Paving the Budgetary Roadmap to Full Decarbonization

For large-campus facilities, developing?decarbonization?goals is the easy part. The hard part begins when it comes time to formulate a roadmap that provides much-needed clarity on how to reach those goals.

More than 50% of major higher education institutions have publicly committed to carbon neutrality, but many haven’t yet identified how this goal will be reached or how the work will be funded. Most institutions and universities are struggling to overcome an overwhelming backlog of deferred maintenance while ensuring they can deliver a world-class educational experience. Sustainability goals are competing for the same time and resources.

Identifying a straightforward and cost-effective path to reach this environmental goal is the first barrier. Not only does this require input from a diverse team of engineers, contractors, and operations and maintenance staff, but it also must tell a story that enables leadership and financers to start putting these plans into action.

Assuming a goal has already been set and the institution’s environmental footprint and operational costs have already been benchmarked, a simple top-down budgetary carbon roadmap will help leaders understand what these sustainability commitments require and their best course of action.

It’s best to break down?carbon neutrality?into a few major categories: efficiency, technology, source, and offsets. Operational efficiency can swing widely, usually allowing for significant improvement in performance with the infrastructure already in place. Investment in better technologies is often needed to bring the level of efficiency into the highest range and, in some cases, shift the source of energy to something more strategic. After efficiency and technology upgrades have been taken as far as possible, any remaining energy must come from a clean and renewable source. Any remaining emissions that are outside of an owner’s control or are entirely cost-prohibitive to directly address must be offset.

Budgeting for efficiency and technology through energy benchmarks

Energy benchmarking has to take into account building function and location in order to understand whether measured performance is actually good or bad.?ENERGY STAR??Portfolio Manager provides an ENERGY STAR score from 0-100, with 100 representing the best possible performance. A building can become ENERGY STAR certified if the building is measured above an ENERGY STAR score of 75 (performing within the top quartile of peers). Whether identified by ENERGY STAR or another benchmarking method, a clear target must be established to both ensure the institution is proving responsibility with a defendable level of high performance and to inform the budgetary investments in technology and efficiency that it will require to get there.

Over decades, Bernhard has built a library of historical benchmarks, project costs, and proven results that can inform the kind of up-front costs that will be required to move the needle. Some good rules of thumb for budgeting from benchmarks would include the following:

• A very poor performer could pull out of the bottom quartile with simple, low-cost upgrades. These typically generate a significant return on investment with a short payback. For most institutions, most of this work has already been done.
• Exceeding average performance can typically be achieved with a modest budget toward targeted upgrades and systematic changes to operational efficiency. Although it takes some capital to get there, many of these can still generate returns that far-exceed investment.
• Moving from average to the top quartile requires a significant, but still-justifiable level of capital to overhaul key infrastructure. Although they can generate savings, these investments require a big commitment without a strong financial driver.
• To breach the top quartile, sites may require a major overhaul of infrastructure and the capital requirements get especially steep. This investment is particularly challenging to justify if the same environmental outcomes could be achieved in different ways. Remaining funding may be better applied elsewhere, like the last, and always necessary, stage of renewable energy and offsets.

We recommend an owner targets efficiency at or above the fourth quartile (an ENERGY STAR score of 75 or greater). Based on the distance from the existing measured benchmark to this target and historical costs in each range, an institution can establish a reasonable budget for efficiency and technology.

Budgeting for source/offsets

Once an efficiency target and budget have been set, an institution can then project how much energy will be required after improvements have been completed.

Some source contract changes can actually?generate?cost savings. Energy Cost Intensity (ECI) can be used in a similar way to identify non-consumption savings potential. In this case, an institution should at least strive to be able to purchase utilities at or below an average rate. When treated as a package, value-generating source contract changes can support the costs of other necessary investments, like high-capital infrastructure changes that need to be addressed. When it comes to up-front costs for source contract changes, these are typically comprised of consulting hours and relatively small changes to infrastructure (E.g. meters and transformers).

Renewable energy does not necessarily need to be the last step, but it is important to right-size needs by projecting future needs after improvements have been completed. In today’s market, renewable electricity comes at an incremental cost of around $1.5/MWh per year. Renewable natural gas attributes currently cost around $17/Dth. Ideally, this scope would be addressed through on-site installations or off-site power purchase agreements for new resources that otherwise wouldn’t have existed.

In some regions, renewable energy may not actually be within an institution’s control. Some regulated markets do not provide options about what type of energy is produced and purchased. Where this is true, an institution?must?depend on Renewable Energy Credits (RECs) or another type of offset.

There are also some types of GHG emissions (E.g. directly-emitted refrigerants and anesthetic gases) that don’t have renewable energy sources. Although steps can be taken to select better options, some emissions may be inescapable. Similarly, some infrastructure systems (E.g. staff vehicles) are not within an institution’s boundary of control, but may still be considered toward their carbon footprint. For all of these things, high-quality offsets are essential to fully offset an environmental footprint. Today, a good rule of thumb for carbon offsets is about $8/metric ton CO2e and prices are expected to escalate quickly over the coming years.

By projecting future energy needs and market rates, and identifying barriers with control, a budget for renewable energy and offsets can be created.

Navigating your roadmap

The top town budgetary process should provide clarity about full financing requirements. This is the perfect time for an institution to reaffirm the sustainability goal and explore potential funding mechanisms. If the costs cannot be supported, it may be a good time to reconsider the goals or to explore alternative sources of financing to support the work.

Treating the full roadmap as a package is a great way to ensure the potential savings can become a source of revenue to fund required investments that cannot be financially justified. Two amazing tools to structure this are 1) a Public-Private Partnership (P3) where a third-party brings forward capital and repays investments from future savings, or 2) a Revolving Sustainability Fund that continually reinvests accrued savings into future projects. One of the nice reasons to consider P3s is that once the up-front investment has been made, those future savings are already committed and are not at risk of being diverted to other budgets in the future.

Once there is organizational alignment and a financing plan has been put in place, we can move to the next step of the decarbonization process – the bottom-up due diligence to build a detailed scoping plan. This is a big commitment of time and resources, so completing the top-down roadmap ahead of time will ensure the more-detailed work is focused, well-justified, and backed with an informed budget.

As you work toward developing your roadmap, don’t let unknowns paralyze your progress. Things will change. Certain factors are simply unknowable to a degree of certainty, but most of this work is low-risk and there will be plenty of opportunities to refine the plan as you go. Don’t let perfect be the enemy of good. We have to make the best decisions that we can based on what we know today, and technologies and competing options should only improve over time. Bernhard recommends organizations revise and update their roadmap at least every 5 years, to incorporate revisions for the best-available technologies and procedures.

Any plan can be improved. But if you never begin the process, you have nothing to work with. Don’t know where to start??Bernhard?knows decarbonization, and we’ve got the tools, talent and decades-long experience to put your large-campus facility’s decarbonization journey in the fast lane.?Contact?our team