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Government Buildings

In an effort to lead by example, state and local leaders may choose to implement energy efficiency improvements in government buildings first. These facilities often are highly visible and symbolic, and they present a good opportunity to achieve cost-effective energy savings. Since a 20%-30% return on energy efficiency investments in state buildings is common, a number of states have developed policies that either require or encourage energy improvements in government buildings. A range of policy options is available to increase energy efficiency in government buildings, including:

• Targets for reducing state energy use
• Energy performance contracting
• Revolving loan programs with low interest rates
• Energy efficiency design standards
• Life-cycle costing in state building construction
• Using government bonding authority to create nonprofit corporations.

States often use a combination of these policies to meet their energy goals.

Set Targets for Reducing State Energy Use

One of the most direct ways to increase the energy efficiency in government buildings is to set a target for state agencies to meet. Every dollar spent on unnecessary energy use is a dollar unnecessarily diverted from state services and programs. Consequently, programs that encourage cost-effective energy efficiency improvements make good fiscal sense. These targets can be put in place by a variety of methods — most commonly through executive orders, legislation, or state energy plans. Reductions can be significant — many programs specify reductions in electricity use of 30% or more.

These policies can be voluntary or required. Required energy reduction targets mean that agencies must make energy reduction a priority. These targets can be met more easily if some of the programs listed here such as energy performance contracting or revolving loan funds are available. As an inducement for agencies to participate in voluntary programs, incentives such as letting an agency keep part of the savings are effective.

Allow Energy Performance Contracting

Performance contracting may be used to pay for energy efficiency investments. It is typically offered by an energy service company (ESCO). ESCOs provide the up-front capital for energy efficiency investments and sometimes renewable energy purchases. They make their money from the resulting energy cost savings. ESCOs provide performance guarantees on the energy improvements, and they assume the financial and technical risks of the project in exchange for an acceptable rate of return.

Performance contracting requires no new funding and poses no risk for the state. The U.S. Treasury does not consider performance contracting as additional debt, so it does not affect the state's credit rating.

In some states, the appropriation laws do not allow for this type of contracting. Consequently, legislation may be required to enable this option. Quite common in states now, performance contracting laws may stipulate levels of energy savings and payback periods. The National Conference of State Legislators has a document database of sample performance contracting legislation and more information about performance contracting.

Establish a Revolving Loan Program

States may design programs that use below-market interest rates to fund energy efficiency projects. This program requires that a fund be created for this purpose. As initial loans are paid off, the payments replenish the fund for future projects. An example is the Texas LoanSTAR program, which is a legislatively mandated program administered by the State Energy Conservation Office (SECO). This loan program has generated more than 127 loans to public institutions since 1989 and has saved more than $100 million in energy costs. Over the next 20 years, SECO estimates that Texas LoanSTAR will save state taxpayers $500 million in avoided energy costs.

Set Energy Efficiency Design Standards

These policies establish rigorous energy standards for state buildings and ensure that new construction or major renovations incorporate energy saving measures. An example of these design standards is the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) system. LEED is a voluntary building rating system that gives credits for various technologies and design elements, and awards levels of green building certification based on the credits earned.

Use Life-Cycle Costs in State Building Construction

Life-cycle costing is an accounting tool that state and local governments may use when considering new construction projects. This analysis considers all the costs associated with a building over its projected life. It considers costs that often are neglected in construction planning or retrofitting, including annual maintenance and energy costs, fuel price increases, and periodic equipment replacement costs. Requiring the use of life-cycle costing can identify money-saving energy efficiency improvements that otherwise might not be considered.

Create a Nonprofit Corporation

States can establish a nonprofit corporation to help state agencies implement cost-effective improvements. This enables a state to use its bonding authority to reap the financial rewards of energy efficiency investments. The corporation can finance the projects without adding to the responsibilities of agencies or spending their limited funds.

Iowa created the State of Iowa Facilities Improvement Corporation and sold $12 million in bonds in 1986. The proceeds from the sale were used for energy improvements to buildings managed by several state agencies. In 1999, the program paid off its original bond issue a year early, saving $130,000 in interest. This program serves as a national model.

Arguments for Government Building Energy Efficiency Programs

• Governments should lead by example. Increasing the energy efficiency of state buildings sends an important signal to the public on the effectiveness of energy saving technologies.

• Many state buildings are old and energy inefficient, and are wasting taxpayer money in their operation. Energy efficiency programs are fiscally responsible.

• Since energy efficiency improvements increase comfort and improve lighting, productivity of government employees is likely to increase, and absenteeism may be reduced.

• These programs are proven at the state and federal levels. Technical assistance is available.

• Energy performance contracts allow energy efficiency improvements without cash up front, and they can be financed through future energy savings. This can save taxpayer dollars right away with no capital outlays.

• Increasing energy efficiency protects the state against higher energy prices or reduced energy availability in the future.

• Making construction decisions based on the full life of the building and equipment maximizes the use of taxpayer dollars.

• Money saved on operating costs is freed up for government programs and services.

Arguments against Government Building Energy Efficiency Programs

• Contracts for installing energy efficiency measures can take time to write.

• Many states made energy efficiency improvements to state buildings a decade ago. Are we going to have to do this every decade?

• If we wait, newer technologies will emerge that save even more money.

• Saving money on operating costs is the responsibility of state government and shouldn't require additional programs.

• Maybe we should wait and build new state facilities rather than retrofit older ones.

• Since this can involve multimillion dollar contracts, companies with lobbying connections to the state capitol are likely to benefit.

• Paybacks beyond 10 years are too long.

For More Information

The U.S. Department of Energy's How To Guide: "Greening" of State Buildings (PDF 77 KB). Download Adobe Reader.

The U.S. Environmental Protection Agency's ENERGY STAR® program for Governments.

Additional resources and examples on performance contracting can be found at:

• Federal Energy Management Program (FEMP)
  The federal government has implemented numerous performance contracting upgrades through FEMP over the last decade.
• National Association of Energy Service Companies
• Energy Services Coalition
• Western Regional Coalition
  The WRC is a coalition of 19 western state energy offices and energy service companies.