energy project financing + green revolving funds sept 17, 2013 · bc hydro energy managers forum...
TRANSCRIPT
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.
9
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
11
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?
14
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?
15
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.”
16
• 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.”
17
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.”
18
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
19
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?
20
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
21
Capitial Competition - Design the
Business Case
• Current situation
• Proposed modifications
• Energy and non-energy
benefits
• Financial summary
• Risks
• Implementation plan
22
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
23
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.
25
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
27
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
28
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
29
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
30
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?
31
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
32
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)
33
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
34
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
35
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
36
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
39
The Model
• Cost Savings from Sustainability +
Energy Management reinvested in
Sustainability + Energy Management
Program
• Funds reinvested in future projects –
separate capital account set up
40
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
41
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).
42
Current Status
The balance as of April 2013 stands at
nearly $100,000.
43
British Columbia Institute of
Technology
44
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.
45
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
46
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
47
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
48
Types of Projects
• GHG reductions
• Energy conservation
• Water conservation
• Sewer and storm water output reductions
• Pollution reduction
• Operational improvements that decrease
environmental impacts
49
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
50
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
51
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
52
Challenges
People did not know about the fund and did
not understand how it worked
53
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?
55
Alexandre Hebert Energy and Sustainability Manager [email protected] bcit.ca/sustainability
Thompson Rivers University
56
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
57
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
58
Managing the Fund
• TRU Environmental Sustainable Fund
Steering Committee
• Four university representatives: faculty,
administrative, student, and staff
• Meetings are held quarterly to review
projects
59
Purpose of Funding
1. Future facilities energy
efficiency projects
2. Energy conservation projects
proposed by anyone on
campus
60
Challenges
• Confirming savings:
– M+V process time consuming and costly
– Need to be comfortable with assumed
savings
61
Billion Dollar Challenge
• Signed up for Billion Dollar
Revolving Fund Challenge
• North American universities
• Grits tracking tool
Website: http://greenbillion.org/
62
Keys to Success
1. Research other GRF
2. Creating clear criteria for selecting
projects
3. Simplify savings calculations process
63
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
69
Original Draft Model
70
“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
72
“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
73
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
74
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)
75
Keys to Success
Clearly Defined Savings Targets
– $1,000,000 in savings
– Partnership with CaGBC (external expertise)
76
Keys to Success
Ground in factual data
– Energy Intensity Targets for each location
– Projected savings by site based on analysis
– Projected energy savings if targets were reached
77
Keys to Success
Executive Level Support
– Board
– Executive Team
– Directly engaged the Secretary Treasurer
78
Wrap Up
GRF Key Success Factors
• Clearly defined objectives and eligibility requirements
• Clearly defined targets
• Simple, transparent and consistent process
• Council and staff support for financing mechanism and its
objectives
• People designated (and allocated time) to identify and steward
projects
• Systems in place to identify opportunities and track success
• Flexibility to finance varying project sizes
• Conservative assessment of project economics
• Recognition of, but not paralysis from, uncertainty
81
Source: http://www.yellowknife.ca/Assets/Public+Works+$!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+$!26+Eng
ineering/YK+Green+Energy+
Projects+-+Internal.pdf
82
CUSUM to Show Savings ($)
83
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
[email protected] www.prismengineering.com
85
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