Innovative Financing: El Cerrito Energy and Water Efficiency Program
City: El Cerrito
The Energy and Water Efficiency Program (EWEP) is a revolving loan fund that was established by the City of El Cerrito in 2008 to fund projects that improve the resource efficiency of City operations. The EWEP is replenished annually based on a portion of the cost savings achieved by projects it funds. With this program the City of El Cerrito has shown that even a small local government can benefit from innovative approaches to financing energy efficiency and water conservation projects.
- To date the City’s EWEP has helped fund 5 energy efficiency projects and 1 water efficiency project resulting in energy savings of 245,000 kWh, water savings of 1.5 million gallons and annual CO2 reductions of 79 tons.
- The EWEP is included in the City’s Capital Improvement Program and is approved each year as a part of the annual budget process.
- Cost benefit analysis of EWEP projects are calculated in terms of net present value which provides the City’s financial managers with confidence that project investments are fiscally sound.
- By leveraging EWEP funds with other grants and rebates the City has been able to attract hundreds of thousands of dollars in additional funding.
- The EWEP provides a mechanism for identifying, evaluating and planning projects, and for finding matching funds; once projects are identified they still need to go through the standard City approval process.
- For efficiency projects that are adding value to larger projects, it is important to document the incremental costs of the efficiency project in order to properly calculate the costs and savings that will be attributed to EWEP.
- Be patient with working out the formulas and mechanism to transfer cost savings (more properly termed “avoided costs”) to the fund. The EWEP does not result in an “automatic deposit”, so you must actively budget for it.
- Make sure you involve all the right people in the budget process.
Resources to learn more
- The City of El Cerrito and Strategic Energy Innovations developed the Environmental Improvement Revolving Fund Administrative Manual to help other local governments establish a revolving loan fund.
The Rest of the Story…
The City of El Cerrito began their climate protection efforts in 2006 with the City Council’s adoption of the US Mayors Climate Protection Agreement and a resolution endorsing the targets set out in the California Global Warming Solutions Act (AB32). Having passed these resolutions, the City was faced with developing the internal capacity to achieve the climate protection goals, starting with significantly increasing energy efficiency throughout City facilities and operations.
Knowing that energy efficiency projects produce cost savings, staff from the City’s Environmental Services Division (ESD) applied and received a grant from the Air District to build staff climate protection capacity and help develop a dedicated fund. The fund would allow the City to reinvest savings realized from reduced energy spending. A key component in establishing the fund was to work with the City Management and Finance Departments. In order to do this ESD staff had to resolve fund design questions such as how cost savings would be allocated over time, as well as get comfortable with using net present value analysis in order to show the financial value over time of proposed project investments.
The fund design ultimately selected was to allocate 75% of projects savings in the first fiscal year to the EWEP, 50% in the second fiscal year, and 25% in the third fiscal year, with the remaining portion of the savings in the first three years, and 100% of the savings in subsequent years accruing back to the individual source departments or General Fund after that, depending upon where the energy bill is being paid from. The first year seed fund (FY08/09) was used to match ABAG Energy Watch lighting retrofit rebates at the City’s three highest energy using buildings. The retrofits demonstrated that the fund made fiscal sense since they required a City investment of just $10,000, but resulted in $9,000 in annual savings, and close to $90,000 in lifetime avoided costs.
The fund has been operating for two years now and appears as a line item in the City’s annual Capital Improvement Program (CIP) budget. Although inclusion in the CIP does not result in an automatic transfer of those funds it does establish the EWEP as a regular part of the City’s budget process. What’s more, while projects with short paybacks have been driving the fund, the City has also been able to leverage the money with other grants and rebates to complete an LED outdoor lighting program on 2.7 miles of the Ohlone Greenway.
One note of caution from ESD staff on calculating the costs and savings from efficiency projects that are added to larger projects is to agree on and document the incremental costs of the efficiency projects. For instance, in adding a water saving component to an existing city beautification project, the costs of the technology that leads to the water savings, not the entire greening effort, should be documented. Likewise, on the monitoring and verification side, determining what cost savings are attributable to the EWEP is an important component of managing the fund.
According to ESD staff, having even a small pot of money
available to use as matching funds has allowed the City to
achieve much greater energy savings from their Federal Energy
Efficiency Block Grant, and has helped the City obtain
significant additional funds. For example, El Cerrito (in
collaboration with the Cities of Albany, Piedmont, and San Pablo)
was awarded a highly competitive $500,000 EPA Climate Showcase
Communities grant in 2009, in part because of the City’s
leadership in establishing the EWEP.
Moving forward, staff is using the Energy and Water Efficiency Program as a spring board for developing a longer term strategy, the Five-Year EWEP Investment Plan. This will identify a game plan for re-investing savings from operational efficiency gains and help keep staff and management informed of the longer term vision for energy and water efficiency.
Case Story provided by BAAQMD, July 2010.