BC Hydro Energy Managers Forum

Energy Project Financing + Green

Revolving Funds

Sept 17, 2013

Robert Greenwald, P.Eng., MBA, President

Prism Engineering

Aha! Moments

…a sudden realization,

inspiration, insight,

recognition or

comprehension

2

Agenda

• Funding Challenges

• Sharing Successes

• Building the Business Case

• Green Revolving Funds

• Case Studies from EMs

3

Funding Challenges

What are your funding

challenges?

5

The Challenges

• Budget cutbacks

• No/limited capital

• Other priorities ahead of energy projects

• Deferred maintenance requires more

attention

6

The Challenges

• How can we invest in energy management

when there are so many cuts happening in

other areas?

• Decision makers don’t see value /

“understand” energy management projects

7

Sharing Successes

Group Activity

Identify the key successful

strategies for you to get

funding for projects.

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Strategies - Traditional

• Build the VALUE argument

• Build the RISK argument

• Connect with other initiatives that have

funding secured

• Make it non descretionary!

• Build the business case

10

Strategies – Alternative Funding

Options

• Low interest loans

• Lease equipment

• Energy Performance Contracts

• Green Revolving Funds

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Building the Business Case

Energy Efficiency Opportunity

Financial Analysis

Strategic Analysis

Capital Competition

Operational Analysis

Energy Efficiency Funding

Decision Process

Source: NRCan Energy Efficiency Finance Workshop 13

Typical Questions:

Operational

• Is there local support for the technology?

• Is the technology proven?

• What training is required?

• Do we have the internal expertise required?

• What impact will the project have on staffing?

• Are there environmental and safety implications?

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Typical Questions:

Financial

• Are there hidden or additional costs?

• What are the benefits? Energy Savings?

• How realistic are the costs and savings

projections?

• What financial impact will this have on other

areas of our organization?

• How do you propose to finance the project?

• How quickly will we see benefits?

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Speaking the Language

of the CFO

“The business case for EE is a strong one. The surprise

is that more firms are not adopting EE. Why not?

One obstacle appears to be the way in which the case

for EE is being communicated. Engineers and

operations managers need to better motivate their

executive team.

They must speak in the language of the Chief Financial

Officer (CFO) and Chief Executive Officer (CEO), citing

not just the costs, but the savings, the low financial risk,

the decreased waste and the social benefits.”

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• http://www.fmlink.com/ProfResources/Magazines/article.cgi?BOMA:boma061308.html

“Often energy efficiency investment decisions are

based on simple financial metrics, such as simple

payback, cost relative to budget or the building's

pro forma. These analysis methods may be

valuable, but they are not broad enough to provide

sufficient information for the best decision

making… Conversely, when return on investment,

risk and time value of money are considered,

often energy efficiency upgrades are shown to be

very prudent.”

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Financial Hurdles

“Aside from the easy “low-hanging fruit” many EE

projects produce payback periods that are slightly

longer than most financial officers prefer.

This simple investment criterion takes capital

investment proposals off the executive agenda before

they even appear.

However, the risks of EE investments, which are lower

or non-existent compared to alternative investments,

are neither well-quantified nor well-communicated to

business leaders.”

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The Financial Analysis in a Business

Case

• Capital Required

• Cost Savings

• Simple payback

• Net Present Value (NPV)

• Internal rate of return (IRR)

• Sensitivity Analysis

• Impact on O&M (positive or negative)

• GHG credits

• Assumptions

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Typical Questions

Strategic

• How does this project fit with our mission?

• How disruptive will the project be to our

operations?

• What is the impact of delaying for 1 year?

• What other options have been considered?

• How does this fit with our current priorities?

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The Capital Competition

• Which investments make the best use of

available money?

• Ensure optimum benefits from investment

• Minimize the risk

• A basis for subsequent performance analysis

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Capitial Competition - Design the

Business Case

• Current situation

• Proposed modifications

• Energy and non-energy

benefits

• Financial summary

• Risks

• Implementation plan

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Capital Competition: Your Pitch

• Know your audience

• Grab their attention early

• Start with key positive points

• Be logical – stay on topic

• Use appropriate data

• End with a follow-up statement

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Green Revolving Funds

What is a Green Revolving Fund?

• Accounting instrument that fund and

account for the savings that energy

conservation measures realize for the

organization.

• Initial expenditures are replenished by cost

savings and ultimately increase the size of

the fund over time.

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Harvard University’s “Green Campus

Loan Fund • $12 million revolving loan fund

• provides up-front capital for projects that reduce Harvard’s environmental impact (building design, operations, maintenance or behaviour projects).

• Projects payback of 5-10 years (or less)

• Projects pay back the loan from their savings

26 http://green.harvard.edu/loan-fund

Sample Cash Flow from NWT Study

Source: http://www.yellowknife.ca/Assets/Public+Works+$!26+Engineering/YK+Green+Energy+Projects+-+Internal.pdf

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Green Revolving Funds Longer Term

Building a Sustainable Funding Source for Energy Conservation

• Funding mechanisms to finance sustainability projects

• Savings from energy, water, or waste fund energy ‘green’ initiatives

• Various ways to structure

• Generally require some seed money

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Building a Green Fund

• Advocate that all savings from energy conservation

be allocated back to a Green Fund

• Start with all incentives and rebates

• NOT a request for NEW funding

– Simply taking money that has been spent in the past on

utilities and directing it back to energy conservation

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Green Fund Structure – Considerations

• Utilities to include

• How to deal with cost (rate) changes:

– Electricity prices projected to continue rising

– Natural gas prices currently very low

• Natural gas consumption is weather-dependent

• Sources of future load growth – Facility expansion

– Increasing electrification

– Fuel switching

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Defining Different Models

• How is financing made available to project

proponents?

• How are projects identified and advanced?

• How is project eligibility defined?

• How is the financing repaid?

• How is program success and sustainability

monitored and evaluated?

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Source: http://www.yellowknife.ca/Assets/Public+Works+$!26+Engineering/YK+Green+Energy+Projects+-+Internal.pdf

Building a Green Fund -

How to Get Started

Establish Targets

Elicit Support

Determine Financing

Establish Project Criteria

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Establish Clearly Defined

Savings Targets

• Measure energy intensity of each facility

• Set energy intensity targets for each facility

• Calculate potential savings

• Determine a time-frame for achieving savings (5-10 years)

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Elicit Executive Level

Support

• Present the idea to Executive and Board

• Focus on financial savings potential

• Highlight that funding energy conservation is not an additional expense

• Directly engage the Secretary Treasurer in the discussion of how best to structure the model for your organization

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Determine Financing for the

Fund

• Establish the financing model – Interest Fund

– Revolving Fund

– Annual Allocation

• Determine a source of Seed Funding – AFG

– Incentives/rebates

– Restricted capital

– Budget surplus

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Establish Project

Criteria

• Determine how projects will be identified + advanced

• Determine project eligibility criteria

• Limited seed funding? Build through initial focus on • Low cost & no cost O&M savings

• Sites with highest savings potential

• If project applications are required, ensure a transparent selection process with well-defined criteria

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Case Studies

North Vancouver School District

Revolving Fund 38

The Process

• Identified as part of

SEMP discussions +

planning

• Worked to get approval

• Presented and

approved by Board in

2012

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The Model

• Cost Savings from Sustainability +

Energy Management reinvested in

Sustainability + Energy Management

Program

• Funds reinvested in future projects –

separate capital account set up

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Funding Sources

• Incentives and Grants from utilities and

governments

• Utility Cost Savings - determined at the

end of fiscal year where budget permits and

only after any utility cost increases have

been absorbed in the fiscal year.

Savings from sustainability initiatives stay

within the program

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Funding for Initiatives

Used for sustainability initiatives:

• to reinvest in future projects

• to carry out projects that build profile

for the program

• to fund initiatives led by students and

staff within the schools (via Green

Teams).

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Current Status

The balance as of April 2013 stands at

nearly $100,000.

43

British Columbia Institute of

Technology

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Revolving Fund at BCIT

• Established 2010.

• Initially $100K committed.

• Provide seed funding for schools and

departments for energy/green initiatives.

• No interest loan repaid in 5 years

through reductions in utilities, waste or

operations costs.

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Purpose

• Motivate faculty and staff to engage in

actions

• Remove barriers for beneficial projects

with longer term paybacks

• Facilitate the peer-to-peer education

opportunities

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Criteria for Projects

• Loans granted $10K to $100K

• Range of minor to major projects

• 5 year or less pay back

• Case by case basis:

– $100K +

– 5 year + payback

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Application Process

• Applicants create business case to show

project has distinct and calculable payback

• Applications each quarter

• Fund administered by sub-committee of

BCIT Sustainability Committee

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Types of Projects

• GHG reductions

• Energy conservation

• Water conservation

• Sewer and storm water output reductions

• Pollution reduction

• Operational improvements that decrease

environmental impacts

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Sample Project: Virtual Painting

• Allows students to practice spray painting

within a simulated 3D environment.

• Reduces BCIT’s carbon footprint, electricity

consumption and VOC emissions and is

safer for the student

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The Process

• Approved projects sign a loan agreement

with department head and facilities

management

• Recipient manages project

• Periodic progress reports

• Project completion report including savings

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50/50 Sharing

• Completed projects share any future cost

savings equally between initiating

department and the Sustainability

Committee

• Additional funds used to grow the

Revolving Fund for Sustainability Initiatives

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Challenges

People did not know about the fund and did

not understand how it worked

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Actions – Created formal market

program

– Applications for capital

requests includes a question

re: energy efficiency

Pros and Cons of this Model

Pros

• Allows people to think outside the box

• Removes barriers to action

• Recipients need to be able to prove savings

Cons

• Setting up accounting system

• Rigorous M+V process takes time and $

• No seed money for initial investigation

Questions?

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Alexandre Hebert Energy and Sustainability Manager Alexandre_Hebert@bcit.ca bcit.ca/sustainability

Thompson Rivers University

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GRF Model

• Energy savings and funding based on

consultant calculations for projects (COp)

• Savings from energy utilities only

• 25% reduction goal would equal $200K a

year

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Setting up the GRF

• Campus wide audit in 2010

• Secured support from VP of Finance

• Savings from audit as seed money for

GRF

• Still setting up process and finalizing

savings

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Managing the Fund

• TRU Environmental Sustainable Fund

Steering Committee

• Four university representatives: faculty,

administrative, student, and staff

• Meetings are held quarterly to review

projects

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Purpose of Funding

1. Future facilities energy

efficiency projects

2. Energy conservation projects

proposed by anyone on

campus

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Challenges

• Confirming savings:

– M+V process time consuming and costly

– Need to be comfortable with assumed

savings

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Billion Dollar Challenge

• Signed up for Billion Dollar

Revolving Fund Challenge

• North American universities

• Grits tracking tool

Website: http://greenbillion.org/

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Keys to Success

1. Research other GRF

2. Creating clear criteria for selecting

projects

3. Simplify savings calculations process

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Questions?

64

Jim Gudjonson Energy Manager jgudjonson@tru.ca http://www.tru.ca/facilities

Richmond School District #38

65

Impetus

Challenge of developing funding

mechanisms to finance energy

conservation projects.

– Limited AFG funding, backlog of projects

– Difficult justifying spending on

‘enhancements’ over repairs

– Payback of energy conservation not valued

in AFG context

66

Impetus

Desire to engage in more strategic energy

management planning

– Unable to get Board approval for sufficient

energy conservation funding

– Initial plan did not demonstrate how

savings would be achieved

67

The Concept

• Funding mechanisms to finance sustainability projects

• Savings from energy, water, or waste realized over the long-term fund green initiatives

• Can be structured in a number of different ways

68

Origins of Green Fund

• Awareness of Harvard University’s “Green Campus Loan Fund”

• Relationship with the Canadian Green Building Council and participation in the GREEN UP® program.

• Challenge of being unable to quantify potential savings presented to CaGBC consultants (Enerlife)

• Developed a draft model for discussion

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Original Draft Model

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“Final” Structure of Model

• Green Fund will be funded through utilities

budget

• Seed funding ($250K) derived from 2010

budget surplus

• Utilities (electricity + natural gas) will be

funded at baseline (2007) consumption level

and current year energy prices

71

“Final” Structure of Model

• Assuming consumption in current year is less

than baseline consumption, savings will

accrue in Green Fund

• Once targets have been reached, funds can

be returned back to operating budget

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“Final” Structure of Model

• Green Fund will be used to fund energy

conservation projects as well as sustainability

initiatives such as Sustainability Grants

• Some (limited) funds will be returned to SD38

each year

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Pros of this Model

• Simple and easy to understand (particularly

for those not involved in energy conservation)

• Savings come from what we ‘would be

paying’ for energy vs. what we are paying

due to energy conservation focus

• Does not require extensive accounting

• No application process required for projects

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Cons of this Model

• Does not adjust for weather (over the life of

the model we expect this to average out)

• Adjustment to baseline would be required for

building expansion (we are not expecting

significant growth)

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Keys to Success

Clearly Defined Savings Targets

– $1,000,000 in savings

– Partnership with CaGBC (external expertise)

76

Keys to Success

Ground in factual data

– Energy Intensity Targets for each location

– Projected savings by site based on analysis

– Projected energy savings if targets were reached

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Keys to Success

Executive Level Support

– Board

– Executive Team

– Directly engaged the Secretary Treasurer

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Questions?

Tracy Blagdon

tblagdon@sd38.bc.ca

(604) 295-7997

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Wrap Up

GRF Key Success Factors

• Clearly defined objectives and eligibility requirements

• Clearly defined targets

• Simple, transparent and consistent process

• Council and staff support for financing mechanism and its

objectives

• People designated (and allocated time) to identify and steward

projects

• Systems in place to identify opportunities and track success

• Flexibility to finance varying project sizes

• Conservative assessment of project economics

• Recognition of, but not paralysis from, uncertainty

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Source: http://www.yellowknife.ca/Assets/Public+Works+$!26+Engineering/YK+Green+Energy+Projects+-+Internal.pdf

Resources for further information

• Yellowknife Community Energy

Planning Project, Financing

Options for Internal Green

Energy Projects

http://www.yellowknife.ca/As

sets/Public+Works+$!26+Eng

ineering/YK+Green+Energy+

Projects+-+Internal.pdf

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CUSUM to Show Savings ($)

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P.S. Katt’s presentation reminded me to

tell you to follow me on @Rob_Prism if

you want updates on GRF info and all

things EM related.

Robert Greenwald, P.Eng., MBA, President

320 - 3605 Gilmore Way, Burnaby, BC V5G 4X5

604-205-5500

robert@prismengineering.com www.prismengineering.com

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In Memorium

Tom Owen (1945-2013)

- leader, friend, pioneer, champion of

GRFs

Tom Owen Environmental Sustainability Award at TRU

Donations committed to today will be matched up to $500 total by

Prism Engineering