The Community Energy Association is pleased to announce the release of Funding Your Community Energy Initiatives -- a guide to funding and resources for local governments.
This guide for BC local governments is divided into two parts: a Funding Guide and a Resource Guide.
For questions or futher information about this guide please contact Patricia Bell (contact info is available on the contact page - click 'contact' at the top of this screen).
There are many strategies to choose from when considering how to finance energy-related initiatives in your community, several of the options are outlined below.
A joint venture involves partnerships, either in financing or implementation or both
These can be either across departments within a government, or across levels of government. Partnerships may involve giving budgetary recognition to non-energy capital and operating cost savings that result from energy efficiency. For example, low-flow showerheads reduce energy bills, but also save on expenditures for new water supply and treatment infrastructure. If all departments calculate their collective energy bills, and collaborate to figure out what energy conservation measures will mean to water and wastewater costs, then joint planning and financing opportunities may emerge.
Local governments often rely on private capital to achieve economies that taxpayers and internal and intergovernmental barriers won't let them exploit. If up-front costs are a barrier to a project that generates an acceptable rate of return in the long term, look for private investors that may have an interest in the project. Offset funding may be an option. Some utilities, agencies or industries are required by law to meet certain standards (such as environmental or efficiency standards). If a municipality has lower-cost options for meeting these targets, they may be able to implement programs in exchange for funding assistance. For example, instead of costly upgrades to air pollution equipment at generation facilities, a utility might fund a van pooling program to achieve the same reduction in air emissions at lower cost (see inset).
While joint ventures imply shared responsibility for implementation, third party financing means bringing in an external party simply to pay up-front costs. There are a number of players that could be involved.
Energy Service Companies, or ESCO's, are private firms that offer technical and financing services for energy supply and efficiency investments. ESCo's are a large and growing business in North America. They can put up the up-front money and split the annual energy savings with the government. In this way, operating expenditures savings are "capitalized". The local economy can even benefit from having government pay for ESCO services in the design of infrastructure, sharing in the capital cost savings inherent in energy-efficient design.
Many banks, trust companies and credit unions are starting to develop energy efficiency-related financial services.
This is a rental agreement in which an Energy Service Company or utility rents equipment, and perhaps related services, to the municipality. At the end of the lease, the municipality can buy the equipment at a nominal cost.
User fees, surcharges and surtaxes are often considered as merely a means of recovering costs. However, they can also be designed to create incentives for preferred activities. Most public opposition to additional charges can be alleviated by designing them to be revenue-neutral and keeping the costs and benefits within the same sector or user group. For example, Ontario's "feebate" system uses surcharges on inefficient cars to finance refunds to buyers of efficient cars.
These are explicit charges by the municipality or region that serve both to cover the up-front costs of servicing new growth, and, if properly designed, to encourage preferred patterns of development (see Part II, Energy Ideas for Municipal and Regional Infrastructure and Facilities).
An important long term energy efficiency investment is the geographic "de-averaging" of property tax rates. From sewer lines to bus routes, the costs of providing services to low-density neighbourhoods are higher than for dense ones. But they're buried in uniform taxes. Besides improving efficiency, charging homes and businesses in proportion to the costs they incur will help to re-vitalize core areas.
Profit and budget control are powerful forces: if an energy efficiency measure makes or saves money, there must be a way to finance it. The challenges are measuring the savings properly and creating incentives for working together.
Under various programs, it is possible to gain credit for greenhouse gas offsets. The key to receiving recognition for emission reductions is to clearly quantify and document how and why greenhouse gases have been reduced as a result of undertaking an action.
Some of the cost-sharing opportunities include:
CEP works best with an enterprising local government. For example, the City of Portland found out it had 830 electricity, natural gas and transportation fuel accounts among 8 bureaus, adding up to a $9 million bill annually. Seeing an opportunity, it then created a mini-business inside its own bureaucracy, seeded by a 1% assessment on the energy bill of each department -- $90,000. The Portland Energy Office gave back free energy audits and advice to each department and split the savings from bill reductions with them. In three years the city saved over $600,000.
The Portland Energy Office leverages $4 in grants and contracts and more than $13 in private energy efficiency investments for every $1 of its own expenditure.
For smaller municipalities, this may be the key to tapping large pools of private capital. Financial aggregation refers to municipalities grouping energy efficiency projects together to increase the size of the transaction in order to attract investors. Larger deals take the same amount of staff expertise and time to process, but create larger profits for investors