Recently, much of our work on the financial technical assistance team has been focused on the question of how to sustain programs after ARRA funding is exhausted.  Some units of government have developed financing programs such as loan funds that require ongoing management. Others hope to continue making energy efficiency (EE) upgrades on government facilities. Still others are looking for ways to continue staffing their sustainability offices. While their goals for the future may differ, most of these groups have certain elements in common, such as what their expenses are. Typically, government agencies expenses are mainly grouped in personnel costs and capital costs.

Fortunately, unlike many other government projects, energy projects have other potential sources of revenue. For example, EE upgrades on governmental buildings will lead to reduced costs on future electricity bills. These savings can be used to pay off the cost of the improvements (the main tenet of guaranteed energy savings contracts), or they can be used to pay for further EE upgrades (the idea behind internal revolving energy funds).

In addition, projects that generate electricity, such as solar photovoltaic systems and other renewables, generate both electricity and renewable energy certificates, which (subject to local regulations) can be sold independently. In fact, government offices and agencies can partner with utilities and other private entities to deliver EE programs, especially those that reach local residents and businesses.

Governments can also access more traditional sources of funding to cover the expenses of EE programs:

• Taxes.  Taxes may be an unpopular subject these days (or at any time, for that matter).  However, the reality is that tax revenues fund many different kinds of government services, including salaries. During difficult economic times, energy programs of all kinds compete for limited tax revenues. It remains to be seen whether governments have an appetite for committing tax revenues to energy and sustainability efforts. Energy programs may be able to influence governments’ decision making by positioning themselves as a “core” government function alongside public safety and education services.

• Debt.  Governmental programs may be able to weave EE improvements into their broader capital planning efforts. While governments can channel tax revenues into pay-as-you-go projects or capital reserve funds to pay for capital improvements, they also fund many large-scale capital improvements through installment purchase arrangements, bonds, and other forms of debt.  Governments can currently take advantage of lower interest rates for certain energy projects by accessing Qualified Energy Conservation Bonds (QECBs), and use these for either capital improvements or seed loan programs.

• Fees.  Many government environmental services, such as water and sewer utilities or stormwater programs, are funded (often exclusively) through fee revenue. These self-sustaining entities are called enterprise funds. Is it possible to fund energy programs the same way?  In theory, government programs could create sustainable energy enterprise funds that charge fees for service. When the programs are also power providers, it may be possible to incorporate EE programs into the services they already provide to the community. All government programs can consider making EE part of a larger economic development effort by charging assessments and fees for efficiency upgrades. The ability to charge fees depends on state and local law, so programs that are interested in pursuing a sustainable energy enterprise fund should consult with appropriate legal experts.

Content for this Blog post courtesy of Glenn Barnes of the UNC Environmental Finance Center, a member of the Center for Climate Strategies financial technical assistance team