Long-Term Funding

Systems need a sustainable, long-term funding plan to provide the desired level of service to customers. It can be difficult for a system to know what funds or funding sources are available for capital projects and even more so for maintenance activities. Funding sources include both private and public funds and systems often need to be creative when looking at various funding options. For energy efficiency projects, there are additional options for funding beyond those available for “normal” operation and maintenance and capital projects. These projects have the potential to reduce energy costs and therefore have different criteria and potential for funding.

One funding consideration is the amount of potential cost savings. If the cost savings are great compared to the cost of the capital expenditure, the investment will pay for itself in a short time. If the cost savings are small relative to the capital expenditure, it may take a long time to pay for the project. This concept is called Return on Investment or ROI. As an example, consider changing a constant speed pump to a variable speed pump. Suppose the new pump cost $40,000 and the expected energy cost savings was estimated to be $5,000 per year. In 8 years, the energy savings would equal the cost of the investment, so the pump would pay for itself in 8 years. If the expected life of the pump was longer than 8 years, it would be worth doing this project because everything after 8 years would represent a cost savings to the system. If the expected life of the pump was less than 8 years, the project would not be worth doing because it would cost the system more money than it would save.

Another consideration is when to make an investment in a more energy-efficient piece of equipment. If an asset has reached the end of its useful life, the decision to make the investment in a more energy-efficient asset may be fairly simple. The asset must be replaced anyway, so even if the more energy-efficient asset has a long pay-back period, it may make sense to do this project. If an asset has not reached the end of its useful life, but a new, energy efficient asset will pay for itself in a short amount of time, the system may decide to replace the asset immediately instead of waiting until the asset fails or reaches the end of its life. For example, a wastewater plant may have a very inefficient blower that costs $5,000 per year in energy costs and $4,000 per year in O&MOperations and Maintenance costs. Its remaining useful life is 15 years. Suppose a new blower costs $30,000 to install, will cost $3,000 per year for energy usage, and $2,500 per year for O&MOperations and Maintenance . The savings in energy and operational costs are $3,500 per year. In 10 years, the savings will be $35,000, which is more than the cost of the new blower. The blower will pay for itself before the old blower reaches the end of its useful life. In this example, it is beneficial to remove the existing inefficient blower and replace it with a new blower right away, rather than waiting until the old blower has served its full expected life.

Different types of water, stormwater, and wastewater systems will have access to different types of funds. Typically, funding organizations and agencies are willing to provide information when requested and are usually very willing to help. There are several federal and state programs to help systems with energy-efficient projects.

Below are some of those resources:

• Energy Savings Performance Contracting (ESPC) – ESPCsEnergy Savings Performance Contracting are part of a strategy to help meet federal energy and emissions reduction goals. They offer the financial resources needed to make efficiency improvements to aging buildings and facilities. ESPCsEnergy Savings Performance Contracting involve an energy services company (ESCO), a financing firm, a measurement & verification (M&V) firm, and a customer (the water system). These entities work together to design, finance, and build energy improvements at a water system. The Department of Energy’s Federal Energy Management Program (FEMP) is the lead organization responsible for providing implementing rules and policies for ESPCsEnergy Savings Performance Contracting. Many states provide additional guidelines and offer supportive resources.
  • An Energy Services Company (ESCO) develops and implements the ESPCEnergy Savings Performance Contracting project and guarantees projected results. They act as project developers and can arrange financing for projects that save energy, reduce energy costs, and decrease operations and maintenance costs at their customers’ facilities. They assume the technical and performance risks associated with a project. You can find Department of Energy qualified companies here. 
• Power Purchase Agreement (PPA) are finance contracts between a water or wastewater system and a third-party renewable energy developer that owns, operates, and maintains the renewable energy system. In exchange for the upfront costs along with maintenance, the system must buy energy from the provider at a predetermined price for a certain number of years. PPAsPower Purchase Agreements can help a system reduce energy costs, hedge against energy price increase, or improve the resiliency of a system.
• “Green Project Reserve” is part of the Clean Water State Revolving Fund (CWSRF). This money is specifically meant for “green” projects and this definition includes projects that address energy efficiency, reductions in greenhouse gases, water use efficiency improvement, and treated wastewater effluent non-potable re-use. Funded activities include:
  • Installation of energy efficient equipment and components (e.g. lighting, HVAC, electronic systems etc.)
  • Renewable energy facilities at a POTWPublicly Owned Treatment Works (e.g. co-digestion, combined heat and power systems, etc.)
  • Capital costs of off-site renewable energy facilities
  • Energy efficiency upgrades and renewable energy generation project that reduce atmospheric deposition
  • Planning activities (e.g. energy assessments, energy audits etc.)
• WaterSMART is a water and energy efficiency grant program through the Bureau of Reclamation. The program provides 50/50 cost share funding to irrigation and water districts, tribes, states and other entities with water or power delivery authority. The WaterSMART grants provide financial assistance to water managers for projects to conserve and use water more efficiently and contribute to water supply sustainability in the Western United States.
• Better Plants Program is a program offered by the U.S. Department of Energy. The program helps systems set goals related to energy reduction (e.g. reduce energy usage by 25 percent over a 10-year period) and provides participants with free technical support and national recognition.
• State Energy Program is a program offered by the U.S. Department of Energy. The program provides funding and technical assistance to states and territories to enhance energy security, advance state-led energy initiatives, and maximize the benefits of decreasing energy waste. The program offers resources including training and software related to energy efficiency.
• The Database of State Incentives for Renewables and Efficiency is a comprehensive source of information on state, local, utility, and federal incentives, policies and programs that promote renewable energy and energy efficiency.
• State and local programs will very but many states provide funds, in the form of grants or loans, to implement water efficiency programs or projects that reduce water and energy use.

Most of the discussion has focused on how energy use reductions will save the system money and therefore, it is easy—or easier—to justify this type of project. However, there may be cases when a system might wish to subsidize a project because it addresses energy Level of Service goals, such as a reduction in carbon footprint or greenhouse gas emissions. Elected officials or boards may decide to go forward with a project, even though it may be more expensive in the long term or have an insufficient ROIReturn on Investment, because they are trying to reach an energy goal.

For the most part, energy efficiency projects will result in cost savings and each dollar saved can be spent on something else, such as employee salaries, preventative maintenance, training, or equipment purchase.