Alternative financing options such as energy savings performance contracts (ESPCs) allow public entities — from school districts to federal agencies — to benefit from energy savings and facility improvements with no up-front capital costs.
Three types of ESPC funding vehicles
Let’s take a look at three different types of common ESPC financing:
1. Capital lease
Sometimes called a tax-exempt lease purchase, a capital lease allows schools to buy equipment on a lease purchase agreement. Under this agreement, the borrower owns the equipment once the loan is paid off, much like the mortgage on a house. Capital leases don’t require a tax pledge. Many schools are familiar with this type of financing for buses, or other more traditional capital.
However, capital leases can also be used to fund energy system upgrades, such as replacing aged, inefficient mechanical equipment or updating lighting. In this case, the funding is based on the reduced operating costs of those upgrades. Savings from these upgrades can be leveraged over a period of time to create funding for additional projects.
2. Federal and state funding
ARRA. QECB. QSCB. OZAB. Those acronyms may be Greek to you, but they can translate to a lot of green for schools looking to do energy improvements. The recession created a number of low-interest, no-interest loans, along with a multitude of financial assistance programs. And many states offer their own funding for energy upgrades in the form of community and economic development block grants. However, these programs aren’t always obvious to schools, and they may need experts to help them ferret out these hidden resources.
3. Utility rebated and utility bill financing
Some utility companies offer rebates and financing for energy upgraded. These funding sources depend largely on how close the utility is to exceeding its power-generating capacity. Utilities that are closer to capacity are more likely to offer rebates. That’s because utility companies have discovered it’s less expensive to reduce usage than build new power plants. Schools are some of the biggest consumers of energy. So those that can demonstrate their energy improvements will significantly reduce energy usage – and this take the burden off the utility – may receive a sizable rebate.
Utility bill financing, on the other hand, involves the utility financing an energy upgrade. The utility then bills for the cost on the monthly utility bill. This type of financing can be utilized, but it’s less common than utility rebates.
ESPC financing can be a complicated business.
That’s why so many schools have relied on energy services companies (ESCOs) and industry veterans like Tammy Fulop, vice president of Energy and Sustainability Services at Schneider Electric.
Download an interview with Fulop, who explains the various financing options in detail, and provides guidance on why and when they might make sense for districts looking to upgrade their facilities. This ebook also includes perspectives and advice from a company that frequent funds ESPC projects.
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