We all strive to do more with less to improve our schools’ learning environments and to keep abreast of commitments to a sustainable future. In this short video, Timothy Burton, Senior Vice President of Finance at Adelphi University shares his best practices for financing an energy savings project and how to avoid a common pitfall when working with ESCOs. By analyzing different offers, Tim was able to turn a large project with 15-year payback to one that starts generating savings for Adelphi in year eight and is cash-neutral almost from day one.
What was the main driver behind the CHP project at Adelphi?
Timothy Burton — We were looking for an energy efficiency project. We already had solar and geothermal on campus, and this central heating plant proposal was one that caught our interest. We then needed to figure out a way to pay for this $13.5 million upgrade. In the beginning, the company that was going to do the work wanted to do everything — they would do the installation and the financing. I didn’t like the idea so I decided to break it into two components: what would the installation be, and what would the financing be?
How did this “decoupling” of financing and engineering make the project financially sustainable?
Timothy Burton — When we broke it into two distinct pieces, we were able to come up with a very good financing alternative, and at the same time we found a company that we fell in love with – Ecosystem — and they were able to deliver the project that we wanted, when we wanted it, at great savings to us on the financing side of things by using First American. The three of us put together a partnership that we think is very innovative and the way to get this type of a project done.
The financial drivers were a $13.5 million outlay of costs with energy savings over the life of the project. The first proposal we received was that 15 years of energy savings would be paid to the company that was going to do the installation and the financing.
When we broke it apart, a few things happened.
Number one, Adelphi could access over $2.4 million of rebates through NYSERDA and our energy provider, which immediately brought our payback period down. We were not going to get the rebates with the first proposal.
The other thing that helped was that the arrangement we made for financing did not require us to pay 100% of the energy savings — it was 85 or 90% of the energy savings instead. So instead of a 15-year payback period under the first proposal, with this combined proposal, working with Ecosystem and First American, the payback period was a little over eight years. We saved almost seven years of payments, close to $9 million.
As a CFO, what was important for you in this project?
Timothy Burton — We had to understand how we were going to get the energy savings that we are supposed to be getting. With the Ecosystem contract, there is a guarantee of the savings in the first year, and once we see the savings in the first year in electric usage, we can be pretty sure that they will continue in the years to come.