Financing Energy Efficiency at State Buildings: The Massachusetts Clean Energy Investment Program Eric Friedman, Director Leadingby Example Program Dept. of Energy Resources 617 626 1034 Eric.friedman@state.ma.us
Topics Massachusetts Energy and Climate Goals Investment Needs The Problem The Solution Benefits of CEIP Project Eligibility 2
Energy & Climate Goals EO 484 mandates for state operations: 25% ghg emission reduction by 2012, 40% by 2020, 80% by 2050 20% energy reduction (per sq ft) by 2012, 35% by 2020 15% of electricity from renewables by 2012, 30% by 2020 Statewide goals: Tripling of energy efficiency investment to $450 million annually 10 25% GHG emission reduction by 2020 250 MW solar by 2017 2000 MW wind by 2020 3
Investment Needs As part of ARRA funding to ramp up clean energy efforts at state buildings, conducted analysis of possible projects that could be undertaken over next several years Identified dozens of large scale energy efficiency and renewable energy projects, with potential investment of hundreds d of millions of dollars: 32 ready to start or near ready to start projects totaling over $237 million which would result in annual savings of $22 million 98 not yet underway projects totaling an estimated $334 million which would result in annual savings of $35 million 4 Initial Project list includes: 20 million sf of buildings 3+ MW of solar 10+ MW of wind
The Financing Problem Previously used Tax Exempt Lease Payments (TELPs), but recent financial market turmoil makes this a difficult option Relying on private financing through ESCOs can work, but it s costly rates of 7%+ and even ESCOs are having difficulty obtaining capital No appetite or ability to use state capital funds, given difficult operating budget situation and capital budget authorizations ARRA, QECBs, CREBs available but not sufficient to fund entire pipeline 5
What We Did The goal: Use state access to low cost financing to fund large amounts of efficiency programs without bumping into debt ceiling limits Capture savings that would otherwise go to private vendor Reduce operating budgets due to reduced energy bills Leverage savings to fund additional energy efficiency projects The Solution: Establish a new Clean Energy Investment Program that uses state bonding authority to finance efficiency projects that are paid for out of savings by each host agency 6
Low cost financing Benefits of CEIP State tax exempt bonds without private vendor involved is lowest cost financing option for the Commonwealth Using energy savings to pay back the bonds allows for off bond cap Operating budget relief Environmental stewardship Without implementation of Energy Efficiency Retrofit Projects, goals of EO #484 are not achievable Economic development job creation Total project investment of $237 million would result in 2,000 to 2,500 jobs including on site construction and support jobs such as project administrators, analysts and engineers 7
Budgetary Savings Operating Budget Energy Savings Savings Costs Debt Service and M&V Operating Energy Energy Budget Costs Costs Operating Budget Before During After financing term of term of financing financing 8
Case Study: North Shore Community College Savings Analysis By financing i the project with ih 4.63% 6% debt versus 7.00% (as the original ESCO proposal called for), the Commonwealth will save $800,000 Cost of Debt 4.63% 7.00% Difference Debt Service 3,692,616 4,499,489 806,873 M&V/Maintenance 752,370 752,370 - Total Costs 4,444,987444 5,251,859 806,873873 Annual Savings 9,670,974 9,670,974 - Net Savings 5,225,987 4,419,115 (806,873) 9
Project Eligibility Eligible Participants Eligible Projects Any state agency that incurs energy costs in its normal operation Wide variety of state owned projects, including light, heat, ventilation, air conditioning, equipment controls, cogeneration andpower generation. Projects must be contribute to achieving goals of EO#484 and must generate verifiable energy savings sufficient to pay for themselves 10 Term Financing i term for each project will be less than or equal to useful life of equipment or installations, but no more than 30 years. Savings Projected annual savings must be equal to or greater than 1.1 times annual debt service as determined by A&F. Actual savings will be independently verified annually; to the extent actual savings are insufficient, the bonds that financed the project and associated debt service, will be added to bond cap for debt affordability purposes.
Status and Next Steps Utilizing some $25 million in ARRA funds for efficiency and renewables at state properties p Taking advantage of CREBs and possibly QECBs Governor announced CEIP this spring Construction office moving forward with myriad of projects No delays associated with financing Lower costs allow for quicker paybacks and/or greater energy gains Over the next four years, we will make more efficiency capital investments than over the last 25 years 11