Thursday, January 07, 2010

Financing Energy Efficiency in State Buildings

Jack Markell yesterday announced plans to use the Sustainable Energy Utility to finance energy upgrades to state buildings.
What I find interesting about the program is not that there is economic value in improving energy efficiency—we've known that for a while—but the financing. The SEU will put together $25 million to $35 million for energy efficiency projects, without having to tap the state's capital budget.
Aaron Nathans describes the financing in the News Journal:
The projects will be done under "energy performance contracts," a practice in use elsewhere but new to Delaware. Each contract guarantees there will be savings on electricity, heating and water usage. The owner of the building pays nothing up front. When the savings are realized, the owner pays the SEU a portion of them -- perhaps a third per year -- until the cost of the retrofit is paid off.
Citibank will float bonds on behalf of the SEU, which the SEU will use to pay the contractors for their work. The payments from the building owners will be used to repay the borrowing.
This kind of financing for energy efficiency projects is used in industry, to fund large waste heat recovery installations for instance, and promises to be a cost effective way to create local jobs and long term savings for state government.

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