Innovative Funding Measures Provide Model Energy Project

In 2009, the Town of Oro Valley received $164,200 as part of the Energy Efficiency Conservation Block Grant program. Town officials were determined to use this opportunity as seed money to realize solar and energy efficiency goals for municipal facilities. Staff was challenged to develop a plan that did not burden an already streamlined Town budget. The result is a 100% self-funded project that is backed by a guarantee of energy savings.

ARTICLE | Nov 1, 2010

A look into the Town of Oro Valley, AZ sustainability efforts and a 2011 TLG case study

In 2009, the Town of Oro Valley received $164,200 as part of the Energy Efficiency Conservation Block Grant program.  Town officials were determined to use this opportunity as seed money to realize solar and energy efficiency goals for municipal facilities.  Staff was challenged to develop a plan that did not burden an already streamlined Town budget.  The result is a 100% self-funded project that is backed by a guarantee of energy savings.

In support of the Town’s commitment to sustainability, staff and APS Energy Services, a consultant, developed an energy efficiency conservation strategy for facility improvements.   The first step involved conducting a comprehensive Investment Grade Energy Audit.  Auditors identified energy, water and operational efficiency cost saving upgrades to 12 Town facilities and multiple well and pumping stations - with a sharp focus on appropriate return on investment.  

The results of the Investment Grade Audit and the resulting program insure that the Town of Oro Valley will realize a total annual cost avoidance of over $235,000. The total cost of all improvements is $4.2 million with an insured 12.5 year payback.

The strategy includes a specific program to finance over $4.2 million in improvements through the following mix of sources and financing tools:

  • Energy savings of $71,000/year
  • Tucson Electric Power rebate incentive payments
  • Town funds
  • Issuance of federally-awarded Clean Renewable Energy Bonds (CREBS) with a 2.3% net effective interest rate
  • Proceeds of the $164,200 EECBG Grant

Each is bundled into a funding vehicle known as performance contracting.  Performance contracting is a strategic, design-build energy plan that funds itself by virtue of its own savings. Put another way, the debt service created as a result of the program is retired by the cost reductions generated by the newly applied and/or installed technologies and operating procedures.  APS Energy Services guaranteed both energy reductions and operational cost reductions to mitigate risks typically associated with the traditional approach of constructing new projects.

Performance contracting is generally associated with high return on investment (ROI) upgrades only, such as lighting and HVAC replacement.  The Town wanted to incorporate solar energy production; however, financing solar improvements can be a challenge due to a longer-term ROI.  Oro Valley developed a unique approach by offsetting lower ROI by using savings from high ROI upgrades.  This approach coupled with low-interest financing and utility rebates will create a positive cash flow over the 12-year finance term of the project.

This is the real heart of the project.  In a time of little to no budget for local government sustainability efforts, Oro Valley was able to move forward and develop a financing approach to make energy efficient changes without the traditional impact to the general fund.  The program insures investment in Town infrastructure instead of maintaining current utility expenditures.  Additionally, these are funding vehicles that can be applied to any jurisdiction looking to make energy efficiency capital improvements. 

Oro Valley successfully mixed grant monies, CREBS bonds, utility incentives and Town monies into a performance contract to maximize benefit.  In looking towards the future, this initiative not only met and exceeded general sustainability goals, but enables the Town to avoid future capital costs –currently not the budget—to replace ageing equipment such as HVAC systems.    

The Town of Oro Valley, AZ is just one of the many thought-provoking case studies that will be presented during our 2011 Transforming Local Government (TLG) conference in Clearwater, FL, June 1-3, 2011.  Check out the conference website at www.tlgconference.org to learn more about the type of case studies that will be presented.

 

To learn more about the Town of Oro Valley and or this case study, you can contact:

Kelsie Hanson, Communications Specialist
Town of Oro Valley
khanson@orovalleyaz.gov

(520) 229-4747

You may also be interested in

Feedback