Leading the Way in Sustainability

SEI Senior Research Fellows Shoshana Blank and Max Storto authored an article on green revolving funds in the October-December 2013 issue of Planning for Higher Education Journal.

Leading the Way in Sustainability Through Hassle-Free Green Revolving Funds

As energy costs continue to rise, a seemingly small efficiency project can save tens of thousands of dollars a year. In the face of limited operating budgets, schools are beginning to cash in on these upgrades. With lower utility costs, colleges and universities can devote more capital toward improving infrastructure while hedging against rising tuition costs. Volatile energy prices are not the only reason that schools are taking action, however. Increasing concern over carbon footprints and growing interest in sustainability among campus communities have popularized energy efficiency projects in higher education.

Despite a growing affinity for energy efficiency projects, administrators have struggled to finance them. Sustainability projects require significant up-front capital, which is often difficult to procure in a campus environment. Green revolving funds (GRFs) are internal financing mechanisms that issue loans to support clean technology and other sustainability projects that generate monetary savings. The savings from these projects, determined by measuring or estimating the difference in utility bills pre- and post-project implementation, are then used to replenish the fund, ultimately creating a perpetual financing mechanism that allows energy efficiency to remain an institutional priority. There are three primary reasons why GRFs are a simple and savvy way to finance energy efficiency at colleges and universities:

1. While funding projects through energy service companies, bonds, and power purchase agreements require schools to pay back outside entities over multiple years, GRFs return 100 percent of the financial savings to the institution after project implementation. Those savings are initially allocated to the GRF; however, after the project cost is repaid, they can be allocated to another account at the institution.
2. Unlike an annual allotment for energy efficiency, a GRF requires only a one-time infusion of capital and then relies on its own finances. GRFs ensure that energy efficiency projects receive perpetual funding, even if there are institutional budget cuts.
3. GRFs require you to quantify your savings in their very nature. There are many forms of measurement and verification. Some are based on actual energy data while others are based on estimates. Tracking energy savings helps institutions make the case that (a) energy efficiency is a great financial investment and (b) monetary reallocations from the energy budgets are merited…

You can download the full article here.