2011 NCPPP Innovation Award
Project Location: United States Virgin Islands
Public Sector Partner: Virgin Islands Energy Office (VIEO)
Contact Name: Karl Knight, Director VIEO; email@example.com
Private Sector Partner: Bostonia Partners, LLC
Contact Name: Thomas M. Dooney, Managing Director; firstname.lastname@example.org
In the late 2000s, the United States Virgin Islands were in need of a way to cut their energy demand. Located in an area that requires air conditioning and dehumidification year round, the energy needs put a strain on the daily electrical load of the power grid. With rising oil prices and an entirely oil based generation system, the Government decided to pass the Virgin Islands Renewable and Alternative Energy Act of 2009 to stimulate the growth of renewable energy projects and the implementation of conservation measures.
Bostonia Partners, LLC helped the Virgin Islands Energy Office (VIEO) structure the Virgin Islands Energy Alliance and implement changes for long-term sustainability. Together they developed a program that divided energy consumers into four markets: Government, Commercial and Industrial, Small Business, and Residential. With the help of the Virgin Islands Water and Power Authority, the Alliance was able to assess the condition and needs of each market and tailor solutions that would meet their different needs.
This new program emphasizes a self-sustaining concept that will not pass the cost of conservation measures on to taxpayers. Furthermore, this program is designed to stimulate green industry in the Virgin Islands. Over 40% of the costs of the first project with the Department of Education were spent on local materials, equipment, and labor. The single project created 25 new jobs for local workers who would be trained with new skills that will be used for future projects. The energy service companies need to build a business base on the islands, which will bring more jobs and businesses to the local marketplace. The decision to invest in these projects will save money on energy costs while having a multiplier effect on the local economy.
The program must be revenue neutral as to not push any of the costs on to the taxpayers. After the GVI pays for the initial capital investment, the program should pay for itself through utility cost savings. Any additional outlay of funds would need to be approved by the legislature.
The GVI would like to attract world class energy service providers. Energy savings performance contracting is desirable because ESCOs are responsible for performance, up-front cost of construction, installation, and energy savings for the life of the contract.
Separate financing plans for the individual markets are necessary for each to gain the most economic benefits. It is easiest for the Government market to borrow money on its own credit. The Residential market has the lowest use of borrowing due to limited credit of private individuals. Thus, subsidies are highest in the Residential and Small Business markets due to qualification through federal programs.
The program must create local jobs and a foundation for green industry. When the GVI chooses ESCOs, they will build a supplier and sub-contractor infrastructure necessary to accomplish their goals. This brings new business and resources to the islands as an additional benefit of the agreements. Moreover, local workers will be trained to inspect and install energy conservation measures (ECMs). The knowledge and skills acquired by new workers will allow them to export their business to other islands in the area.
The Government of the Virgin Islands and the Virgin Islands Energy Office are the public sector partners on this project. Due to the Virgin Islands’ dependency on a 100% oil based electrical system, the Government aggressively explored alternatives for energy conservation and renewable energy generation. This 2008 initiative led them to seek an Implementation Agent to plan and implement services, including commissioning and managing energy service companies and energy conservation measures.
The Virgin Islands Water and Power Authority (WAPA) will assist the VEIO and the Alliance in promoting energy conservation. Before the project, electric and water utility generation was provided by WAPA to all sectors.
Bostonia Partners, LLC is the Implementation Agent contracted and the private sector partner on this project. Bostonia is an investment bank that provides energy development and financing solutions to governments and corporations across the United States.
Additional private partners were necessary for the implementation and success of the Virgin Islands Energy Alliance Program. Energy Systems Group, Inc. and FPL Energy Services, Inc. are the energy service companies chosen by the Government to carry out the ECMs for the Government market. They will also be used by the Commercial and Industrial market at the discretion of those customers.
The Southeast Energy Efficiency Alliance (SEEA) is a non-profit the helped the VIEO procure grants for energy efficiency. SEEA assisted VIEO on working with the Small Business market. Quality Electric Supply, Inc. and Merit Electrical, Inc. will implement the efficiency programs in the Small Business market.
Outside energy service companies contracted to do work on the islands will create opportunities for local vendors and workers to gain knowledge of the industry. Jobs will be created and workers will be trained in new skills to carry out the business of these companies.
Implementation Environment—Legislative and Administrative
The Virgin Islands Renewable and Alternative Energy Act of 2009 contained several provisions fostering the development of energy efficiency and renewable energy production. The legislation specifically calls for the expertise and support of private sector participation in the endeavor. This legislation fostered and accelerated the creation of the public-private partnership in the U.S. Virgin Islands. It also outlines the need to create jobs and infrastructure to support the renewable energy sector.
The U.S. Virgin Islands joined the Energy Development in Island Nations (EDIN) initiative in February 2010. This organization helped the GVI to set specific goals and obtain additional monies to help fund the projects.
The Government of the United States Virgin Islands will provide the initial capital investment. After the program is designed and implemented, it shall be self-sustaining through utility bill savings. The energy and water conservation measures will be paid for by energy savings that are contractually guaranteed by the energy service companies that design, install, and maintain the ECMs.
The Virgin Islands Public Finance Authority provides funding for the Government energy conservation measures, and the funds are managed by VIEO. The VIEO received additional grants and subsidies from the American Recovery and Reinvestment Act (ARRA) State Energy Program to fund various initiatives.
Southeast Energy Efficiency Alliance (SEEA) is allocating grant money to VIEO, which they plan on using to subsidize energy conservation measures in the Small Business market. They may receive up to $2.4 million in fiscal years 2011 and 2012. A pilot program in the summer of 2011 that costs $600,000-$800,000 will be subsidized by a $200,000 SEEA grant.
Bostonia’s contract contains several facets involving the design and implementation of a Territory-wide energy efficiency and renewable energy program for the Virgin Islands. These provisions are: identify project opportunities and programs to reduce utility costs; present an overall assessment of the Virgin Islands marketplace for utility demand reduction services; evaluate the adaptability of performance based contract structures to the Virgin Islands; devise the program’s implementation strategy; arrange financing for energy and water efficiency and renewable energy generation to be installed throughout the Territory; and manage the implementation of the energy and water efficiency and renewable energy generation installations.
Programmatic management of the ESCOs is necessary to ensure guaranteed cost savings. The Alliance is responsible for holding the ESCOS accountable by supervising ongoing maintenance of the ECMs and annual measurement and verification, including individual assessment of each agency and department in the Government market.
Bostonia conducted preliminary audits of buildings on St. Croix and St. Thomas to assess the rate of return on weatherization techniques and better building maintenance. They concluded that there are opportunities to enhance efficiency and reduce costs in all markets. Proper seals, air ventilation, outdated lighting, outdated mechanical systems, and lack of temperature balance throughout buildings were among significant areas for improvement.
Energy Savings Performance Contracting is being implemented in the Government market. This process starts with a Master Energy Savings Agreement (MESA) between the P&P, VIEO, and the ESCOs. The ESCOs conduct investment grade audits to determine the specific energy conservation measures for each building. The GVI will get approval from the legislature to borrow money and the repayment of the loan will be paid for by utility bill savings. Bostonia and VIEO will monitor the performance after construction to guarantee energy and cost savings.
The Commercial and Industrial market will employ the same Energy Savings Performance Contracting as the Government markets at their own expense. It is beneficial for the large companies to invest in the energy conservation measures and contracts with the ESCOs because it will cut their own costs of operation and reduce overall energy prices due to lesser demand on the Virgin Islands’ energy grid. The government can help the market potentially obtain leverage with loan guarantees through the United States Department of Agriculture.
In the Small Business market, SEEA and VIEO are working together to implement the Small Business Energy Efficiency Program. Quality Electric Supply, Inc. and Merit Electrical, Inc. will conduct energy assessments in areas of lighting, water, building construction, and renewable energy. They will tell each business how to maximize energy dollars with at least a 15% reduction in expenditures. If the business decides to go through with the energy conservation measures, the assessment companies will be contracted to carry out the project. These businesses are eligible for grants totaling up to 40% of their project costs.
Methods for Overcoming Impediments
VIEO and Bostonia knew that acquiring the capital necessary to make improvements would be more difficult for the Small Business and Residential markets than for the Government and Commercial and Industrial markets. Decreases in the overall energy load would benefit all ratepayers due to lower demand. To create savings for everyone, the VIEO initiated their program in stages, starting with the Government market, which would translate into cost savings for all consumers. VIEO and Bostonia also managed to fast-track the planning and implementation stages for the Government market in order to take advantage of funds released by President Obama with the American Recovery and Reinvestment Act of 2009.
Market tailoring of implementation allowed the VIEO to take advantage of each markets’ strengths. The Government and Commercial and Industrial markets were in a better position to use their own capital funds for improvements. VIEO was able to help the Small Business and Residential markets procure grant money for their projects.
Key Points of Success or Failure
The Virgin Islands’ Department of Education is the first successfully completed project in the Government market. Energy conservation measures were outfitted in 11 of 44 schools on all three islands. This project called for a $7 million investment. From that money, at least $3 million was spent locally on materials and supplies, wages, equipments, lodging, meals, and other expenditures. This first project created 25 local jobs. The legislature is reviewing a plan to implement energy conservation measures in the other 33 schools for a $12 million investment. Combined, the two school projects should produce a net savings of $24.3 million over 10 years at current utility prices.