years require an Australian ballot.
- Capital Reserve Funds. Many school districts maintain a capital reserve fund to pay for unexpected capital improvements. Energy efficiency projects may be a good investment of these funds if they simultaneously save on overall operating costs. Some districts use the savings to replenish their capital reserve fund, in a sense creating an internal revolving loan fund.
Strengthening Public Support for School Improvements
Include Energy Efficiency to Make Bonds Less Costly
In today’s economy, many Vermont school districts face an uphill battle in their efforts to win voter approval of bond funding for needed building improvements. These districts can strengthen their cases by bringing energy efficiency into their projects.
"Remarkably, the total cost of a building-improvement bond that includes energy-saving work is less than a bond without it, because energy savings help pay for the bond," says Richard Donnelly of Efficiency Vermont. "That changes a building improvement from a pure expense to an investment that pays a solid return for years. This may mean the difference between a bond that voters consider a burden and one that’s recognized as a logical, beneficial financial move."
For example, if a school needs a new $500,000 roof, a school district could reduce overall costs with a bond that also includes energy-saving upgrades to gym and cafeteria lighting. While the initial size of the bond is greater with the efficiency work ($545,500 for both the roof and lighting), the total amount of money spent over the course of paying back that bond is actually $109,000 less than in a scenario with the roof alone. That’s due to the energy savings from the new lights.
"We’re glad to provide districts with cost-savings analyses that can give voters the facts they need to make an informed decision," says Donnelly. "We also support schools’ visions for their improvements by working with them and their contractors to incorporate cost-effective, comprehensive, energy-saving approaches into project plans."
While it can make financial sense to invest in efficiency at any time, the earlier in a project that energy implications are considered, the more cost-effective the energy-saving approaches tend to be.