Are you recycling your energy investments?

Everyone who cares about the natural environment recycles, right? Paper, plastic, glass…but what about money? It can be almost just as easy to recycle energy investments to address the serious global issue of climate change if you set up a Green Revolving Fund (GRF).

What is a revolving loan fund?
A revolving loan fund is a dedicated funding mechanism used to support specific projects that payback project costs to such fund. Often using cost savings from funded projects, loans given are repaid into the revolving loan fund. Then the money repaid to the revolving fund is lent again to finance additional projects.

What is a green revolving fund?
A green revolving fund (GRF) is a revolving loan fund used to finance projects that have specific ties to energy conservation or efficiency, renewable energy, or other natural resource-saving projects. Specifically tracked savings from projects funded are returned to the green revolving fund to be used for future projects.

How do GRFs perform?
Colleges and universities with GRFs have reported a median return on investment of 28 percent over the life of a typical project (see Sustainable Endowments Institute’s (SEI) Greening the Bottom Line 2012). GRFs are often focused on projects with a payback window of no more than five or ten years. The investments make economic sense. Often the biggest hurdle is working out the mechanisms to allocate savings appropriately within the constructs of a university’s current budgeting and finance structures.

To start brainstorming for high payback projects, review McKinsey & Company’s Global GHG abatement cost curve beyond business-as-usual, in its report Pathways to a Low-Carbon Economy. This chart and report provide insight into the investments that reduce greenhouse gas emissions with the highest financial payback. Of course, most everyone knows that changing an incandescent light bulb to a LED often pays back its investment in less than a year, but this report will get you thinking beyond lighting. If the McKinsey & Company report is too academic for you, just start talking to your facilities and maintenance leaders. They know what needs to be replaced and upgraded. Starting from there, look at your options for more efficient technologies. More energy efficient options often cost more upfront, but that additional cost will often be more than recovered in energy savings over the life of the equipment, saving money and reducing emissions.

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Image included with permission from Sustainable Endowments Institute

 

Who is using GRFs?
The most common users of GRFs are colleges and universities. AASHE has a database of information about many of the institutions that have started GRFs. The Sustainable Endowments Institute (SEI) has coordinated The Billion Dollar Green Challenge to encourage colleges, universities and other nonprofits to investment a cumulative total of one billion dollars into green revolving funds. As of July 2016, SEI has $131 million committed from 62 participating institutions. See if your alma mater is on the list, or your child’s dream school. As of July 2016, the University of Vermont boasts the largest GRF, with a $13 million fund started in 2012. They look for projects that pay back within seven years and cost no more than $3 million per project. Harvard University’s well know $12 million fund, established in 2001, has supported nearly 200 projects which now cumulatively save the school over $4 million each year (yes, each year!) on energy bills.

Schools have found that a GRF is a reliable mechanism to support cost-saving capital improvements even in the midst of budget cuts and rising energy costs. GRFs regularly outperform the investment returns for schools’ endowments and thus some endowments have become involved with initial funding support to GRFs.

Are you at a small institution or one that doesn’t have access to millions of dollars? No problem. The range of sizes (both regarding enrolled students and school endowment size) among colleges and universities with successful GRFs suggests that any school could implement a GRF. SEI reported that initial capital investments in GRFs are evenly distributed in the ranges: below $100,000, between $100,000 and $1 million, and above $1 million. The fund I helped start began with only $50,000 and is added to annually from various sources. As a result of projects funded by this GRF and through a number of other small cost behavior-based changes on the campus, the energy bills are down, and the institution is saving more than $400,000 annually on energy costs compared to a business as usual scenario.

How is a GRF formed?
GRFs are formed in many ways. The most common sources of start-up funding are one-time administrative budget allocations, prior efficiency or utility savings, private donations or foundation grants, and endowment funds. Although administrative involvement and support for a GRF is key, students are frequently involved in creating the GRF at colleges and universities.

Verdis Group helped Omaha’s Henry Doorly Zoo & Aquarium (“Omaha’s Zoo”) set up a GRF, starting with seed capital from a grant and growing through utility lighting rebates, recycling-focused grants, direct contributions, and of course energy savings. One of the hurdles the Zoo’s Green Team faced was having money to fund even small sustainability projects, and this fund has almost entirely resolved this issue. Each year projects are selected that are both high payback projects, such as lighting updates, and low or no payback projects, such as adding recycling infrastructure to make recycling easier, faster and more complete. These GRF bundles use the high payback projects to support the projects that don’t financially payback on their own, and everyone is happy—the accountants who are saving money on energy bills, the Green Team who now has funds to make the changes they view as most important, and the environment which benefits from resource conservation and reduced pollution.

How is a GRF administered?
It is important to get your administration and tracking set up before jumping into a GRF. There are many administrative models among GRFs. On college campuses, the governance of the fund often depends upon how it was formed. Typically, a small group oversees the finances of the fund, while a larger, more diverse group reviews project loan applications on an ongoing basis. Funds typically require projects to have a maximum payback period to ensure timely replenishment of principal to the fund. Some funds charge interest while others simply require repayment of the principal. Interest allows the fund to grow organically over time; however growth can also come from additional external contributions or allocations from operating funds. Other funds require a percentage of real energy savings to be paid to the fund even after the principal amount of the loan is returned, allowing the fund to grow from the additional savings.

At Omaha’s Zoo, Verdis Group currently administers the GRF in partnership with the Zoo’s accounting group. The Zoo wanted its GRF to financially benefit its general operating budget and serve as a continuing funding source for green projects. Thus, savings in the Zoo’s GRF projects are allocated with a percentage to the Omaha Zoo’s general operating budget and the remainder to replenish the GRF. Since the creation of the Zoo’s fund, SEI has developed a GRF tracking system (GRITS 1.5) that helps institutions manage and analyze project-level energy, financial and carbon data without developing a new process or tool just for the GRF tracking. SEI’s experience with GRFs is exceptional and the GRITS tracking tool has made setting up and tracking a GRF even simpler.

What are common GRF goals?
A GRF can focus on energy efficiency goals, such as reducing energy expenses and cost savings (a.k.a., fighting climate change with the bonus of saving money). In other cases, the GRF may support innovation and engagement projects that do not have direct significant financial payback. In the latter example, a GRF is replenished by grants or other funding, rather than repayment of project savings. GRFs are often operated as hybrid funds that fund both high payback projects along side engagement projects with low or hard-to-measure payback.

At Omaha’s Zoo, a hybrid fund was formed because engaging the staff and providing funds to implement staff-generated green projects was important. Yet, ensuring the revolving nature of the fund endured was critical because an ongoing source of contributions beyond savings was not guaranteed. Verdis Group works with the Omaha Zoo annually to analyze potential projects, determine project paybacks, and guide the Omaha Zoo’s GRF selection committee toward a group of annual projects that meet financial payback, employee engagement, and environmental goals.

So get out there and start recycling something even more interesting than those old aluminum cans – recycle your energy investments!

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