Innovative Financing for Green Stormwater Infrastructure: Lessons Learned from Energy Efficiency

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2016-04-29

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Abstract

Stormwater management can be a significant challenge in urban areas. As population density grows and impervious surface cover increases, the amount and intensity of stormwater runoff escalates correspondingly, placing added stress on water management systems and natural ecosystems. Green stormwater infrastructure (GSI) is increasingly being seen as a critical tool for addressing these challenges (Garrison and Hobbs 2011). Although a number of cities across the country have turned to GSI as a key component of their stormwater management system, oftentimes the scope is limited to public property. Since GSI is a distributed approach to stormwater management, programs must engage private property owners (Francis 2010). Energy efficiency programs have seen significant success engaging private property owners across the built environment despite experiencing many of the same challenges attracting investment in the face of high up-front costs and limited inherent collateral value (Palmer, Walls and Gerarden 2012). This project aims to better explain the key factors that influence the success of three types of energy efficiency financing programs in the United States and draw cross-sector parallels to GSI in order to inform a decision-making framework for GSI program design. This is accomplished through 1) a review of the existing literature on energy efficiency program design and the potential equivalencies between energy efficiency and green stormwater infrastructure, 2) an exploration of three financing mechanism case studies, and 3) the definition of decision criteria to provide initial direction for the evaluation of appropriate financing mechanisms in a specific case. In order to better understand the settings in which specific energy efficiency financing mechanisms would be most appropriate, this research evaluated three financing mechanisms: on-bill repayment, PACE financing, and performance contracting with Energy Services Companies (ESCOs). The data informing these case studies was gathered through research of secondary sources, a series of interviews of energy efficiency program administrators and energy and/or GSI industry experts, and a review of example programs. The case analysis informed a consideration of how each financing mechanism could be applied in the stormwater context. The findings reach beyond the existing literature to examine national level themes and provide a local-level decision making framework. Based on the findings of this report, a number of key factors exist that can direct decision-making around green stormwater infrastructure financing. First, a fundamental consideration is whether a stormwater fee structure exists to create the opportunity for savings. Assuming this requirement is met, the following criteria indicate the suitability of the three financing mechanisms for a specific jurisdiction: building stock of greatest concern, authorizing legislation, political buy-in, incentives, and regulatory requirements. The importance of each criteria varies for each financing mechanism. PACE programs are most appropriate in states with a history of PACE authorizing legislation, strong regulatory drivers for action and a wider range of target property sizes. Performance contracting is more appropriate in places with a high concentration of large-scale commercial building stock, limited legislative support and multiple available incentives. On-bill repayment programs are most applicable where there are more opportunities to pursue small-scale GSI and strong regulatory drivers for action. In addition, shared key factors that apply to all three of the case financing mechanisms will impact program viability and are important to consider in program design. These include the stormwater fee size and available margin, the potential to offer credit enhancements, the ability to leverage an economy of scale, the policy requirements affecting loan term stringency, and existing availability of financial partners. An applied analysis of how these findings impact Seattle, WA further illustrates the implications of these findings. The City has an itemized stormwater fee structure, an existing stormwater consent order and is actively investing in GSI. PACE financing is not possible in the state due to legislative restrictions. However, a stormwater credit already exists in the city and a commercial GSI program would target medium to large-scale commercial customers. Therefore, it is recommended that the City of Seattle explore performance contracting by supporting the development of a GISC. In order to make this possible, the City could create a public private partnership with local innovators and consider opportunities to provide credit enhancements. Secondarily, the City might also consider the potential to offer on-bill repayment for small scale projects. In both cases, the City will need to conduct further inquiry into the financial implications and political feasibility of these endeavors and create a framework for measurement and verification of stormwater savings.

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Starkman, Kendall (2016). Innovative Financing for Green Stormwater Infrastructure: Lessons Learned from Energy Efficiency. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/11937.


Dukes student scholarship is made available to the public using a Creative Commons Attribution / Non-commercial / No derivative (CC-BY-NC-ND) license.