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Financing and Funding the Transition – Cost-Effectiveness

Financing and Funding the Transition to Clean Renewable Energy

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Session 22:

Economics of energy transition
Concepts of financing projects
The municipal budgeting process

Session 23:

Financing strategies
State and federal funding
Other funding sources

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Goals: To understand:

The economics of various municipal renewable energy strategies
How municipalities make budgeting decisions
How projects are funded
What funding sources are available

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Economics of

Energy Transition

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Let’s start with something completely different

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Standard cost-effectiveness analysis

Diesel semi-tractor trailer

vs. Tesla semi-tractor trailer

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Assumptions	Diesel
Miles per year	100,000
Diesel - mile per gallon	7
Diesel - cost per gallon (-tax)	2.00
Diesel - cost of truck	$115,000
Diesel emissions - lbs./gallon	22.38

Assumptions	Electric
Miles per year	100,000
Cost of electric - $ per KWh	$0.085
Electric - miles per kilowatt	2.0
Electric - cost of truck	$180,000
Emissions - lbs./MWh (start)	839.0
Emissions - lbs./MWh (end)	419.5

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This is how they compare over a 15-year life:

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Alternatives	Diesel	Electric
Purchase price	$115,000	$180,000
Fuel cost -15 years	$428,571	$255,000
NPV of fuel cost	$317,657	$189,006
Social cost of GHG ($100/ton)	$0	$0
NPV of social cost of GHG ($100/ton)	$0	$0
Total cost	$432,657	$369,006
Yearly emissions - MT CO₂	145	57
15-year emissions - MT CO₂	2,180	858
Difference in total cost		$63,651
Difference in 15-year emissions		1,322
Savings per MT of emissions		$48

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There are always lots of assumptions:

Initial cost of truck
Future cost of diesel fuel
Future cost of electricity
Future maintenance cost
Additional equipment needs
Inflation rates
Cabin comfort

The buyer pays careful attention to these costs.

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One major assumption he (or she) doesn’t pay attention to: The cost of carbon

Climate impact cost:

The UN Global Compact calls on companies to set an internal price at a minimum of $100 per metric ton over time.
The conservative Climate Leadership Council would start at $40 per ton and increase it to ~$80 in 15 years.
So let’s put it at $50 for our analyses.

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Air pollution costs:

The Center for Research on Energy and Clean Air (CREA) estimates that the annual environmental cost of fossil fuels in the U.S. is between $430 and $870 billion.
A Stanford University study estimated the cost of air pollution from utilities, manufacturing, and transportation to be $350 billion per year.
Let’s assume conservatively $1,000 per year per person ($350 billion divided by 330 million U.S. population)
$1,000/20 tons of GHG per year = $50/ton of GHG additional air pollution cost

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So the combined cost of fossil fuels is $100 per ton of GHGs, conservatively.

But the trucker doesn’t see this cost.

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Semi-tractor trailer analysis with carbon cost:

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Alternatives	Diesel	Electric
Purchase price	$115,000	$180,000
Fuel cost -15 years	$428,571	$255,000
NPV of fuel cost	$317,657	$189,006
Social cost of GHG ($100/ton)	$217,987	$85,807
NPV of social cost of GHG ($100/ton)	$161,572	$63,600
Total cost	$594,229	$432,606
Yearly emissions - MT CO₂	145	57
15-year emissions - MT CO₂	2,180	858
Difference in total cost		$161,623
Difference in 15-year emissions		1,322
Savings per MT of emissions		$122

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What are the economics of the energy uses of municipalities?

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95% of the municipal energy usage:

One, two, or three major buildings
Motor vehicle fuels
Street lights
Wastewater treatment plant (if applicable)

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Municipal Energy Usage

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Major energy reduction strategies that we will consider:

Building energy efficiency by adjusting controls
Other building energy efficiency efforts
Electric vehicles
Outdoor (and indoor) lighting with LEDs
Wastewater treatment plants (WWTPs)
Purchase of renewable electricity by municipalities
Trip elimination

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Reducing energy usage in buildings:

Variables:

Age of building
Tightness of the building envelope
Current amount of insulation
Type of heating (oil, gas, propane, electric)
Age of HVAC system
Age of air conditioning system (if present)
Adjustments of HVAC system

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How to start on buildings:

Conduct benchmarking
Benchmarking only goes so far
Need to conduct a formal energy audit

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Benchmarking

You can’t reduce what you don’t measure.

Two tools to measure energy usage:

Energy Star Portfolio Manager – from US EPA

Provides analytical tools for analysis of usage
Keeps track of energy, water, and waste

MY PECO Account

Electronically stores 24 months of energy usage
Provides tools for analysis of usage
Enables the transfer of data to Portfolio Manager

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Benchmarking

Abington project:

Working with four students from local college
Uploading information for 74 PECO accounts
Collecting information on buildings (square footage, hours of operation, number of employees, number of computers, energy use over time, etc.)
Comparing energy usage per square foot to national averages
Determining where energy audits will be most useful
Reducing the upfront work of the energy auditor

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Various energy audits have identified significant savings from:

Simple weather stripping of outside doors
Purchase of Energy Star office equipment
Faucet aerators to reduce (hot) water usage
LED lighting in public parks
High efficiency hot water boilers
Preparation and implementation of an energy management policy

Saving around $25,000 per year

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Example of an energy audit

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Springfield Township

Administration/Police Building

Springfield Township

Free Library

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Findings of the energy audit:

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Street lights

PECO charges $0.01742 per kilowatt-hours
Not metered – assume 4,100 hours per year
A 10,000 lumen street light uses:

Incandescent – 690 watts
Light emitting diode – 104 watts

Difference: 584 watts
For one street light:

Reduce electricity usage by 2,400 KWh
Save $41.80

Upper Dublin has over 1,760 street lights

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Street lights

DVRPC coordinated conversion of 24,000 street lights

35 municipalities participated
Total cost: $13,000,000
11 municipalities funded it themselves
24 municipalities financed through PennSEF*
Annual savings: $1,400,000
Total savings over 20 years: $15,300,000
Annual reductions: 10,600 MWh and 5,500 MTCO₂eq

*Pennsylvania Sustainable Energy Finance Program

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Conversion to Electric vehicles (EVs)

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Purchase cost: $22,500 Fuel cost: $13,200 Total cost: $35,700 Emissions: 47.7 MTCO₂eq		6,000 gallons for 150,000 miles	Average - 25 MPG
Purchase cost: $22,500 Fuel cost: $9,440 Total cost: $31,940 Emissions: 34.5 MTCO₂eq	Save: $3,760 Down: 13.2 MT Save: $284/MT	4,290 gallons for 150,000 miles	Better - 35 MPG
Purchase cost: $26,000 Fuel cost: $6,600 Total cost: $32,600 Emissions: 23.8 MTCO₂eq	Save: $3,100 Down: 23.9 MT Save: $130/MT	3,000 gallons for 150,000 miles	Hybrid - 50 MPG
Purchase cost: $35,000 Fuel cost: $3,300 Total cost: $38,300 Emissions: 11.9 MTCO₂eq	Cost: $2,600 Down: 35.8 MT Cost: $73/MT	1,500 gallons for 150,000 miles (Equivalent gas usage decreases as electric supply transitions to renewables)	BEV - >100 MPGeq

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Electric vehicles (EVs) (if carbon was valued at $100 per MT)

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Purchase cost: $22,500 Fuel cost: $17,970 Total cost: $40,470 Emissions: 47.7 MTCO₂eq		6,000 gallons for 150,000 miles	Average - 25 MPG
Purchase cost: $22,500 Fuel cost: $12,890 Total cost: $35,390 Emissions: 34.5 MTCO₂eq	Save: $5,080 Down: 13.2 MT Save: $385/MT Emissions: 34.5	4,290 gallons for 150,000 miles	Better - 35 MPG
Purchase cost: $26,000 Fuel cost: $8,890 Total cost: $34,890 Emissions: 23.8 MTCO₂eq	Save: $8,390 Down: 23.9 MT Save: $526/MT Emissions: 23.8	3,000 gallons for 150,000 miles	Hybrid - 50 MPG
Purchase cost: $35,000 Fuel cost: $4,490 Total cost: $39,490 Emissions: 11.9 MTCO₂eq	Save: $1,020 Down: 35.8 MT Save: $29/MT Emissions: 11.9 and dropping	1,500 gallons for 150,000 miles (Equivalent gas usage decreases as electric supply transitions to renewables)	BEV - >100 MPGeq

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Regular vs. Hybrid Police Interceptor

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Regular Police Interceptor Purchase cost: $34,700		Payback period: <11 months Annual emission reduction: 10.6 MTCO₂eq
Hybrid Police Interceptor Purchase cost: $38,000 Annual fuel savings: $3,649

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Municipalities purchase of renewable energy:

One option is to purchase Renewable Energy Credits (RECs). However, any RECs but Texas wind credits are too expensive. And the renewable energy isn’t new or located in Pennsylvania. However, it is renewable energy.
Another option is to make a long-term commitment (10 to 15 years) to purchasing electricity from a new utility solar facility in Pennsylvania. This would encourage the building of new solar facilities.

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Municipal purchase of renewable energy:

Typical electricity costs are between 4.3 cents to 5.0 cents/kilowatt-hour.
The existing energy suppliers to the municipalities can offer a 15-year commitment to a solar facility in PA at roughly 3.0 cents per kilowatt-hour and bundle this into an electric rate of between 4.3 cents and 4.7 cents per kilowatt-hour for a three-year contract. The bundled rate (but not the solar portion of the electricity) would vary with time based on market rates. Texas RECs would be supplied with the electricity.

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Wastewater Treatment Plants

Water Plants and WWTPs use a lot of energy

West Goshen: 73% of electrical demand
Downingtown: 69% of all energy usage
Upper Merion: 66% of all energy usage
Uwchlan: 21% of all energy usage
Whitemarsh: 54% of all energy usage

Ways to improve these facilities:

Improve blower efficiencies
Install more efficient panel diffusers to increase contact of sewage with air
Install variable speed drives on pumping systems
Install state-of-the-art technology such as a SoMAX as Phoenixville did

(pressure cooks sewage sludge to make it usable fertilizer and/or fuels)

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Wastewater Treatment Plants

City of O’Fallon, Missouri:

Installed high efficiency blowers and panel diffusers: $450,000. Annual savings: $53,000

North Andover, Massachusetts:

Installed variable speed drives in its pumping systems: $1,200,000. Annual savings: $300,000
Insulated digesters and improved HVAC and heat recovery systems: $425,000. Annual savings: $335,000
Improvements in operational, aeration, pumping system, and lighting: $970,000. Annual savings: $815,000.

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Trip elimination - Meeting of five people:

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Meeting in Person Average travel: 3 miles distance Average travel time: 50 min. Length of meeting: 40 min. Total travel: 30 miles Total travel time: 4:10 hours Total meeting time: 3:30 hrs. Total time: 7:40 hours Cost of time: $380 Cost of travel: $15 Total cost: $395 Emissions: 25 lbs. CO₂eq	Zoom meeting Average travel: 20 feet Average travel time: 0.5 min. Length of meeting: 40 min. Total travel: 250 feet Total travel time: 0:10 hours Total meeting time: 3:30 hrs. Total time: 3:40 hours Cost of time: $175 Cost of travel: $15 Total cost: $190 Emissions: 0.054 lbs. CO₂eq
Cost savings: $205 Emission reduction: 24.94 lbs.	Benefit: $18,000/MTCO₂eq 600 mtgs./year – 26 MTCO₂eq

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We have been concentrating on the transition of municipal operations

Analysis of community-wide energy usage will be a future session

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How to Finance the Energy Transition

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Most renewable energy projects will need to be funded
Funding varies widely based on type of project
Having a plan for funding increases chance of implementation
Take time to look at the options for financing
Start early
Include the right people in your planning

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Major energy reduction strategies that we have considered:

Building energy efficiency by adjusting controls
Other building energy efficiency efforts
Outdoor (and indoor) lighting with LEDs
New building opportunities
Electric vehicles
Purchase of electricity by municipalities
Trip elimination
Wastewater treatment plants (WWTPs)

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Each of these energy transition strategies will be funded differently

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Potential Source of Funding	Type of Activity
Behavioral Changes	Trip elimination though electronic meetings Adoption of energy conservation program
Annual Budget Process	Building energy efficiency by adjusting controls Purchase of electric vehicles Building energy efficiency through window replacement Purchase of electricity by municipalities
Capital Projects	Outdoor lighting upgrades Wastewater treatment plant upgrade Construction of new building

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Capital Projects

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Capital Projects

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Capital Projects

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On-going Government Activities

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Discussion about capital expenditures and

on-going expenses

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