Financing K-12 Energy Projects
U.S. schools have several ways of securing funding to invest in energy efficiency and renewable energy improvements.

K-12 schools spend around $6 billion on energy annually, making energy the second-highest operating expenditure for schools after personnel costs – more money than is spent on textbooks and computers combined. Ensuring that lighting, indoor air quality and other needs are well provided for is essential but financing K-12 energy projects can be difficult.

The U.S. Environmental Protection Agency (EPA) estimates that 25 percent of energy use in schools is wasted and significant opportunities exist to reduce these energy costs. Although new school buildings are now constructed to meet higher efficiency standards, the average age of schools in the United States is 45–50 years. In many cities, school buildings are even older and the older the building, the less likely it is to be energy efficient. A focus for many administrators, then, is tapping into opportunities to save energy to free up funding for educational resources that would otherwise be used on utility bills. Financing K-12 energy projects can take on many forms.

Well-designed energy efficiency and renewable energy improvements can stabilize or reduce operating costs – in fact, the Department of Energy states that the most efficient schools use three times less energy than the least efficient schools. Clean energy-related improvements in K-12 schools often include upgrades such as replacing lighting, adding insulation, replacing heating and cooling equipment, installing energy management systems and controls, adding solar photovoltaic systems, and replacing windows, doors and roofs. But how to do you finance such energy projects?

Schools that can accommodate projects with internal funding pay vendors directly with cash drawn from the school district’s operating or capital budget. The school retains all energy cost savings and often speeds project implementation time by avoiding contract negotiations that may accompany third party-financed projects. Internal financing is the simplest, most flexible and most direct way to pay for energy-related improvements. However, the availability of internal funds is constrained by budget limitations and competing operating and capital investment needs. Budget constraints, competition among alternative investments, and the need for high rates of return can significantly limit the number of internally financed energy-related improvements.

Fortunately, thousands of U.S. schools have utilized alternate ways to invest in energy efficiency and renewable energy improvements. Here are a few of the most common routes.

  • Energy Savings Performance Contracts (ESPC): An ESPC is an agreement between a district and an energy services company (ESCO) that identifies, designs, and installs energy-related improvements and arranges the necessary financing. The ESCO guarantees that the improvements will generate energy cost savings sufficient to pay for the project over the term of the contract. After the contract ends, all additional cost savings accrue to the ESCO. If the actual savings from a project under-perform the guaranteed savings level, the ESCO pays for the difference between the actual and guaranteed savings.
  • Grants: Grants offer external sources of capital that neither schools nor their taxpayers need to re-pay as long as the school to perform the actions specified in the grant agreement. While grants are an attractive source of funds, they are not always readily available and can require a time-intensive application process. Grant monies come from a range of entities including federal, state and regional governments, utility ratepayer supported programs, and philanthropic organizations. School grants are typically specific to investments in maintenance, infrastructure, and renovations.
  • Utility rebates: Utilities, states and sometimes regions sometimes have funds available for pursuing energy efficiency or renewable energy projects.  Utilities also often assign account managers to school districts – these individuals can help school district staff navigate the sometimes-complex world of utility programs and identify incentives for which the school’s planned improvements qualify. Utilities or state programs may also offer technical assistance. The Database of State Incentives for Renewables and Efficiency (DSIRE) at is a resource for the rebates available in your area. Click on your state, and then scroll down the list of incentives. Schools are usually included under the “business” incentives.
  • Bonds: Municipal bonds are long-term debt obligations and are commonly issued to finance large-scale construction projects and major improvements to infrastructure. Bonds for school projects are very similar to a mortgage on a home. To finance construction projects, the district sells bonds to investors who will be paid principal and interest.

There are also a range of less capital-intensive energy efficiency endeavors that schools can pursue to save energy that require less capital and still offer a quick return on the investment.  Education and behavior change, better scheduling of equipment and systems, and dedicating a staff member to manage energy usage more closely can also have dramatic results.

Behavior Change: Raising awareness among faculty, staff and students about energy-saving opportunities can have a significant impact on electricity consumption. Turning off lights when unneeded, turning off equipment when not in use and reducing standby power are accessible measures that can produce significant saving. Standby power, also called vampire power or phantom load, refers to equipment that draws electricity even when turned off like digital displays, televisions, DVD players and speakers.

Equipment and Systems: Chilled water optimization is a significant energy savings opportunity that often goes overlooked yet is easily financed through internal funding. Because cooling costs are typically around 25% of a school’s utility bill, savings here can significantly cut energy bills, allowing these savings to be reinvested in other projects.

Dedicated Energy Staff: Energy programs need a strong and official advocate. This individual, whether an Energy Manager or an appointed member of the maintenance and facilities team, should report directly to the school board or superintendent and provide regular reports to administration. The goal is to have a point person per school or district that “owns” accountability for the energy plan, tracking progress, and promoting the energy management program.

Successful implementation of clean energy upgrades in schools is a matter of understanding the opportunity, making the commitment, and creatively tapping into available financing. Smart energy choices can have lasting benefits for their students, their communities, and the environment.

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