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power tools Financing The Future: How Green Revolving Funds Can Help You Pay For Energy Projects By Max Storto I n 2012, the Deutsche Bank Climate Change Advisors and the Rockefeller Foundation published a research study finding that buildings consume 40 percent of the world's energy and are responsible for an equal percentage of global carbon emissions. The study states that current technologies can provide necessary relief to the American economy while simultaneously reducing energy consumption. If the U.S. invests $279 billion in retrofits across the residential, commercial, and institutional markets, it can yield more than $1 trillion of energy savings over 10 years, equivalent to 30 percent of the annual electricity consumption, and would create more than 3.3 million cumulative job years. A BUSINESS CASE FOR INVESTING Although economically advisable in the long term, energy-efficiency upgrades require significant upfront investments and are difficult to finance in our still-recovering economy. Green revolving funds (GRFs) help alleviate initial barriers to entry by providing a streamlined internal financing vehicle for energy-efficiency projects. GRFs supply funding to finance sustainability projects that generate cost savings; the savings are tracked and used to replenish the fund for future projects, establishing a self-sustaining financing mechanism that cuts operating costs and reduces an institution's carbon footprint. GRFs benefit institutions in numerous ways when compared to one-time 42 | may/june 2013 | Facilities Manager investments. They demonstrate the business case for sustainability, exhibit an institution's commitment to the environment, engage and educate the campus community, and leverage fundraising opportunities. Ultimately, revolving funds help institutionalize sustainability in an organization's culture by transforming expenses into investments and providing a perpetual funding source for costsaving initiatives. GRF PRACTICES IN NORTH AMERICA The Sustainable Endowments Institute (SEI) released the second Greening the Bottom Line report last fall, which ments, not expenses. Green revolving funds all share the same general principles, but each institution must tailor certain components to ensure a successful implementation process. Finding seed capital, creating the correct accounting system, establishing payback mechanics and project selection criteria, and measuring savings will differ based on an institution's needs. It is essential to engage a diverse set of campus stakeholders to both build buy-in from multiple campus entities and also leverage the insights of experts on campus to create the best model. Furthermore, use existing research and case examples while generat- GREEN REVOLVING FUNDS ALL SHARE THE SAME GENERAL PRINCIPLES, BUT EACH INSTITUTION MUST TAILOR CERTAIN COMPONENTS TO ENSURE A SUCCESSFUL IMPLEMENTATION PROCESS. surveyed institutions of higher education throughout North America about GRF practices. The study found that 79 unique funds exist in 31 U.S. states and two Canadian provinces, representing $110 million in cumulative committed capital. Within that group, institutions that provided ROI data indicated a median annual return on investment of 28 percent. The strong ROI helps explain the growing trend of GRF adoption in higher education, as the number of GRFs almost doubled from 2010-12, and also reframes the argument that energy-efficiency projects are invest- ing administrative support for a fund. The University of Minnesota's flagship campus in the Twin Cities established the Energy Conservation Internal Loan Program in 1998. The University created their $4 million fund at a time when "the university prioritized a wide approach to sustainability and waste-abatement, which helped to bring the operational focus and administrative focus to their financing initiatives," says Amy Short, the campus sustainability director. The fund, which is run by the facilities management department and sustainability office, is part of an energy reduction strategy that