The concept of a sustainable Municipal Energy Fund is working! The two critical components are an initial funding source (available for 3-5 years) and a manager assigned to support and coordinate the fund and its projects. The level of the initial funding will depend on funds available and the number and condition of municipal facilities. The City of Ann Arbor has just over 60 facilities which pay about $4.5 million/year in energy costs. The $100,000/year initial funding has proven to be adequate, both for the energy saving opportunities available and for the fund management.
Ann Arbor was fortunate to have an opportunity to establish the Municipal Energy Fund at a time when a ten-year bond was just being paid off. This made it possible to argue that this was not an increase in budget costs but just not as much of a decrease as was possible. Other cities may choose to provide funds for an Energy Fund simply because it is a good investment or can look for opportunities similar to Ann Arbor’s to avoid significant budget increases. One opportunity may be connected to the deregulation of energy utilities in the United States. A portion of the money saved through the purchase of natural gas or electricity from alternate suppliers could be used to establish an Energy Fund.
Ann Arbor has maintained an active Energy Office for over ten years, with an ongoing mission to improve energy efficiency at City facilities. This means that many of the best energy saving opportunities were already implemented before the creation of the Municipal Energy Fund. Most projects financed by the Ann Arbor Municipal Energy Fund have payback periods of three to six years. For cities that have not been actively installing energy saving measures, there will be many opportunities available with payback periods of less than three years. This will contribute to a much quicker regeneration of an energy fund.
The City adopted the rule that any facility that utilizes the fund for energy improvements will pay back 80% of the energy savings for five years starting the first year after the energy saving measures were installed. Establishing a five-year payment plan allows projects that have a shorter payback (three years or less) to help support projects that have a longer payback (over five years). At first glance this does not seem fair to the facilities that install three-year payback measures, since they will have paid back their loan after three years. However, the logic used is that they will continue to have the same level of energy savings in the fourth and fifth year, so their operating costs will be lower still. We feel this type of sharing is important to the overall accountability of the organization.
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