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EnergySmart Schools

Financing EnergySmart Schools

Although energy-efficiency can result in significant long-term savings for a school district, high-performance upgrades are sometimes delayed or discouraged because of financial concerns. Securing the best financing arrangement is an important step in the planning stages of any building or renovation project. When that project involves designing or incorporating energy-efficient features, a number of options are available beyond the traditional choices of internal financing or a bank loan.

A number of state governments, utilities, and foundations offer financing programs specifically designed for high-performance construction. Here are some choices to be considered when a school district decides to make an energy-efficient investment:

Internal financing
Commonly, a school uses its own operating or capital funds to finance smaller, short-term projects with relatively short pay-back periods. The advantage is the school can retain all of the energy-cost savings and the project can be implemented quickly by avoiding complex contract negotiations. Many schools, however, do not have funds available for energy-efficient improvements.

Revolving investment funds
A school can create a revolving investment fund when it uses its own money for high-performance projects. Savings that accrue from lower energy costs are put into the revolving fund. As the energy savings compound, so do the returns to the fund, and profits can be reinvested in other energy-efficient projects.

Debt financing
Bank loans are often used to finance small, shorter-term energy-efficiency improvements. For bigger projects, many schools turn to the municipal bond market by issuing a general obligation bond. These bonds are often tax-exempt, which lowers their cost, but they also require voter approval and incur a debt that is reflected on the school's balance sheet.

Lease or lease-purchase agreements
Under these agreements, a school secures equipment or energy-efficient improvements from a private vendor, who is repaid over the term of the lease through energy-cost savings from the project. There are no up-front costs for the school and the equipment can be bought at the end of the lease for a pre-negotiated price. These agreements can require complex administration as well as financial expertise.

Energy-saving performance contracts
Energy-saving performance contracts can be used to upgrade equipment and improve the energy performance of existing facilities. A performance contractor estimates potential energy-cost savings for the school, and the school and contractor divide the amount saved. The more energy-cost savings generated, the more the performance contractor earns—and the more money the school has to put toward other projects. The formula for that division is negotiated prior to the lease signing. The National Association of Energy Service Companies has an online searchable database of companies that provides this and other types of services related to the evaluation, financing, and implementation of energy-efficient improvements. The National Clearinghouse for Educational Facilities also has a valuable resource list about performance contracting for school buildings.

State programs
State grants and low-interest loans are available for energy-efficient school upgrades. The Database of State Incentives for Renewables & Efficiency provides information about these types of initiatives on a state-by-state basis.

Utility programs and public benefit funds (PBF)
Local utilities may offer reduced-interest loans or rebates for energy-efficient projects or features. Some electric utilities include a fee with their monthly charges that goes toward a PBF, which can then be used for a variety of energy-efficient projects. The Database of State Incentives for Renewables & Efficiency provides information about utility-based programs organized by state.

Supplemental environmental projects (SEP)
SEP are energy-efficient projects funded by companies that violate federal environmental regulations. Designed by the U.S. Environmental Protection Agency, the SEP program allows violators to fund these projects in lieu of fines.

Foundations
A number of foundations offer money to support energy improvements in schools. The Kresge Foundation's Green Building Initiative, for example, awards planning grants to elementary and secondary schools that predominantly serve individuals with physical and developmental disabilities. The Foundation Center provides searchable information about nonprofit resources.

There is an extensive list of additional financing resources on the Information Resources page.

Will an EnergySmart investment pay off?

While energy-efficient school construction is not necessarily more expensive than conventional construction, it is important to consider the balance between up-front costs, which simply measure initial price, and life-cycle costs. To determine whether a specific project—be it a new boiler or new building—is worth the initial investment, many schools do a life-cycle cost analysis. This accounting method determines the total costs associated with an upgrade over its lifetime, considering such factors as:

  • Purchase or construction costs
  • Fuel costs
  • Operation, maintenance and repair costs
  • Replacement costs
  • Resale or disposal costs
  • Loan interest payments
  • Non-monetary benefits

 

A number of software programs can calculate life-cycle cost, including free Building Life-Cycle Cost (BLCC) programs from the Federal Energy Management Program (FEMP).