Thought Leadership Untapped Resources for Struggling Communities

Untapped Resources for Struggling Communities

Turning the Economic Tide through Energy Services Agreements

A call to action for communities, schools, municipalities, counties, and states

As we begin to pull out of this terrible recession that has reduced American economic momentum to the lowest point since the great depression, our economy is undergoing enormous restructuring.  Financial innovations designed to balance capital expenses with energy savings, and changes in public perspective has created a powerful opportunity to leverage dollars that are currently flowing to the multi-national energy industry, and redirect those dollars back into our local economies.

Communities have this opportunity to mine an untapped local resource to create jobs, and put money into local business and municipal and State budgets.  This resource is the millions of dollars in every community flowing into a building stock that consumes significantly more energy than is necessary.  As it turns out, the cost of energy efficiency and renewable energy projects can often be paid from the savings to operating budgets bloated by high energy costs.  These projects not only create local jobs and better work environment in the short term. By providing net savings over the long term, they mitigate the effects of a volatile energy market on behalf of taxpayers within the jurisdiction. 

Leveraging available technology, financing, and energy service agreements to complete cost effective energy upgrades, allows these resources to be safely mined with known outcomes and little risk to communities.  Taking advantage of this opportunity will:

  • Drive economic growth and local job creation
  • Improve the cost competitive position of every jurisdiction and consumer
  • Improve the fiduciary position of communities by improving the asset value and operating cost of facilities

How significant is the economic opportunity?  Estimates are that energy efficiency projects produced almost 19 jobs for every $1,000,000 invested per year.  One large ESCO (Energy Service Company), estimates the cost per kilowatt saved averages under 4 cents.  And, estimates are that fuel oil, electric and gas consumption could be reduced as much as 30% nationally.  Capital for the projects is available in a variety of forms.  A single energy efficiency capital source has access to more than $1 trillion in borrowing power available for loans. 

National energy-efficiency savings are in the order of $100s of billions of dollars annually.  Therefore, the questions remain, “if the capital is available, and energy efficiency resource is real, why is the progress so slow?”  

The use of an Energy Service Contracts (ESC) has been a proven energy savings model in the Commercial, Industrial and Institutional sectors for over 20 years.  Despite evidence of replicable success, there has been, at best, modest use of an ESC in the Municipal, University, Schools and Hospitals markets.  A recent 12-state study funded by the Department of Energy (DOE) documented that only one state had reached a 30% threshold in these local public entities using ESCs.  Other states had surprising low penetration, while several states, have had virtually no examples of using performance contracting at all. The states with the highest rate of using ESCs had developed an in-state third-party resource capacity to facilitate the process.  These resources addressed the most prevalent barriers to local uptake: the lack of technical expertise; lack of confidence in savings estimates, lack of familiarity with the procurement, selection and structure of ESCs and budgetary concerns.  These same barriers are preventing the use of this viable tool in many state and local jurisdictions. There is no national third party resource to facilitate the use of ESCs at scale.

A catalyst is needed to increase the construction industry capacity, to drive market acceptance, and to accelerate market momentum.

Our states, cities, counties and schools are uniquely positioned to benefit from the opportunity and to create the local economic growth - jobs, tax base growth and increased competitive position.  Why are communities “uniquely positioned”?  Energy Savings Performance Contracts (ESPC) and their sources of capital view jurisdictions as the low risk investment opportunity.  Therefore aggressive jurisdictional actions to review their building infrastructure energy performance and to convert those reviews into energy efficiency investment plans with the ESCOs or through their own ESPC investments are the first mover requirement energy efficiency economic development.

While the opportunity is great for local public cost reduction and economic investment, the risk of inaction to communities is even greater.  In the balance, jurisdictions that fail to capture this opportunity are increasing their local cost of business and reducing perceived quality of life decreasing their net economic competitive position.  Effectively, a failure to act is a tax on the jurisdiction in terms of tax base growth and cost of operation.

Local action to capture energy efficiency investment and savings requires immediate action.  Jurisdictions should look to their national associations and other leaders to identify the resources, the expertise, and options to confidently and quickly capture the energy efficiency opportunity through and investment and policy support.  

Blake Ratcliff is the Director for Housing Construction and Community Development at IBTS.


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