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Moving the ROI Dial with Meaningful Sustainability Projects

Article originally featured in a June 2020 issue of School Construction News.

Contributed By: Charlie Johnson, National Higher Education Market Leader, Schneider Electric

Mr. Johnson has spent his career advising higher education institutions in the areas of energy and operational efficiency, critical infrastructure, and making capital investments for future business development.

Colleges and universities are paying closer attention to the role of sustainability in attracting students and faculty. As a Princeton Review survey recently found, roughly 64% of students cited “commitment to the environment” as a deciding factor in their enrollment.

Many campuses have set carbon neutrality goals and are pursuing highly visible projects, such as onsite renewables, to showcase a school’s commitment to environmental impact. But often these million-dollar investments are one-off measures that don’t truly move the needle on sustainability goals and can be disconnected from the fluid operation of the rest of the campus’s energy systems.

With further capital constraints and economic uncertainty ahead, many leaders are left wondering how to make meaningful progress towards carbon neutrality goals while balancing other priorities more closely related to the core mission.

Twin goals: Cost containment and carbon reduction

When energy and carbon are managed holistically, institutions can ensure campus modernization investments translate to long-term value. According to a 2019 ACEEE report, 80% of total CO2 emissions come from energy and more than half is energy waste. Yet for many colleges today, sustainability projects remain siloed from critical energy infrastructure and campus modernization investments. Before purchasing renewable energy credits or installing onsite solar, for example, optimizing energy load is the necessary first step to ensure the right-sizing of these investments. Otherwise, you end up paying a premium on what is only energy waste.

When the business case combines short- and long-payback projects into a cohesive strategy, it becomes easier to highlight the value and reduce the perceived risk of sustainability investments. For example, coupling renewables with energy conservation measures can produce cost savings to offset project costs and fast-track ROI, while also improving energy resiliency of the campus.

Strategically sequencing implementation, including pre-planning for how cost savings from energy conservation measures will be reallocated, is another useful tactic for driving momentum towards carbon neutrality goals. When energy savings are guaranteed as part of a long-term contract, the anticipated cash flow can help higher ed institutions upkeep maintenance schedules. In the absence of pre-planning, these energy savings may be underutilized and underappreciated, which makes it even more difficult to attribute ROI of energy and sustainability projects to business impact.

Furthermore, without a long-term plan in place, future construction and systems may not be in sync and opportunities may be missed. New construction that includes pre-wiring for electric vehicle charging, for example, can present significant cost savings later when campuses decide to provide EV charging as a new amenity to attract students and advanced research talent and funding.

Project delivery vehicles matter for long-term success

Institutions require more financial and operational flexibility to manage the ever-changing occupancy and technology needs of a 21st-century campus while making meaningful progress towards carbon neutrality goals. At the same time, facility leaders already face numerous other priorities competing for limited funding and resources. In fact, in a recent University Business survey, nearly 80% of respondents listed competing priorities as their top roadblock to campus modernization priorities, including critical energy infrastructure upgrades.

In order to evolve under increasing funding constraints and aging infrastructure, leading institutions are already utilizing a diversified mix of business models for energy and sustainability projects from traditional design-build to power purchasing agreements (PPAs) and public-private partnerships (energy P3s). Understanding the full scope of financial and operational resources needed is key to selecting the right project delivery vehicle for a given project. Beyond project design and implementation, institutions must also consider the long-term requirements of keeping assets staffed with appropriate resources, fully optimized, and in peak operating condition to meet performance KPIs and ensure long-range goals are met.

For example, considering the growing complexity of energy technologies and systems, performance contracting can offset project risk of energy conservation measures while guaranteeing energy savings and generating cash flow to reinvest. PPAs offer an alternative to onsite renewables when the facility team is not equipped to ensure ROI goals are met.

For more complex energy infrastructure projects, such as central utility plants, combined-heat-and-power or microgrids, an energy P3 can be leveraged for access to necessary upfront capital and requisite expertise to build, own, operate and ensure mission-critical campus operations are maintained year-round. In this way, an energy P3 provides institutions with more immediate access to modernization benefits, such as lower energy costs and reduced carbon footprint, while shifting the operational burden and performance risk to experienced partners who operate—and succeed—on the institution’s behalf.   With outcome assurances such as equipment uptime or energy savings made part of an energy P3 agreement, facility leaders can refocus on other campus priorities.

As higher education looks to protect the business of tomorrow, diversified business models such as public-private partnerships can be key to ensuring safe, efficient campus operations while achieving sustainability ambitions that grow their mission.

To learn more about how to accelerate your university's campus infrastructure projects, watch the recording of our recent webinar with project financing experts from Hannon Armstrong and Schneider Electric.