College and university endowments are managed by financial professionals who generally invest in a portfolio of equity and bond investment vehicles that will produce a 5 - 6% return (in a good year). Nothing is guaranteed, as the recession crisis of 2008 demonstrated, with endowments typically losing 25 - 30% of value. Unbeknownst to many educational institutions however, an endowment investment is available that provides much higher returns (15 - 25%) that is virtually risk free: an investment in energy efficiency improvement of campus systems, particularly upgrading lighting to LED.
In the last 3 - 4 years there has been a significant movement to invest in green improvements on the university campus, primarily to promote sustainability. Sustainability and efficiency improvements are good policies for many reasons: wise use of limited resources, reduction of pollution, work towards going carbon neutral, etc.
Energy efficiency measures produce safe and high ROI
In the narrow focus of making the best endowment investment, the most compelling reason for investing in efficiency improvements on the college campus is that they produce both the safest and the highest financial return of any investment that could be made. In my opinion, it is such a good investment that much higher funding amounts should be committed to making it happen sooner than later.
With a comprehensive efficiency program, it is not uncommon to reduce institution energy cost by 15 to 20%. There are many different efficiency improvement projects that address lighting, building system controls, chilled water systems, steam systems, etc. that have simple paybacks after utility incentives of 2 to 3 years.
These projects can be financed over a 5 to 10 year time frame by the endowment fund at 15 - 25% interest rates with the university operating budget having escalating positive cash flow from the first year.
The basis of the financing arrangement is that energy cost savings will be realized that will exceed the financing costs, support the agreed upon investment return, and provide positive cash flow for the operating budget.
The role of utility companies: review and approval
Many utility companies offer financial incentives to motivate businesses to implement programs to help reduce energy usage. The utility takes an ownership role in ensuring that the energy savings supports the incentive that it provides for the efficiency project (in some cases up to as much as 60% of the total cost of the project).
The utility efficiency program and sample projects are examined by third party evaluators to ensure that appropriate levels of savings are being realized from the projects. If savings are not being realized, the utility is penalized. The utility vets the project and project savings by engaging experienced engineers to review and approve the project and savings calculations through pre and post inspections of the job.
The time is now for higher education efficiency upgrades
Instead of spending capital to install efficient lighting and equipment, the continued use of outdated and inefficient technology by many institutions is resulting in “Lost Savings,” never to be recovered. Money is available in the endowment fund that could capture these Lost Savings and make a much higher and safer return than current investments.
With current, generous utility incentives for efficiency, there is no better time for colleges and universities to use endowment funds to invest back into themselves and realize a high rate of return, all while saving energy and benefiting the environment.