Since 2007, more than 600 colleges and universities have signed the American College and University Presidents Climate Change Commitment to cut emissions of greenhouse gases. This pledge calls for each campus not only to take incremental steps such as switching to energy-efficient appliances or lighting, but also to develop comprehensive, institutional plans to become climate-neutral.

Renewable energy makes it possible for education institutions to significantly reduce or even offset their carbon footprints, control their electricity bills, help develop a market for renewable technologies, make a public commitment to sustainability, and hedge against rising fossil fuel prices. Many options exist for procuring renewable energy, and facility managers and administrators should consider a variety of ownership and contractual arrangements in developing and carrying out a renewable-energy program.

Multiple incentives

Economic and policy incentives to switch to renewable energy make "green" power an attractive choice for colleges and universities. The costs of purchasing renewable-energy sources have declined in recent years. According to the Solar Energy Industries Association, the price of photovoltaic solar panels dropped more than 40 percent in 2009. And Bloomberg New Energy Finance reports that wind turbine prices have declined by 15 percent in the last two years.

Coupled with these declining costs, governmental incentives in the form of loan guarantees and tax benefits have lowered the costs of renewable projects significantly. The IRS offers a variety of tax credits and grants for renewable energy projects, including credits for both the investment costs of installing renewable-energy sources (the investment tax credit, or ITC), and for the generation of renewable energy (production tax credit).

The American Recovery and Reinvestment Act of 2009 (the Stimulus Act) greatly expanded the popularity of these tax benefits by permitting many taxpayers who otherwise could not benefit from the investment tax credit to obtain a cash grant in lieu of the ITC. The ITC grant pays for 30 percent of the eligible capital cost of most renewable-power projects (and 10 percent for small cogeneration projects and for geothermal heat pumps), provided they are placed in service, or start construction, by January 1, 2011. Private owners of renewable energy also can take advantage of accelerated depreciation of eligible renewable energy property, enabling a faster write-off of the investment for tax purposes. Ongoing tax subsidies, such as production tax credits (PTCs) and accelerated depreciation, often are "monetized" at the commencement of operations by selling off the benefit of the PTCs to a tax investor, effectively reducing the upfront capital costs.

In addition, the U.S. Department of Energy’s Loan Guarantee Program, which initially was established under the Energy Policy Act of 2005, authorizes the Secretary of Energy to issue loan guarantees to qualified renewable energy projects. The Stimulus Act increased the funding available for Energy Department loan guarantees for renewable projects, and widened the scope of eligible projects from just "innovative" renewable technologies to include commercially proven renewable technologies.

State (and potentially federal) renewable portfolio standards (RPS) also have increased the demand for renewable energy. An RPS requires a certain proportion of the electric power generated or delivered by a utility to be derived from renewable sources. These popular renewable-energy polices—as of August 2010, 29 states plus the District of Columbia had adopted renewable portfolio standards, and seven states had renewable portfolio goals, according to the Database of State Incentives for Renewables & Efficiency’s "Renewable Portfolio Standards Map"—utilize a market-based system to incentivize renewable energy, as utilities compete to purchase available supplies of renewable power or the tradable credits, known as renewable energy credits (or RECs), generated by renewable-power projects.

Further, the Obama administration, environmental and industry groups, and many in Congress continue to press for comprehensive energy legislation that may include a cap-and-trade system for greenhouse gases, or carbon taxes, as well as a nationwide RPS. Numerous states have formed state compacts to create regional markets for greenhouse-gas emissions and offsets, including the Regional Greenhouse Gas Initiative in New England and the Mid-Atlantic states, and the Western Climate Initiative, and several voluntary markets have arisen. For the moment, these greenhouse-gas offset markets are separate from the REC markets, and serve different purposes, but the two markets eventually may be consolidated into a single national or international market.

Finally, the extreme volatility in recent years in the prices of traditional fuels, including coal and natural gas, has made renewable energy more attractive as a hedge against rising fuel prices. For instance, light crude-oil prices jumped from $75/barrel in July 2007 to $145 in July 2008 and then decreased to $40 in January of 2009. This past year, oil prices have swung from a low of $62.70 to a high of $87.15. Similarly, in the natural-gas market, prices for natural gas have swung from $11.32 per 1,000 cubic feet (mcf) in July 2008 to $4.36/mcf in July 2010, according to the U.S. Energy Information Administration’s "U.S. Natural Gas Wellhead Price." By reducing exposure to fossil fuel and natural gas price volatility, campuses will be better able to manage their own risk.