$250M energy program still untapped three years later
An Alaska Housing Finance Corp. program capable of funding a quarter-billion dollars in energy efficiency retrofits to public buildings has gone untapped for several years.
In 2010, the state Legislature established an Energy Efficiency Revolving Loan Fund to be run by the state property financing organization.
“(Senate Bill 220) authorized us to go to Wall Street and bond for up to $250 million for energy improvements on state-owned facilities and municipal buildings,” AHFC spokesman Cary Bolling said at an Aug. 23 Commonwealth North meeting.
Commonwealth North is an Anchorage-based nonprofit that works to resolve issues specific to Alaska.
Why the program has never been used since being implemented more than three years ago is unclear, but according to an AHFC report from last November it is not for lack of need for energy improvements in Alaska.
The report found that the roughly 5,000 public buildings in Alaska consume $641 million worth of heat and electricity annually. If energy efficiency measures were taken, the combined savings could be up to $125 million.
Schools, a common denominator between communities, have an annual statewide energy bill of approximately $90 million, according to the report. It identified a potential savings of $31,000 to $51,000 per school, or about 30 percent of most facilities’ associated energy costs.
AHFC loan specialist Deborah George said taking on debt can be a challenge for local governments.
“A lot of the entities aren’t used to having debt,” she said.
Schools often budget year-to-year and can’t depend on having funds to pay off loans, she added.
Officials in some municipalities and boroughs worry about their budgets being cut if their utility bills are smaller, George said. At the same time they would continue to need money to pay off the energy retrofit loan.
The loan fund addresses some, but not all of the hurdles prospective participants face. After having an energy audit done on one or more buildings due for an efficiency upgrade, a local government or state entity can apply for a loan of any size. The program has no minimum or maximum amounts. Loans greater than $1.5 million must be approved by the AHFC board of directors.
A 15-year term limit applies to all loans and interest rates fluctuate with the market week-to-week. The current interest rate for an energy efficiency loan is at about 4.5 percent, George said.
Payments can be deferred for up to a year while work is being done and before energy cost savings are realized, but that “draw period is included in the repayment term,” George said.
One challenge the program faces is not being able to offer capitalized interest, she said. It does not allow AHFC to lend more money than the actual project costs. Additional funds could potentially give a borrower budget leeway to begin making loan payments while renovation is underway.
Bolling said any money that would be loaned would be pulled from AHFC’s funds and recouped through bonding.
AHFC entered into the public project funding business after it found itself working on energy retrofit loans for multi-family residential properties, he said. The similarities between large public facilities and multi-unit private buildings seemingly made the crossover simple.
One way to encourage use of the public loan program is to get local government officials and building managers in touch with companies that specialize in energy retrofits, Bolling said.
“Energy performance contractors and energy performance savings companies can be used to front (capital) costs,” he said.
The University of Alaska Fairbanks, which is eligible for the AHFC loan, contracted with Siemens Industry Inc. to do $6 million worth of energy efficiency improvements to 10 of its buildings. The university bonded the project itself rather than going through AHFC for funding.
Siemens is guaranteeing the school a savings of up to $500,000 in its energy costs, meaning the project will pay for itself in 12 years. If the savings are not realized, Siemens must cover the cost of additional work or pay the difference in UAF’s energy bills.
By having guaranteed savings backed by the contractor, Bolling said, other public entities could potentially follow UAF’s model and use AHFC and the State of Alaska’s AAA bond rating as a funding mechanism.
Elwood Brehmer can be reached at firstname.lastname@example.org.