States Aim to Cut Energy Bills

North Shore Community College, located outside Boston, joined the glitzy side of the green-building trend last November when it broke ground on the first state-owned “zero net energy” building in Massachusetts. The 58,000-square foot health and student center, with geothermal heating and cooling and solar panels on the roof, will produce more than enough power to cover its energy needs.

But a less glamorous project also is underway at North Shore, one that is arguably more crucial to the college’s energy-efficiency goals despite its lack of shiny newness. In existing buildings all over campus, the college is switching to compact fluorescent light bulbs, installing new thermostats and chillers and moving from electric heat to natural gas. These and other changes will cost $3.6 million but are expected to reduce North Shore’s utility bill by 32 percent and save the state close to $400,000 per year.

Massachusetts is embarking on a campaign to upgrade the energy efficiency of buildings at dozens of facilities across the state. The retrofits are partly funded with federal stimulus dollars, as well as financing from the sale of state bonds that will be paid back from the energy savings. 

“The Commonwealth is slated to invest more in energy efficiency at its own facilities over the next four years than it has in the past two decades,” says Energy and Environmental Affairs Secretary Ian Bowles. In all, Massachusetts estimates it will save $22 million in energy costs annually, with a $6 million cut in utility bills coming in the first 12 months.

The American Recovery and Reinvestment Act of 2009 boosted a 35-year-old Department of Energy grant fund called the State Energy Program , adding $3.2 billion on top of regular annual funding of about $500 million that goes to states for energy efficiency and alternative energy projects.

As a result, Massachusetts, Arizona, Kentucky and other states are moving ahead on hundreds of projects that were at a standstill because of lack of funding. A majority of the stimulus dollars are going toward energy upgrades at state facilities, including hospitals, office buildings, prisons, universities and schools. The rest are slated for homes and commercial buildings, as well as local government facilities.

In many cases, states are using stimulus money to leverage private investment and create revolving credit funds designed to pay for efficiency projects for years to come. With a final deadline of September 2012, states already have committed most of the money and state officials say they have many more worthy projects than the stimulus will pay for.

That’s because thousands of aging state and local facilities are overdue for energy retrofits. It’s also because work-starved contractors are ready to commit their own money to jump-start projects, knowing that the retrofits generate enough savings for their initial investments to be paid back within three to ten years.

“In Arizona, we were the only game in town,” says Jim Arwood, who until recently headed the Arizona Energy Office. “There was no shortage of projects and plenty of companies were ready to do the work and put their own money into the pot.”

The cheapest fuel

Arizona has focused a lot of its work on K-12 schools. Using more than $12 million in stimulus grants, the Arizona Energy Office selected 167 schools for energy-efficiency upgrades. The state provides 30 percent of the project costs – up to $1 million per school district – leaving the remaining 70 percent to be paid by the schools. The schools, in turn, have been able to use the stimulus dollars as a down payment, and have been successful at attracting private contractors to pay for the improvements and let the schools pay them back over time with the money saved on energy bills.

Arizona leveraged a $12 million stimulus investment by attracting an additional $32 million in private and local funds for the schools work.  The school retrofits – scheduled for completion before students go back to school this fall – will have an average payback time of eight years.

Energy-efficiency projects are among the best leveraged uses of federal money because they attract private investment and result in immediate reductions in states’ utility bills. For every federal dollar spent, states report $10 in non-federal investments and $7.22 in savings on energy bills, according to the U.S. Department of Energy.

In the United States, public, commercial and residential buildings cost about $393 billion to heat, cool and light each year. That’s 42 percent of all U.S. energy consumption, with transportation and manufacturing making up the rest. According to the American Council for an Energy-Efficient Economy , at least one-third of those costs – more than $131 billion – could be saved by making low-tech, low-cost building improvements such as installing energy-efficient boilers, insulating and caulking air leaks and upgrading thermostats.

In Massachusetts, where winters are harsh and electricity rates are among the highest in the country, buildings account for 54 percent of total energy consumption, making energy-efficiency upgrades an even more attractive option. “As we build a vibrant economy in Massachusetts, energy efficiency needs to be our ‘first fuel’ – what we rely on to meet energy demand before considering new power generation,” Democratic Governor Deval Patrick said when announcing a recent round of stimulus-funded initiatives.

Patrick was referring to the fact that saving a unit of energy using common energy-efficiency methods is far cheaper than generating the same amount of power using any method. On average, energy efficiency upgrades cost 2 cents per kilowatt hour saved, compared to 4 to 8 cents to generate a kilowatt hour using nuclear power or fossil fuels and as much as 17 cents per kilowatt hour for solar power production.

Maintaining momentum

Even in states where generating power is cheap, however, the stimulus funds are making an impact. In Kentucky, for example, plentiful coal makes power cheaper than just about anywhere else in the country, encouraging Kentuckians to consume more energy than most Americans. Still, energy efficiency has become a state priority because it means more jobs and lower greenhouse gasses.

Democratic Governor Steve Beshear dedicated $14 million in stimulus funds to a financing program for energy-efficiency upgrades in public buildings. He called it The Green Bank of Kentucky . Beshear also set a goal of reducing statewide energy demand by 25 percent by 2025.

The first loan went to the state Department of Education for upgrades to the Kentucky School for the Blind, Kentucky School for the Deaf and the Future Farmers of America Leadership Training Center. The Green Bank lends money at 3.25 percent interest, compared to a prevailing rate of about 5.1 percent, allowing it to fund a bigger number of projects than would otherwise be possible.

In Massachusetts, work is scheduled to begin in the next few months at North Shore Community College, as are similar projects at Massasoit Community College, University of Massachusetts Dartmouth, 17 trial court buildings, and the headquarters and training academy of the Massachusetts State Police. By the end of this year, officials expect the savings from those retrofits to start piling up.

Chuck Guinn, Northeast regional coordinator for the National Association of State Energy Officials, says the work going on now represents a rare opportunity for states. “The federal government gets excited about energy efficiency about every 20 years, especially when oil prices are high,” Guinn says. “Then politicians tend to drop the idea.”

Guinn hopes that states will be able to keep up the momentum. “States have a number of interests in energy efficiency,” he says.  “It cuts their utility bills, improves the environment and it is low risk. The savings are guaranteed by the contractors. But the biggest draw is job creation.”