Energy efficiency (EE) has a central role in addressing climate change. Strengthening energy efficiencies at organizational and entity levels can not only bring significant carbon reductions, but investments in this area can also bring substantial cost savings to businesses and government operations. A 2015 Rockefeller Foundation report calculated that there is room for at least $279 billion in building retrofits in the United States, which could “yield more than $1 trillion of energy savings over 10 years” . The Report further states that this level of energy efficiency savings would reduce U.S. emissions by nearly 10%. By 2020, according to the EIA, over 500 electric utilities had initiated EE programs resulting in annual consumption savings of 28.2 billion kWh–roughly split between residential and commercial customers. On the commercial side, investments can be large, and sometimes difficult to finance. While some states have provided financing options, there are limits to available capital. In this environment, several modalities have emerged to accelerate capital availability; one interesting avenue is a Green Revolving Fund (GRF).
A GRF establishes a special internal account dedicated for investments in sustainability projects. By tracking and “banking” savings from energy efficiency over time, significant financial benefits can be reinvested in the account.
Here is how a GRF works:
Some entities have started their funds from a zero balance and slowly increased over time in the manner outlined above. However, it may be helpful to seed the fund with an initial capital infusion to allow for larger investments sooner. There is a lot of variation in how the fund may be capitalized and where the initial money comes from. Some campus funds have been capitalized with big investments, while others have started small. Harvard began their fund with $1.5 million in 1993, and then added another $1.5 million in 2001 . Because it was so successful, it eventually increased to $12 million. Entities that have bootstrapped the fund with little or no investment sometimes find that the fund lacks flexibility in project selection due to capital constraints. In general, funds established with a relatively large capital investment have proven more durable.
Entities have been highly creative with the source of initial investments. Operating budgets are the most common source of funding, but colleges and universities have also tapped endowment principal, utility rebates, capital budgets, students, grants, and government funds. Since many GRFs have achieved high ROIs, the fund can often pay back the capital with interest (e.g., to the endowment or capital account); or, it can reinvest all profits back into the fund for new projects.
GRFs have now achieved significant popularity, especially on college and university campuses. There are at least 60 colleges and universities that maintain GRFs. As mentioned, one case is Harvard University. Initiated under a slightly different form in 1993, Harvard’s GRF is now a $12 million revolving fund that has provided capital for design, operations, maintenance, and behavioral projects. The Fund has supported nearly 200 projects, which have generated over $4 million in annual energy savings. Eligibility guidelines for projects the Fund will support are:
Other university examples maintaining GRFs include the University of Vermont, which has the largest GRF, Iowa State University, Arizona State, Cal-Tech, Agnes Scott College, and many more. Non-academic entities are also starting to leverage GRFs (e.g.,businesses and government jurisdictions such as counties and municipalities).
A Green Revolving Fund implementation guide can be found here.
 Rockefeller Foundation. 2015. United States Building Energy Efficiency Retrofits. Available at https://www.slideshare.net/RockefellerFound/united-states-building-energy-efficiency-retrofits.
 Ivdvik, Foley, Orlowski. 2013. Green Revolving Funds: A Guide to Implementation and Management. Sustainable Endowments Institute & the Association for the Advancement of Sustainability in Higher Education.
Richard Swanson, Ph.D.
Asset valuation and project finance expert, specializing in financial and economic analysis of civil infrastructure assets.