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UPDATED Financing Energy Conservation for New Jersey Local Governments and School Districts
Dovetailing with subsidies for renewable energy production, incentives are being explored for energy management and consumption control, at the local governmental level. At present, several options seem particularly promising: Qualified Energy Conservation Bonds, Energy Improvements to Public Facilities Contracts (“ESCO” contracts), subsidized Energy Audits and Demand Response programs.
Qualified Energy Conservation Bonds - Qualified Energy Conservation Bonds (“QECB”) are a new federal program similar to Clean Renewable Energy Bonds (see other article located on this website entitled “Solar Power Financing Options for New Jersey Local Governments and School Districts”) which offer municipal bond issuers no or very low interest loans to finance energy conservation efforts including capital improvements which reduce facility energy costs by 20% or more and green community programs. The program will be funded at $3.2 billion. Regulations are expected this spring with applications likely due this summer.
ESCO Contracts – Recently authorized by NJ State Legislature ESCO contracts are performance contracts under which facility improvements are made to increase energy savings. The savings generated must be sufficient to pay the financing costs of the improvements, which will initially be funded either through an equipment lease or refunding bond series (no referendum required, but debt service aid will not be provided). The term of the contract and financing cannot exceed 15 years, and can be implemented through competitive contracting. Improvements may include energy efficiency equipment, solar and other renewable energy producing equipment or demand response equipment, including combined heat and power facilities. Regulations must be developed by the State within 60 days. It is anticipated that implementing an ESCO contract will be a multi-stepped process with savings projections/calculations requiring verification from third parties at several points in the process. An initial energy audit will be required.
Subsidized Energy Audits - Energy audits have already been undertaken by many New Jersey school districts and local governments, but the State is now providing monetary assistance for these efforts. The program will cover New Jersey municipalities and school districts. The Board of Public Utilities (“BPU”) will pay 75% of the fee for the energy audit; and if the public entity agrees to meet a minimum level of recommendations with regard to the equipment and capital expenditures proposed by the audit report, BPU will then pay the balance for the energy audit or the remaining 25%. The cost of the improvements must be equal to or greater than the auditing fee.
Demand Response - The Demand Response Program involves the reduction of energy use or demand to meet a power grid need. Participants agree to reduce their electric usage by a certain level for a short period of time and are compensated for the value of that unused electricity. The reduction is at a few specific times for a short duration (15 minutes average) throughout the year to meet a power grid need and opportunities also exist to sell excess load back to the grid when the district or municipality’s need for electricity is unusually reduced – such as is the case in a snow day or scheduled back-up generation tests, or if the local entity is able to further reduce load in instances of high electrical rates, which will be communicated to that entity. If your facilities have the capacity to provide a minimum threshold of “load reduction” and you can agree that you will reduce your load when requested, your public entity will be compensated for the value of that reduction on a monthly basis, whether or not the grid needs are such that you actually have to reduce your electrical load. Participants have the ability to initially dictate the size of the electrical load they are willing to shed and payment amounts depend on that load size as well as market fluctuations. Payment for load reduction during unanticipated reduced need response times will be based on the real time value of the electricity. The program is still in a start-up phase for New Jersey and is probably inappropriate for smaller sized school districts or local governmental entities, entities with antiquated and/or lack of back-up systems, or entities unable to reduce electrical demand for short periods of time. Typically peak demand load must be between 500 kW to 1000 kW.
Please contact us if you would like more information about any of these opportunities and we will be happy to respond.