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INSIGHT: Virus Stimulus Should Prioritize Energy Efficient Infrastructure

May 13, 2020, 8:01 AM

The outbreak of the new coronavirus has significantly dampened the confidence of consumers and investors alike. One glaring uncertainty on everyone’s mind is how can American businesses adapt to this new reality and start on the road to recovery?

The answer is simpler than one might think. Were the next iteration of Congress’s coronavirus relief packages to take the shape of previously considered omnibus infrastructure bills, then we might just have a solution at hand.

As evidenced by the massive public works packages of decades past, major government-backed investment in our built environment not only supports critical industries, generates new jobs, and opens opportunities for greater private sector investment but also improves overall community well-being. This is well understood by those in our nation’s energy efficiency industry, a critical sector of the U.S. economy that employed 2.4 million Americans in 2019.

Expanding public support for a more energy efficient built environment will generate much-needed jobs in the short term and lay the foundations for a stronger and more resilient economy for years to come.

Indeed, the 2008 financial crisis precipitated what at the time was the largest single investment in U.S. clean energy, energy efficiency and grid modernization through the 2009 American Recovery and Reinvestment Act (ARRA).

The stimulus generated thousands of new jobs, improved infrastructural resilience and yielded enormous energy cost and emissions savings for American businesses, government agencies and consumers—vast benefits that are still accumulating.

Energy Efficiency Industry Taking Hit From Covid-19

Yet, today, like several other industries, many in the energy efficiency industry are experiencing first-hand the adverse economic effects of this new and nearly unprecedented crisis.

Myriad mandated lockdowns of government agencies, colleges and K-12 educational institutions, manufacturing firms and other organizations that typically operate large, energy-intensive facilities have made it more difficult for energy service companies (ESCOs) to begin or even complete projects.

As a result, energy service providers either soon will or are currently facing some tough decisions as projects are stalled or canceled and revenues slow. While there are some exceptions to this emerging trend, these circumstances are far from ideal for the whole of the energy efficiency industry.

And the implications for the wider U.S. economy are equally deserving our attention.

Regardless the industry, private and public sector organizations feeling the weight of the coronavirus crisis on their top lines are keen to diagnose and attend to vulnerabilities in their bottom lines. Fortunately, this is precisely the line of work that ESCOs specialize in.

Organizations that acquire energy efficiency services through an energy service performance contract (ESPC), or what’s commonly known as a performance contract, are afforded important advantages. This financing mechanism, by design, virtually eliminates the procuring party’s exposure to credit, technical, management and performance risks associated with implementing demonstrated energy cost savings measures. Simply put, performance contracts put upon the contractor the onus of securing financial and performance returns on energy efficiency investments.

Energy Efficiency Services Benefit Many

Energy efficient buildings cost less, function better and are more resilient against external economic and energy-supply shocks than their inefficient counterparts. Government agencies and private businesses seeking to increase liquidity and improve their competitiveness have appreciated the value of energy services for years. And what we’re witnessing now is the rapid convergence of energy efficiency, smart building technology and grid-interactivity as owners, investors and managers increasingly view their building assets as “mission critical.”

Building owners who take advantage of energy efficiency services and new and emerging smart building technologies can transform their building facilities into integrated business, energy and community assets. Furthermore, building owners that do so through ESPCs and similar contract structures have the added benefit of improving an asset’s financial performance with minimal capital outlay.

Most important though is the compounding effect that these contract structures will have upon any stimulus dollars allocated for energy service customers. Businesses and public institutions alike can maximize the impact of any grants or loans they receive as part of an infrastructure-oriented stimulus by commissioning energy services through ESPCs, thereby preserving the amount of money they can afford to put toward other priorities.

This is especially advantageous for institutions like hospitals and health-care clinics, whose capacity to allocate stimulus capital towards overdue energy efficiency maintenance or upgrades is being eroded by the pandemic.

Policymakers Have Several Ways to Mobilize Funds

But it’s grown apparent in recent weeks that Congress may forgo an infrastructure stimulus in favor of a coronavirus relief package with more immediate impact. However, policymakers have at their disposal a range of preexisting authorizations to mobilize funds needed to support the energy efficiency industry and capture the aforementioned benefits of doing so without requiring new authorizing legislation, programs or rules.

Were the federal government to disburse just $2 billion to accelerate already developed projects that are currently delayed by the pandemic, it would activate investment in mission critical facilities by a factor of five, or $10 billion. Furthermore, longer-term investment can leverage $110 billion in mission critical facility infrastructure improvements. And the pathways for supporting this funding—the State Energy Program (SEP) and the Federal Energy Management Program’s AFFECT program—are already in place, thus making rapid deployment possible.

Otherwise, additional alternative mechanisms include expanding funding for the 179D Commercial Buildings Energy-Efficiency Tax Deduction or reauthorizing the recently eliminated Qualified Energy Conservation Bonds (QECBs), a class of federally subsidized tax credit bond for which the ARRA increased funding after it was first established by the 2008 Energy Improvement and Extension Act (EISA).

Nevertheless, ESCOs would be wise to better position themselves to benefit from whatever infrastructure stimulus comes by adapting their services to the social distancing era rather than taking a “wait-and-see” approach.

As we saw with ARRA, energy service projects that were nearer term and considered “shovel-ready” were more likely to receive funding than those further behind in development. These adaptations may entail additional or more stringent employee and worksite sanitation procedures or conducting energy audits and other services virtually. Likewise, facility managers can best prepare themselves by making plans and gathering information to be ready when the relief arrives.

Come what may, it is important that both policymakers and business owners recognize the aforesaid value of energy efficiency upgrades acquired through performance contracting.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Dr. Timothy D. Unruh is the executive director of the National Association of Energy Service Companies (NAESCO) and former deputy assistant secretary of renewable power at the Energy Efficiency and Renewable Energy (EERE) Office of the U.S. Department of Energy.