In 2008, Massachusetts passed the Green Communities Act, which empowers all 351 cities and towns in the commonwealth by helping them find clean energy solutions and manage long-term energy costs. This legislation tries to strengthen local economies by providing state-level rebates, grants and incentives to cities and towns directly, or to their residents. The Green Communities Act has helped to create favorable rules and regulations such as net-metering, which has allowed the introduction and success of renewable energy developments in Massachusetts. Although renewable energy plays an important role in our local initiatives to improve the economy and aid in energy independence, other green-tech related sectors of the industry have not seen such turnaround.
Typically, a city or town would look towards cheaper alternative energy to increase its bottom line. In reality, this solution provides a hedge against current electrical needs, but does not address the issue of increase in energy demand, nor conservation. To drastically improve the finances of any city or town, municipal planners must look at energy use as a two-fold equation. The first is generation; where alternative sources of fuel or energy can be acquired at below the market rates of traditional power. The second is conservation; where energy efficiency or reduction methods help reduce the total amount of energy being used.
The big talk of any consultant or vendor to a city or town is energy efficiency. Energy efficiency has been on the lips of every facilities and energy manager, but has rarely seen any large-scale success or implementation. The biggest hurdles to their goals are: prohibitive up-front capital, simple metrics for determining avoided cost versus avoided energy consumption, and a long-term method of use and training. All these issues can be solved, but they require a more creative approach that does not stifle the risk appetite of clients or investors.
The biggest issue for most cities and towns would be the capital outlay of funds to purchase energy efficiency products. An innovative approach for this would be to engage a vendor that provides third party finance. Third party finance can come in various forms, and cities and towns should pay particular attention to models that provide long- term savings, as well as a strong positive cash-flow from savings in the early years. One particular model in the marketplace has no up-front costs to the client, and the vendor is paid back by a portion of the savings during each month. This model allows for a perfect hedge against any product performance risks, as well as deferring the capital cost to a vendor with a strong balance sheet. Cities and towns essentially only pay with a portion of what they save.
As with all major projects in a city or town, energy efficiency products and services are long- term investments that pay off in increments. The benefits and costs should not be solely evaluated on how much energy is being saved, but also the support staff required to maintain and improve the process. It would be true to say that swapping out an old incandescent light bulb for a LED would reduce the total power being consumed, but there should be training practices that educates staff and users to reduce the total amount of hours that the light bulb would be turned on. These training practices are typically hard to implement since they require a new culture of energy reduction, but there are currently new technologies that automate this process. Smart control devices will allow users to define their optimal usage, and help mitigate against energy wastes.
Innovative technology combined with creative financing vehicles allow cities and towns to realistically accomplish the energy goals set forth by the state. These methods help create financial investments to institutions that are backed by the credit worthiness of individual municipalities through various vendors. Financing projects for municipalities help create a strong investment portfolio that is complimented by long-term residual income. Lenders and investors with long term risk-averse mindset should look toward partnering with energy efficiency vendors to help create financing for municipal clients that makes sense. In the current economic recovery period, local governments are looking to decrease their operational budgets and eliminate inefficiencies and waste. With the proper understanding on the performance of individual products, a long-term arrangement can be made between financing parties, vendors, and municipal clients. An infusion of client-driven finance with knowledgeable and innovative products and services will allow investors, cities, and towns to enjoy an economical and environmentally responsible future.
Tom Wu is chief executive officer of Invaleon Technologies Corporation. Invaleon Technologies, based out of North Andover, develops utility scale solar projects in the United States for commercial and government entities.
