Public owners constantly balance operational objectives, facility conditions, and saving money. And now, more than ever, they are challenged to do more with less. This dilemma has led many to defer maintenance and prolong necessary building improvements to save in the short term. This pattern often leads to issues in the long run, as building equipment and occupant comfort deteriorate over time. An accepted solution to this challenge is energy savings performance contracts. Well-known in Missouri, these contracts enable public entities to implement necessary energy-saving improvements and pay for them using the savings generated. However, the Department of Natural Resources Energy Loan Program is another lesser-known tool available to Missouri public owners.
Before retiring from the DNR in 2012, I led a team to develop, implement, and champion the Energy Loan Program. The genesis of this program began in the early 1980s when States received an influx of funding resulting from Exxon Corporation’s restitution for oil pricing fixing. The funds were required to be used for conservation programs and gave way to the Energy Loan Program. Initially, the loan program was only open to public K-12 schools, but after great success, it was expanded to city/county governments, public higher education institutions, and not-for-profit hospitals. The program closely resembles energy savings performance contracts (which were still a relatively new concept) but offered much lower interest rates to public institutions seeking to implement energy conservation measures.
The program launched in 1989 with great success. We supported $5 million in loans that first year and over $120 million by the time I retired in 2012. The program is simple: public entities can apply for a loan to implement energy-efficiency projects that reduce energy use and cost. If selected, they receive a low-interest-rate loan to implement the project. The loan is repaid twice yearly out of the savings generated from the project improvements.
Like a performance contract, the DNR Energy Loan covers a variety of energy conservation measures. These loans can be used for various equipment, including LED lighting, HVAC upgrades, renewable energy systems, combined heat and power systems, and waste heat recovery. Additionally, they can be used for building envelope improvements, such as insulation or high-efficiency windows.
While this program resembles a traditional energy savings performance contract, the primary benefit is the lower financing rate. But the benefits don’t end there. For schools, in particular, the DNR Energy Loan program is a great alternative to bond issuances for smaller projects (typically those under $5 million). Schools can avoid a lengthy bond campaign by utilizing the loan program to get projects completed, as these loans are not defined as debt, don’t count against debt limits, and don’t require a public vote. As a result, utilizing the loan financing, the district’s tax dollars are freed up to support other educational initiatives or capital improvements.
Case Study: Hannibal School District #60
In 2020, Hannibal School District sought ways to improve the indoor learning environment while reducing energy and operating costs. After a competitive selection process, the district selected Performance Services to partner with on an energy savings performance contracting project. One phase of the project focused exclusively on interior and exterior LED lighting upgrades throughout the district. With our help, the district applied for the DNR Energy Loan and was selected in July 2020 to receive a $1,115,959 low-interest loan for the project. These, along with subsequent project phase improvements, have drastically improved the learning environment for students and staff. Learn more about the district’s three-phase project here.
In over 30 years since the start of the program, there have been no defaults. This program was designed to last and should be at the top of mind for public owners across Missouri. It’s just another tool in the arsenal to assist public owners during financially challenging times.