Cal Poly San Luis Obispo Creative Energy Project Finance

Universities throughout California have demonstrated that energy upgrades to lighting, HVAC and central plant systems can provide reliable long-term cost savings and contribute towards meeting goals for greenhouse gas reductions. Although the results from these projects are compelling, procuring the initial funding for these investments remains a barrier for many schools. At Cal Poly San Luis Obispo, energy and facilities staff took advantage of zero and one-percent loans to invest over four million dollars in a diverse portfolio of energy conservation measures. The campus established a design-build contract with PG&E’s Sustainable Solutions Turnkey (SST) program to serve as a general contractor and to develop and finance the work. Engineering services firm AECOM provided design and construction management, and local subcontractors provided the installation of mechanical, electrical and controls systems.

Low and zero-interest loan programs represent an effective but traditionally underutilized funding option for CSU and UC campuses.

The financing included two sources, both offering favorable terms tailored to support energy retrofit projects. The loans included a $3 million loan with one-percent interest through the California Energy Commission’s Energy Conservation Assistance Act (ECAA) program, and a $1 million interest-free loan through PG&E’s On-Bill Finance (OBF) program.

Under the terms of CEC’s ECAA loan, disbursements begin no more than 45 days after contractor invoices are received and paid by the university, and accrual of interest begins immediately. Loan repayment may begin 12 to 18 months after project completion, and the loans have a maximum term of 13 years.

For PG&E’s OBF loan, the funding is transferred to the campus upon closeout and utility acceptance of monitoring and verification documentation. Although an interest-free loan effectively provides free money, the campus must carry the cost of the work until the project is complete. The loan is repaid through monthly utility bills that are approximately the same as before project completion. Cal Poly has up to ten years to repay the loan, and when it is repaid the campus will continue to benefit from the ongoing utility savings.

To best leverage these funding mechanisms, Cal Poly made use of the CEC funds first, submitting invoices monthly until the full $3 million was disbursed, at which point the project was approximately 75 percent complete. The most that the campus had to carry was $1.6 million. Upon the close of the project Cal Poly received the additional $1 million loan through the OBF program. The project also qualified for an additional $437,000 in utility rebates.

Based on AECOM’s engineering study, the project will provide annual utility savings of $282,000 for electricity, natural gas and water, plus additional savings of $21,000 for the reduced maintenance required with LED lighting. This results from annual electrical savings of 2500 Mwh (2.5 million Kwh), natural gas savings of 47,000 therms, and GHG reductions of 1160 metric tons — approximately 2.6 percent of the campus’ scope one and two emissions.

The projects funded under this project included 27 lighting retrofit projects (interior, exterior and controls), central plant upgrades to boiler controls and condenser water systems, high efficiency building transformers, building tertiary pump upgrades, and installation of advanced wireless thermostats. (See the sidebar for details.)

Dennis Elliot, Assistant Director of Energy, Utilities, and Sustainability, notes that this is the first project of such a scale to use these finance resources on a CSU campus. As is common with new approaches, the team dealt with challenges during the process, such as concerns by campus administrators about meeting the anticipated energy savings, and the need for approval by the Board of Trustees. However the application requirements for OBF and ECAA loans will likely seem familiar to campus staff who have applied for incentives through the UC/CSU/IOU Energy Efficiency Partnership, as the information needed is similar, including the scope of work, engineering estimates of cost and savings, and a third-party review. The successful use of this financing approach may provide a useful roadmap to be followed by other campuses.