Last week, 100% Renewables was asked to present at a webinar run by the Sustainability Advantage Program from the Office of Environment and Heritage about financing options for councils. Topics covered were why you need a funding strategy, how to align it with broader organisational strategies and plans, a detailed discussion about various funding options, how a financing strategy can be integrated into organisational planning and developing an optimal financing strategy.
Why you need a financing strategy for sustainability projects
Most sustainability initiatives require some sort of financing, and it pays to plan ahead so that you can seamlessly execute your environmental strategy and reach your stated targets. Knowing beforehand what your needs will be will also make sure that you are ready to submit your business cases in line with budgetary cycles.
Free Download: Financing Options for Sustainability Projects
Aligning your financing strategy
A funding strategy for local governments is not a standalone document – it needs to tie into broader strategies like the Community Strategic Plan, delivery and operational plans, as well as the sustainability strategy. Figure 1 shows the hierarchy of organisational alignment.
11 funding options for local governments
Traditionally, local governments have funded their sustainability initiatives either from the budget or through a loan. However, there are many more options available. In the webinar, Barbara covered 11 funding options for councils, along with pros and cons for each option, as well as an indication of the challenge to establish and maintain them and a few case studies. You can find the 11 financing options in the list below.
- Pre-existing and future incentives and grants, free money
- Environmental levy/Special Rate Variation, internal funding
- Self-financed through the normal budgeting process, internal funding
- Self-financed through a Revolving Energy Fund (REF), internal funding
- Internal carbon price, internal funding
- Loan financed, Council borrows
- Equipment lease, third-party funding
- On-bill financing, third-party funding
- Onsite solar Power Purchase Agreements, third-party funding
- Energy Performance Contracts, third-party funding
- Community energy projects, third-party funding
It’s important that you keep in mind that these funding options are not mutually exclusive and that your funding strategy will most likely contain a mix of these.
What are the most suitable financing options for your council?
Every council’s needs, circumstances and objective are different, so a financing strategy needs input from senior management to make sure that it is fit for purpose. Here are two ideas for how you could filter out suitable financing options from the list above.
- Run a workshop with the leadership team and other key organisational stakeholders in which you go through all financing options and let the group determine the most suitable ones.
- Present a shortlist of pre-evaluated financing options to the leadership team so that they can provide feedback.
Both options lead to the development of a pathway for implementing your optimal financing strategy.
Defining your optimal financing strategy for your sustainability projects
In most cases, your optimal financing strategy is based around four different ways detailed in Figure 2. The best money is always free money, which you can access through grants and incentives. Grants are only available at certain times, and it is best to have projects shovel-ready, so you can submit when the time comes.
Incentives like Small-Scale Technology Certificates (STCs), Large-Scale Generation Certificates (LGCs) and Energy Savings Certificates in NSW (ESCs) will make the business case of investments more attractive, as there will be additional income streams for your energy projects.
The second-best option for councils from a financial-return-perspective is to finance projects internally. If you spend money from your funds (e.g., General, Water/Sewer, or Streetlighting Funds), you will be able to enjoy all energy project savings, without having to pay interest or sharing the benefits with another party.
The third-best option is to borrow money, which is typically done for capital-intensive projects. Councils have access to very favourable interest rates, but the Clean Energy Finance Corporation (CEFC) might also be able to co-fund your project, so it is worthwhile enquiring with them.
If you don’t want ownership of your energy project and you are happy to split the financial benefits with another party, you can also consider third-party financing through solutions like leasing, onsite solar PPAs, community energy projects or Energy Performance Contracts (EPCs).
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