Revolving Energy Funds – why you need one and using an Excel tool to model the outcome [with video]

In a previous blog post we released in 2017, I wrote about how to set up a Revolving Energy Fund or REF, also known as a ‘Green Revolving Fund’ or ‘Sustainability Revolving Fund’.

In this blog post, I will dive deeper into Revolving Energy Funds. I will talk about what they are, how to operate them, what their benefits are and how to model the financial outcome using an Excel tool we developed.

As part of the Sustainable Councils and Communities and Sustainability Advantage programs, 100% Renewables was commissioned to develop a set of resources to assist councils to pitch, design, develop, implement and manage a successful Revolving Energy Fund (REF). I had the pleasure to present the resources we developed in a webinar which was hosted by the New South Wales Government. Kelly Williamson from Campbelltown City Council also shared her experience in setting up Council’s Revolving Energy Fund.

Barbara Albert presenting at a webinar about Revolving Energy Funds
Figure 1: Barbara Albert presenting at a webinar about Revolving Energy Funds

Here is what was discussed in the webinar:

What are Revolving Energy Funds?

A Revolving Energy Fund (REF) is a self-sustaining funding mechanism, which you start with seed capital that you invest in sustainability projects, such as energy efficiency, water conservation, or solar projects for example. The fund’s unique feature is that you return savings from sustainability projects back into the REF to finance the next round of investments. In this way, you can spend funds multiple times to drive emissions reduction, resource and cost savings.

Revolving Energy Fund - funding cycle
Figure 2: Revolving Energy Fund – funding cycle

Three benefits of a Revolving Energy Fund

Here are three benefits of implementing a REF to finance your climate action plan.

Benefit 1 – Responds to climate change

Implementing a REF addresses a strategic priority for business. More and more organisations are committing to ambitious targets such as net-zero emissions, or 100% renewable energy. As the need to decarbonise increases, the need for innovative financing to enable cost-saving efficiency and renewable energy projects increases in importance.

Benefit 2 – Results in faster implementation

By re-investing and tracking energy cost savings, organisations can more quickly realise the full financial returns from investing in efficiency and renewables.

Benefit 3 – Easier to finance projects

Sustainability projects are often capital-intensive and potentially ‘not core business’, making these projects challenging to implement when compared with other investment options that improve a business. Having a dedicated REF makes it easier to finance sustainability projects.

How to operate a Revolving Energy Fund

You always need to start a REF with seed capital. How much you inject initially may depend on the number and size of opportunities in your climate action strategy, but clearly the more you put in, the more projects you can fund, and the more self-sustaining the financing cycle will be.

In addition to seed capital, you may also consider putting in top-up funds in subsequent years to make sure the fund does not run out of money, which can lead to a loss of momentum in implementing your climate action strategy. You may also look for grant funding opportunities or other incentives to help build and sustain a REF.

Whatever money is in the fund can be used to finance sustainability projects such as solar, lighting or air conditioning upgrades. These projects come with resource and associated cost savings, and in line with the design intent of a REF, part of the savings are returned to the fund to be invested in new initiatives.

The proportion of savings returned to the fund, and for how long, will affect the fund’s financial health and sustainability. You can simulate the performance of your REF in the Excel tool we’ve developed, balancing seed capital, top-up funds, grants and returned savings to ensure there are always enough funds available in the REF to implement your pipeline of projects. This is illustrated in Figure 3 below.

How to operate a Revolving Energy Fund
Figure 3: How to operate a Revolving Energy Fund

REF modelling tool

To help organisations model the financial outcome of implementing a REF, we developed an easy-to-use Excel tool. The REF tool can help you simulate the performance of the fund for your assessed sustainability projects and determine the required amount of money to achieve a cash-positive scenario.

You can use the tool to:

  • Input a list of projects with costs and savings that the REF is intended to help finance
  • Estimate the total funding needed to finance projects based on their expected year of implementation
  • Forecast how a portfolio of projects will perform
  • Help with planning and budgeting

Here are a couple of screenshots of the tool:

Set up your Revolving Energy Fund, such as the amount of seed capital and regular top-ups
Figure 4: Set up your Revolving Energy Fund, such as the amount of seed capital and regular top-ups
Input your projects, along with their costs and expected resource savings
Figure 5: Input your projects, along with their costs and expected resource savings
Analyse how your inputs affect the balance of the Revolving Energy Fund
Figure 6: Analyse how your inputs affect the balance of the Revolving Energy Fund

I have prepared a video to demonstrate how this tool works. The 10-min clip starts with an overview of Revolving Energy Funds and then dives into the use of our REF tool.

Three critical success factors

Revolving Energy Funds are a great tool to finance your climate action strategy, but you should be mindful of the following critical success factors:

  1. Get senior management commitment to emissions reduction over the long term: With senior management support and commitment to achieving long-term emissions reductions, the REF is likely to be better supported over the long term. A REF policy with commitment to support this with funds and resources to help meet ambitious climate action targets is one way to secure long term senior support.
  2. Make sure you always have enough money in the fund: a viable REF has enough cashflow in and out of the fund to implement projects that contribute to achieving your targets. Getting the balance right between initial funds, grants, top-up funds and savings returned to the fund versus savings returned to general funds is critical to success.
  3. Set up the fund with an appropriate governance structure: Like other funding, a REF should be functional, transparent and auditable. It is recommended that you develop REF documentation setting out how the fund will be managed, establish clear project eligibility and selection criteria, as well as how savings will be measured and re-invested back into the REF. You should also set up a REF management committee, and assign accountability of the fund to a manager.

If you are considering a Revolving Energy Fund and want to avoid any pitfalls in setting it up optimally, please contact us for help.

100% Renewables are experts in helping organisations develop their climate action strategies and plans, and supporting the implementation and achievement of ambitious targets. If you need help to create your Climate Change Strategy, please contact  Barbara or Patrick.

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