An Investigation of Revolving Energy Funds
for the University of Michigan: Continuing
On a Path Toward Carbon Neutrality
Composed by:​ The REF Task Force, part of ​Students for Clean Energy
Student Members
Courtney Bagnall​, BS ‘21
Aaron Boockvar-Klein​, BS ‘22
Grant Faber​, BBA ‘19, MS ‘21
Fiona Fox​, BS ‘21
Jacob North​, BSE ‘21
Advisers
Professor Adam Simon​, Department of Earth and Environmental Sciences
Susan Fancy​, University of Michigan Energy Institute
A grinding wheel discovered in Dendera, Egypt to represent the simple yet profound nature of revolution1​
TABLE OF CONTENTS
EXECUTIVE SUMMARY
1
INTRODUCTION
2
BACKGROUND ON ENERGY EFFICIENCY
3
ENERGY EFFICIENCY AT U-M
4
SUCCESSES SO FAR
5
CASE STUDY: HARVARD’S GREEN REVOLVING FUND
5
U-M REVOLVING ENERGY FUND PROPOSAL
7
FINAL THOUGHTS AND RECOMMENDATION
12
APPENDICES
13
SOURCES
18
EXECUTIVE SUMMARY
Former Harvard University President Lawrence Summers once remarked, “The best investment
in the University is not the endowment but the Green Loan Fund.”​2​ For the past two decades,
universities around the country have been adopting green loan funds, also referred to as green
revolving funds or revolving energy funds, to provide a sustainable source of financing for
profitable energy efficiency upgrades on their campuses. This report explores revolving energy
funds and what one could look like at the University of Michigan.
The report begins by introducing energy usage at U-M, the rationale behind energy efficiency
upgrades, and the authors of this document. It then moves to discuss some of the various uses of
energy in the built environment and how we can deploy more efficient technologies to reduce its
consumption. The following section discusses some of U-M’s past initiatives in the energy
efficiency space, and the section afterward details the financial and environmental successes the
university has had with this so far.
Next, the report examines Harvard’s green revolving fund as a case study and details the benefits
it has created for the university since its inception. Afterward, we propose a model for a
revolving energy fund at U-M. This section includes financial and emissions models that use
what we believe to be reasonable assumptions to project potential monetary and emissions
savings that could result from establishing a U-M revolving energy fund (REF). The report ends
with some final thoughts, our appendices, and the sources used in our research.
1
INTRODUCTION
In fiscal year 2018, the University of Michigan purchased 504,845,462 kilowatt-hours (kWh) of
electricity and 50,961,343 hundreds of cubic feet (CCF) of natural gas in order to generate
energy to power its operations.​3​ The university purchases the majority of its electricity from DTE
and generates electricity and steam by burning natural gas at the university-owned Central Power
Plant (CPP). Both of the aforementioned quantities are lower than their corresponding 2017
measures despite an increase in student enrollment and campus staff, which is significant.
However, considering the impending threat of climate change, the university’s fiduciary
responsibility to save money to insure lower tuition costs, the availability of energy saving
technologies, and President Schlissel’s new goal of setting U-M on a path toward carbon
neutrality, there is a clear case for U-M to look further into energy efficiency as a means of
cutting energy usage and thus expenditures on energy.
Energy efficiency interventions are among the cheapest methods of reducing emissions as they
actually generate savings after a determinable period of time, if not immediately. These savings
are more lucrative for energy users when compared to incremental costs that can arise from
storage-equipped renewable energy technologies or fossil-based generation retrofits. Such
savings are demonstrated as “negative abatement costs” on McKinsey’s widely cited greenhouse
gas abatement cost curve, shown in Appendix 1. These interventions include technologies like
LED lights, insulation, retrofits, and other general efficiency improvements, all of which can
create “negative costs,” or savings.
This report will not go into detail about specific technologies, and we do not claim to be experts
on construction or energy engineering. Rather, this report will focus on proposing a frequently
used financial mechanism that makes the upfront funding of energy efficiency interventions
easy, streamlined, and sustainable. Our goal is to convince U-M to consider the implementation
of a university-wide revolving energy fund (REF) in order to fund new efficiency upgrades, reap
substantial annual savings, and significantly cut emissions.
This report was composed by members of the Clean Wolverines, a group coordinated by the
U-M Energy Institute and Professor Adam Simon of the Earth and Environmental Sciences
department. During the 2017-2018 school year, the Clean Wolverines conducted various
research projects that were presented at the Toward Carbon Neutral symposium on April 5,
2018.​4​ Grant Faber, one of the presenters, is an author of this report and last year led the PPA
Task Force, which authored “An Investigation of Power Purchase Agreements for the University
of Michigan: A Path to Carbon Neutrality.”​5​ The PPA Task Force and the corresponding report
served as structural inspiration for this team and this report.
Our research methods included gathering data from a variety of sources, including general online
research and interviews with Kevin Morgan (U-M OCS), Daniel Rife (U-M LSA), Kim Seifert
(U-M LSA), and Stephen Kunselman (U-M OCS). We gained a good deal of information from
the Sustainable Endowments Institute - the creators of the Billion Dollar Green Challenge - as
they coordinate the multi-university initiative to establish more revolving energy funds.​6,7​ We
2
contacted the Harvard Office for Sustainability as well in order to get more information about the
particulars of managing a REF.
Our hope is that this report will convince high-level decision-makers at U-M to consider the
establishment of a REF for our university in order to gain the numerous benefits outlined
throughout. If you have any questions or would like to discuss this report further, please contact
the report authors by clicking on our names on the cover page and sending us an email.
BACKGROUND ON ENERGY EFFICIENCY
Major energy sources used in commercial buildings are generally composed of 61% electricity,
32% natural gas, 5% district heat and 2% fuel oil.​8​ Electricity is measured in kilowatt hours
(kWH) and is primarily used for lighting, refrigeration, and operating technologies.​9​ Overall
electrical energy is measured by power usage per unit of time; one kilowatt of power operating
for one hour is one kilowatt-hour of electrical energy. Natural gas is often measured in hundreds
of cubic feet (CCF) or British Thermal Units (BTUs), where one CCF equals about 100,000
BTUs.​10​ Natural gas is mainly used for heating buildings by powering boilers and furnaces.
District heating is often a product of cogeneration power plants or alternate sources of heat such
as waste heat, geothermal and solar and is commonly distributed via pipelines of hot water.​11
Fuel oil is commonly used in boilers and furnaces as well as some engines.​12
There are two primary elements in university building structures that result in wasted uses of
energy: energy-intensive facilities and outdated infrastructure. Energy-intensive university
buildings such as hospitals and research laboratories require significant amounts of energy to
operate.​ ​Additionally, as university buildings are typically older, they were not designed to be
energy efficient when initially constructed. Use of unnecessary energy leads to greater spending,
but of course wasted energy creates an opportunity to reduce energy costs through energy
efficiency.
Energy efficiency is defined as using technology that requires less energy to perform the same
function, but for the purposes of this report we will also include reduction in energy use through
conservation in this definition. One example of energy efficiency is switching from the common
incandescent light bulb to a light-emitting diode (LED) light bulb, which requires less energy to
produce an equivalent amount of light. Measures that do not involve energy efficient technology
include devices such as door insulators that decrease the need for heating and cooling instead of
reducing the energy used in the heating and cooling system. As these are also technological
interventions that save money and cut emissions, we are including them in our consideration of
energy efficient technologies.
Energy use in campus buildings, which at U-M is responsible for about 98.5% of scope 1 and 2
campus emissions (with the other 1.5% coming from transportation), can be decreased by up to
60% by utilizing the full suite of energy efficiency technologies.​13​ ​Energy efficiency upgrades
help society and the planet overall through reduced emissions, benefit people by creating jobs
and increasing comfort in some cases, and can generate profits through savings on energy
expenditures. Greenhouse gas emissions have grave repercussions on global ecosystems and
3
have the potential to cause severe weather, habitat loss, and rising sea level among various other
negative consequences. By installing and upgrading dated technology, a multitude of new jobs
can also become available, which can help increase employment. Furthermore, repercussions
from climate change can harm human health, so minimizing emissions can contribute to healthier
people and longer lives. In certain cases, energy efficient interventions can also increase comfort
by increasing lighting quality or climate control. Lastly, financial savings can be gained from
energy efficiency upgrades from not having to spend as much on electricity and natural gas for
the same level of utility in buildings.
ENERGY EFFICIENCY AT U-M
The idea of energy efficiency at U-M first took hold in the late 1970s during the oil embargo
when gas costs were high and the university wanted to save money. Since then it has evolved
significantly with programs and people involved in energy efficiency efforts across campus. The
first implemented strategy was in the 1980s when building performance teams were put together
to ensure buildings were operating efficiently.
One of the main energy efficiency projects launched at U-M was the Energy Star Program.
Energy Star is a program launched by the EPA that helps businesses save money and protect the
environment through energy efficiency. U-M began participating in the Energy Star Program in
1998 and has several Energy Star labeled buildings. One of the Energy Star labeled buildings is
the VA Ann Arbor Healthcare System, which covers 1.17 million square feet and became
certified Energy Star in 2006. To date, the Energy Star Program has saved U-M $358,266 and
5,061,022 lbs of greenhouse gas emissions.​14​ This program was a five to six year agreement that
has since ended and a second phase of it was introduced called energy conservation and
outreach, which is now the Energy Management Program.
The Energy Management Program improves the efficiency of campus buildings to reduce costs
and covers over 150 buildings. Currently, the Energy Management Program is allocated $1
million every year. There are four regional energy managers hired as part of this program who
are each assigned to a region to assist facility maintenance groups and find energy savings
opportunities. Their work includes leading audits, developing projects, and working with facility
managers to stay on top of efficiency upgrades around campus. The managers also propose
Energy Conservation Measures (ECMs). After a regional energy manager’s proposal is approved
and put in motion, ECMs are spearheaded by the facilities maintenance group who work together
with the managers to ensure the measures are working properly and meeting the payback period.
Currently, projects must have a payback period of five to eight years.​15
Currently, regional energy managers only cover general fund buildings but there is now a
possibility the university will expand their oversight to non-general fund buildings such as
housing, the hospital, and athletics facilities. ​These buildings contain potential savings of which
U-M is currently not taking advantage.​ Adding more REMs and increasing the amount of
funding available for efficiency projects and building tune-ups would allow U-M to capitalize on
even more energy and monetary savings than it already is.
4
SUCCESSES SO FAR
Square footage is constantly growing on U-M’s ever expanding campus. Since fiscal year 2006,
the General Fund buildings have increased in area by 13.7%. At the same time, they present a
positive trajectory for energy efficiency. While square footage has gone up, overall energy
consumption has decreased 15.3% since 2006. Energy density (energy per square foot) decreased
25.5% in that time (see Appendix 2). Put another way, the university has reduced the energy
expended per student by 27.5% since 2006.
The Chemistry buildings are an example of this success. Over the last ten years, ECMs
implemented by Kevin Morgan’s team have saved $1.5 million per year, totaling over $12.5
million to date. These savings are the direct result of reducing energy consumption by 30,451
MMBTU per year on average, mitigating 4,163 metric tons of CO​2​ equivalent (MTCO​2​e)
annually.​16
One particularly effective ECM has been the installation of occupancy sensors. The Chemistry
buildings’ sensors cost $75,660 to install and have since generated average annual savings of
$290,497, totaling over $1.1 million to date.​17​ The sensors easily reduce energy consumption by
turning off lights and air circulation when a sensor’s region is unoccupied. They are most
effective in lab spaces due to the energy intensive process of constantly cycling air into and out
of the room.
A common energy efficiency upgrade throughout campus has been the replacement of
fluorescent light bulbs with LED bulbs. The latter consume 20% less electricity for the same
light output as the former and last over twice as long, reducing both electricity and maintenance
costs.​18​ Thus, such upgrades create financial savings immediately. In the Rackham Building, for
instance, one floor of bulb replacements cost $1,637 and generates $1,842 in average annual
savings. These bulbs prevent 19.5 MTCO​2​e from entering the atmosphere each year.​19​ While a
relatively small number, this type of project is inexpensive and easy to install, and both financial
and emissions savings quickly add up as more floors in more buildings are upgraded.
The success of these ECMs exemplify the types of projects the REF would enable with its
additional funding and the quality of results the university could reasonably expect.
CASE STUDY: HARVARD’S GREEN REVOLVING FUND​20
The Harvard Green Loan Fund (GLF) was established in 1992 with $1.5 million. In 2000, a
study found that the GLF produced an annual savings of $880,000 with an average annual return
of 34% after having financed 35 projects. $3 million was then endowed to the fund and
eligibility requirements changed to include feasibility studies and renewable energy projects after
Harvard recognized the value of these projects. In 2007, the ability to take out incremental loans
was added to fund the cost difference between base building code and sustainable design using
life-cycle cost analysis, so building upgrades that exceed certain standards could also be funded.
The Harvard GLF was enlarged to $6 million in 2004 and then again to $12 million in 2006. In
2008, the GLF was absorbed by the Harvard Office of Sustainability, which expanded its mission
5
to oversee university-wide sustainability goals and initiatives. The GLF has a maximum
commitment of up to $500,000 for any approved projects, but larger projects oftentimes find
more funding from external grants. In order for a project to be approved, it must have an
expected payback period of five years or less.
Currently, the GLF review committee resides within the Office of Sustainability and is
co-chaired by its directors. This review committee is composed of stakeholders from across
campus, including staff involved with new construction, existing projects, renovations,
consulting, energy auditing, commissioning, as well as campus finance. A majority of Harvard’s
schools and central administrative departments are represented on this committee, which allows
not only for proposed projects to be evaluated from various perspectives but also the promotion
of the fund’s existence to many stakeholders across campus.
The GLF is composed of two types of loans: full-cost loans with a simple payback period of less
than five years and incremental loans for projects with an internal rate of return of greater than
9%. Both types of loans are limited to a maximum loan of $500,000. In order to reduce costs,
applicants are required to apply for utility rebates for projects, if available. Utility submetering
and engineering services also qualify for GLF loans, but such loans must be repaid within two
years. Projects can be bundled together as long as payback period is still five years maximum to
allow projects that have longer paybacks to be viable if combined with lower payback projects.
Approved projects must result in a direct reduction of costs and environmental impacts for the
university and again follow the simple payback period of five years or less. Thus, the GLF
allows departments to improve their environmental and financial performance without any
upfront capital costs. The loan application requires an engineering study or other form of
documentation demonstrating the case behind the projected cost and resource savings. Eligible
projects include but are not limited to: lighting, HVAC, kitchen appliances, behavior change,
controls, insulation, renewable energy, metering, and cogeneration. As projects repay their loans,
the fund is replenished; this is an essential part of how the GLF operates. The total fund size can
only grow through specific additions of capital. There is no limit on the number of loans a
department can take out, and funding is available on a first-come, first-serve basis.
Since its creation, the fund has financed over 200 projects that cumulatively total to more than
$16 million. These projects have an average payback period of three years, produce an average
of 29.9% return on investment, and save the university $4.8 million annually on average.
Since the implementation of the GLF, the Harvard University Office of Sustainability has created
these recommendations for increasing the chances of success for a GLF at other colleges:
● Designated staff must support the fund and advocate for project proposals in the campus
community;
● The committee that reviews project proposals must be multi-stakeholder and represent
many constituencies across campus; and
● These projects must then be thoroughly reviewed and carefully implemented, especially
in the stages of calculating performance and cost savings.
6
Harvard’s green loan fund has been extremely successful and has inspired imitations all around
the country. Their guidelines and recommendations can serve as a baseline for an even more
successful fund at U-M, as we can learn from their difficulties.
U-M REVOLVING ENERGY FUND PROPOSAL
This section discusses some recommendations for establishing a REF at the University of
Michigan. These are based on our team’s research and are meant to start the conversation rather
than to serve as ironclad rules. Thus, should U-M decide to implement a REF, they should do
further research to ensure that the actual details about the fund match the university’s needs and
desires.
Fund Origination and Amount
A significant amount of seed funding is required to establish a revolving energy fund. This
section describes potential pathways to receive this funding and a recommended amount based
on revolving energy fund sizes at comparable universities.
A report from the Association for the Advancement of Sustainability in Higher Education
(AASHE) lists various potential sources for seed funding, including student government
allocations, student fees, academic departments, campus administration, outside grantmakers,
and alumni donations.​21​ A post from the University of North Carolina Environmental Finance
blog lists other sources that include external loans, endowment investments, government grants,
and operating budget allocations.​22​ An EPA case study on revolving energy funds for the City of
Orlando lists other sources that may be useful if seed funding is harder to come by, including
utility incentives/rebates, sustainable construction projects, and routine replacement of capital
assets with higher efficiencies.​23​ Presumably, the idea with the last two projects listed by the
EPA is to reroute funds that would otherwise have gone to operational expenditures arising from
inefficiencies in construction projects to a revolving energy fund.
For U-M’s revolving fund, we believe the best source of funding would be an investment of
unrestricted endowment dollars, as a revolving energy fund would be rather small compared to
the overall size of U-M’s endowment and may be able to yield higher returns through savings.
According to the 2018 U-M endowment profile, the university’s endowment has an annualized
performance level (return) of 9.6% over the past 20 years.​24​ While this is significantly larger than
the average university endowment return over this period of 6.6%, the Billion Dollar Green
Challenge states that “green revolving funds report a median annual return on investment (ROI)
of 28 percent.”​25
If U-M were to allocate unrestricted funds from the endowment to a revolving fund and achieve
just average performance, the funds would generate approximately 18% more returns than they
would have otherwise. Combined with the certainty and flexibility of this funding route, there is
a strong case to allocate part of the endowment to invest in the university’s buildings and
generate returns through savings and the elimination of energy waste. However, it might still be
worthwhile to look into “free” external funding sources, as such sources would have no
opportunity cost of capital. This means that instead of generating an incremental 18% return, the
7
“free” source would generate an incremental 28% return on itself and be a “gift that keeps on
giving.” If the seed funding were to come from an alumni donation, the university could even
consider naming the fund after the donor, potentially based on the standards set out in the U-M
policy for naming facilities.​26
Regardless of the source of funding, the university will need to decide on an actual amount of
seed funding if it chooses to move forward with this project. In order to calculate a proposed
amount, we calculated the ratios of REF funding, harvested from the Billion Dollar Green
Challenge website, to building square footage for 14 other comparable universities with
revolving energy funds, took the average of these values, and multiplied the average by U-M’s
building square footage.​27​ These calculations are shown in Appendix 3 and can be accessed via
the link to our public model repository in Appendix 6. The final recommended value was
approximately $15,000,000 for a university of U-M’s size. For reference, this value amounts to
0.126% of U-M’s current endowment and would generate approximately $4,200,000 in savings
annually for the university assuming the average REF ROI of 28%.​28​ We used this $15 million
value to inform our financial models for what a REF could look like at U-M.
Housing and Administering the Fund
Similar to the Harvard GLF, the University of Michigan Office of Campus Sustainability could
house the REF. The four regional energy managers of the university could oversee the new fund,
the responsibilities of which would include how funds are distributed and repaid. They would be
the final decision-makers regarding which projects should get funding. To assist the energy
managers and prevent their workload from becoming too onerous, a number of student interns
could be hired, whose job would be to assist the energy managers in finding projects around
campus, and they would be the ones to run the numbers and propose their projects to the board.
Each energy manager could have their own student intern, and it would be the responsibility of
the energy managers to oversee that their intern’s projects are successful.
There could also be an independent advisory board for the fund that would consist of not only
the energy managers but also representatives from all departments across campus (e.g., the
individual academic colleges, hospitals, housing, athletics, etc.). This is based on Harvard’s
recommendation and would help ensure equal representation from all parts of campus, allow
each department to have a voice in the projects that would be permitted across campus, and
promote the existence of the fund to many campus stakeholders.
General Guidelines for the Fund
Costs and Payback
No project should be considered too small or too large for the REF, so there would be no
minimum or maximum cost restrictions on proposed projects. Additionally, the payback period
should be no more than eight years to align with existing U-M guidelines, although longer term
payback projects could be bundled with shorter term payback projects to create an average
payback of eight years, similar to Harvard’s model. Projects must result directly in profitability
and a reduction in harmful environmental impact to be considered.
8
To pad the fund against projects that may not turn out to be successful, to account for general
inflation, and to slowly increase the size of the fund over time, we recommend a 10% payback
premium for all projects. This is not common in other university revolving funds, but we think it
could be a good alternative to planned additions of capital in the future. Such a premium should
not be an undue burden as the payments back into the fund are from savings anyhow, so the
premium only slightly extends the amount of time before the department reaps savings for
themselves. The 10% premium should not be factored into the payback period of the project. For
example, if a department and building manager take out $100,000 for a project that saves
$20,000 per year, they will need to pay back $110,000 into the fund over the course of 5.5 years.
After the 5.5 year mark, when the department’s obligation to the fund is satisfied, the department
gets to reap the savings from then on out. For the purposes of evaluating and approving the
project, however, the “real” payback period for the project itself should be calculated as five
years as the premium is not included in this calculation.
Accessing the Fund
Academic departments on campus should be encouraged to draw from the fund in tandem with
building managers. They may use the funding to upgrade energy efficiency in their own
buildings where they see opportunities for improvement. Departments and building managers
would ideally work together to combine perspectives, expertise, and incentives as they jointly
draft proposals. You can view an example of a project proposal form used for Harvard’s
revolving fund in Appendix 4.
Once departments begin reaping savings from funded projects, they will be allowed to spend
them as they see fit on efforts like scholarships, pay raises, further building upgrades, etc. If a
department so chooses, the funds could also be put back into the REF to increase its capacity or
to other environmental efforts on campus, although we view this scenario as unlikely as the
savings are what will likely incentivize the projects in the first place. Departments may utilize
the fund for any number of projects; there is no limit as long as the projects are approved by the
fund managers and meet the guidelines.
Financial Models
We created three financial models to demonstrate how the REF would impact different levels of
the university. All of these models were based on real data from past projects retrieved from the
U-M Office of Campus Sustainability building energy database and the GRITS public library of
sustainability projects.​29,30​ You can view samples of the project list and financial models in
Appendix 5 and access the full models through the public Drive link in Appendix 6.
In order to have a substantial amount of sample projects to begin our models, we duplicated each
past project three times under the assumption that similar projects would be possible in other
areas of campus. We then calculated the CO​2​ savings per investment dollar ratio for each project
in order to identify the most efficient projects to implement first. Most of the project data comes
from projects implemented at U-M, although we also included a few projects from other
universities to improve the scope of project types considered. Only projects with a payback
period of under eight years were included in the list, although our proposed 10% premium on
9
loan repayment pushes some projects out to be paid back over a period that is longer than eight
years. All of the project information is located in the Projects tab.
The first financial model in the sheet is on the Fund Perspective tab. This model represents the
cash flows associated with the fund itself. The fund begins with $15,000,000 in seed funding,
which is used to implement the projects listed below “Fund value at year start.” We assume 2019
to be the first year in all of the models as we assume that the fund is implemented near the end of
2019. Negative cash flows represent investments into the projects. Positive cash flows represent
the savings on the part of departments that are paid back into the fund. Green boxes represent the
final loan repayments made for each project.
Some project paybacks extend beyond eight years as the 10% repayment premium extends the
duration of the payments. The model also shows the fund value at year end, which is simply the
sum of the fund value at year start and all of the investments and repayments for that given year.
The table underneath the main model represents the accumulated debt, or necessary repayments,
for each project throughout the years considered. The rows in that table represent the total
amount that each project must pay back in any given year.
The second financial model is titled University Perspective. This model represents the overall
financial savings the university is gaining from investing in the REF, assuming an unrestricted
portion of the endowment is reallocated. It includes the $15,000,000 investment in the first year
(2019) and then all of the savings reaped by the various departments after their repayment
obligation to the REF, including the 10% premium, is finished. The idea of this model is to
calculate the overall value of the energy efficiency projects to the university and demonstrate
how a single, upfront investment that is recycled through different projects can lead to
substantial savings over time.
Using a discount rate of 9.6% - the opportunity cost of capital arising from diverting funds from
the endowment - the overall net present value of this investment to the university is $56,241,690
over nine years and the internal rate of return is about 68%. In practice, the fund will be recycled
into more projects than we were able to model, meaning that profitability could be even higher as
those projects begin to pay off. However, there are also the realities that savings may not be as
high as expected and that the efficacy of the interventions will wear down over time, both of
which would depress profitability. Furthermore, our model nearly depletes the fund in the first
year under the assumption that there will be administrative pressure to invest in these projects to
help meet U-M’s 2025 greenhouse gas reduction goal. Such fund utilization rates are not
common among other universities, which may only deplete a fraction of the fund each year. Full
depletion leads to an inflated amount of savings compared to what other universities might
experience as more projects are generating savings over more years.
The third financial model is titled Department Perspective. The idea behind this model was to
take projects relevant to a specific department and demonstrate the cash flows from its
perspective. We used the chemistry department as an example and assumed three projects based
on real data - atrium lab sensors, an HVAC system upgrade, and lighting and HVAC occupancy
controls - could be funded in the future with the REF. As the initial investment comes from the
10
REF and not the department itself, there are no expenditures from the department’s perspective;
there are only savings once the fund repayments are finished. The net present value to the
chemistry department from using the REF to fund these projects, when using a 9.6% discount
rate, is a little over $4,000,000 over eight years. The department could put these savings toward
initiatives including student scholarships, faculty and staff pay raises, and even further building
upgrades.
Emissions Model
In addition to creating financial models to demonstrate example cash flows for various projects
the REF could fund, we also created an emissions model to demonstrate the amount of emissions
that could be avoided by using the REF. The annual CO​2​ savings per project in the emissions
model track the implementation years of the projects in the Fund and University Perspective tabs
for consistency. Similar to the financial models, the project data was harvested from actual
energy efficiency projects implemented mostly at U-M but also at several other universities.
Each project has two duplicates under the assumption that similar projects could be done
elsewhere on campus given the proper funding availability. The projects with the highest CO​2
savings to investment dollar ratios were implemented first in the eight year lifespan of the
models.
Appendix 5 shows part of the model and Appendix 6 provides a link to access our public
repository where you can download it. By year two in the model, which would correspond to
2021 if U-M implements the REF in 2019, the university overall could gain a 17.33% emissions
reduction compared to a 2018 emissions baseline from additional energy efficiency projects
funded with a REF. This amount of emissions savings alone would represent significant progress
toward both U-M’s 2025 emissions reduction goal as well as a noteworthy step toward carbon
neutrality.
Even though we used three instances of each sample project, we still ran out of projects to fund
during the year after the REF’s implementation as we were unable to find significantly large
projects and wanted to avoid creating theoretical projects. But in reality, there would likely be
many more opportunities as buildings wear down, new building standards are implemented, and
new technologies are invented, meaning that our calculations are likely conservative in nature.
As this report noted previously, energy efficiency can save up to 60% of energy usage in campus
buildings, and this figure is likely to increase as architectural practices and energy efficiency
technologies improve over time.​31​ Planet Blue reports that U-M buildings use 6,872,729
MMBTU of energy and the campus as a whole uses 6,975,104 MMBTU of energy,
demonstrating that buildings use the grand majority of energy that the U-M campus uses
overall.​32​ Our models demonstrate that if the REF were to be fully utilized each year to fund
energy efficient upgrades in campus buildings, U-M would likely make significant progress
toward its goal of carbon neutrality through energy efficiency alone.
Risks and Mitigation
As large departments are responsible for proposing different projects and are the ones that
receive the savings down the line, individuals may not be inclined to work on them because they
11
do not personally reap any benefits. If this is the case, there is a possibility that the fund will not
be utilized to its full potential. However, there are two potential solutions. One is allowing those
who propose projects to be rewarded with a percentage of the savings and another is simply
having building managers and REF student interns propose projects as part of their job
description.
A second potential risk may include increasing the workload for the regional energy managers
(REM) without a commensurate increase in compensation, which they would likely not
appreciate. However, the fund could be used in part to increase their salaries to compensate for
the increased workload. Alternatively, the fund could hire another REM, or even a REF-specific
employee, whose salary could be provided by the fund.
There could be a lack of accountability for those who propose the projects and measure their
savings. Departments could underestimate savings to inflate their own savings in a particular
year. It will be important to implement a system of measurement and verification including
extensive review by the REMs to minimize this possibility. There is another concern that it
would be difficult to measure savings for atypical energy efficiency upgrades, such as installing
door insulators. For doing this, we defer to industry standards used to measure the impacts of
these kinds of technologies.
Lastly, there is a possibility that with a lack of accountability, the fund will be forgotten about
and university employees will cease monitoring repayments and proposing new projects.
Therefore, an additional, REF-specific manager could be directly responsible for overseeing fund
repayments, ensuring proper measurement of savings, and continuously promoting the existence
of the fund throughout the university.
FINAL THOUGHTS AND RECOMMENDATION
This report has explored the uses of energy in buildings, methods to save energy, U-M specific
energy efficiency initiatives, U-M’s past successes with saving energy, benefits and specifics of
revolving energy funds, and what a revolving energy fund might look like at U-M. Revolving
energy funds are an elegant idea in that they provide a sustainable source of capital for
technologies and systems that themselves make an organization more sustainable. This alignment
ideally leads to a virtuous cycle, where maintenance and growth of the fund (from the required
return and possibly new additions of capital) lead to even larger financial and environmental
gains down the line.
Based on the results of our research and our modeling, the authors of this report recommend that
the University of Michigan implement a revolving energy fund in order to more efficiently
capitalize on opportunities for both reducing energy usage and saving money. Such a fund would
accelerate U-M’s existing progress toward the university’s 2025 greenhouse gas emissions
reduction goal as well as toward the university’s recently announced path to carbon neutrality.
Energy efficiency is the easiest and cheapest way to reduce emissions, and a revolving energy
fund would make these investments themselves even easier for the university to make.
12
APPENDICES
Appendix 1 - McKinsey’s Global Greenhouse Gas Abatement Cost Curve Beyond
Business-as-usual33
​
Appendix 2 - U-M General Fund Building Energy Density 2006-2018​34
13
Appendix 3 - REF Recommended Seed Funding Calculation35
​
Appendix 4 - Example of Project Proposal Form36
​
14
Appendix 5 - Financial and Emissions Model Samples37
​
Below are screenshots of sections of various tabs in our financial and emissions models. These
are not the full models and are only shown for demonstrative purposes. Please see Appendix 6 to
view the full models.
Project List
15
Fund Perspective
University Perspective
16
Department Perspective
Emissions Savings
17
Appendix 6 - Link to Access and Download Models
Below is the link to a public repository where you can find our calculation of the recommended
seed funding for a U-M REF and our financial and emissions models. These files are read only,
but feel free to download them and alter the assumptions.
https://drive.google.com/drive/folders/115MMni8TouGTvJb8y-bej1LnlkLgrMZy
SOURCES
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18
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Successes So Far
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[17] ​Ibid.
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Case Study: Harvard’s Green Revolving Fund
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20
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Appendices
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21
Recommended Seed Funding Calculation​ [Data File]. Retrieved April 2, 2019 from
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Financial
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22