A revolving energy fund (REF) can be established to provide a financial incentive for councils or other levels of government to implement energy efficiency measures and practices. Energy efficiency projects reduce energy use and greenhouse gas emissions. They can also save money.
REFs rely on identifying energy cost savings and, in future budgets, allocating these savings to a REF so that the money can be reinvested in future energy efficiency projects. Through this process a REF can grow and allow councils to pursue energy saving projects that might not be funded through standard budget processes.
There are a number of methods that can be used to set up a REF. One commonly used method is to provide seed funding that can be “topped up” with the savings made from energy saving initiatives.
Alternatively, the fund can be grown more gradually by only collecting operational savings from energy efficiency initiatives. Once a REF is established departments can apply to it for funding for proposed initiatives.
In many cases the finance department manages the REF with input from environmental staff. Some councils set up a committee that includes environmental, finance and managerial staff to assist with prioritising and monitoring projects and reporting on the progress of the REF.
As an incentive for departments to implement energy saving initiatives it can be beneficial to return a proportion of the energy cost savings to them and allow them to choose how to reinvest these. Under this scenario the remainder of the funds are allocated to the REF for specific energy saving projects.
However, many successful REFs retain all the savings within the fund and rely on the overall energy savings from across council as the incentive. In both cases departments across council learn the financial benefits of reinvesting in energy saving. Baseline budgets should be established early in the process to ensure future saving can be accurately calculated.
This means it is possible to determine the difference between actual energy costs and those budgeted for. It is important to first identify savings and payback periods then prioritise potential projects. The energy savings should be translated into monetary savings.
When estimating and verifying savings it is important to include the uncertainties related to the baseline data such as weather conditions, expanding council facilities or their renovations and changes in staff numbers.
A typical payback period for return on expenditure on REF funded initiatives could be 10 years.
Savings and Benefits from REFs
- Financial Savings: REFs provide for long-term savings by building on initial savings achieved through energy management initiatives.
- Environmental Benefits: REFs provide a substantial opportunity for councils to reduce their greenhouse gas emissions.
- Other Benefits: REFs enable councils to focus on the long-term planning that is often necessary for projects requiring substantial financial commitments. REFs provide councils with a management tool to implement greenhouse action plans. The funds also provide a mechanism for councils to keep track of costs and savings.
Councils with REFs operating
Revolving energy funds have been established and are in operation in the following Australian councils:
- City of Moreland (VIC)
- City of Yarra (VIC)
- Manly Council (NSW)
- City of Newcastle (NSW)
- City of Melville (WA)
- City of Rockingham (WA)