COVID-19 Effects on Higher Education and What That Means for Energy Projects: Part 1

Universities and colleges have been a significant source of revenue for energy service providers, primarily through energy saving performance contracts. The COVID-19 pandemic is undermining the financial stability of many universities around the country and reducing their willingness to finance energy projects through CAPEX or debt. In this way, energy service companies have an opportunity to reconsider their approach toward serving this segment. Scaling up energy as a service (EaaS) solutions that are off the balance sheet and do not require debt is a way energy service companies can pivot to maintain and grow their education revenue during uncertain times for the sector.

This is the first in a two-part blog series. Part 1 outlines the effect of the pandemic on higher education financials and budgets. Part 2 explores what the current higher education environment means for energy services contracts and how it can support growth in EaaS solutions. 

Five Ways the Pandemic Is Hitting Higher Edudcation Budgets

As of fall 2019, six out of 10 colleges missed their enrollment targets and 30% of universities have been operating under a deficit. The COVID-19 pandemic is further undermining the financial stability of higher education institutions. Universities large and small are cutting salaries, laying off staff, and furloughing staff to stay afloat. For example, the University of Wisconsin will furlough nearly 600 administrative employees, Johns Hopkins is cutting pay, and the University of Arizona also announced pay cuts and furloughs.

The following are five ways higher ed budgets are effected by the pandemic:

• Increase in short-term costs: A key reason behind the financial trouble is an increase in short-term costs. Universities must spend more on increased cleaning and sanitizing, equipment and contracts for online instruction, and other new budget items. Additionally, many are losing much-needed revenue due to room-and-board refunds, losses of sports revenue, and losses in international student tuition.
• Endowments are taking a hit: As financial markets have tanked, so have universities’ savings. While markets are expected to eventually recover, the timeline is not clear. This uncertainty is forcing many universities to be even more conservative with endowment spending than before.
• Fundraising revenue is more uncertain than ever: Colleges and universities have significantly ramped up advancement operations in the past 5 to 10 years as tuition dollars and state funding continue to decline due to demographic and political pressures. For many schools, fundraising became a significant part of their revenue. Now, with in-person events and donor visits cancelled, frontline fundraisers expect to come short of their goals. Donors are also motivated to give to other causes during this time, such as food banks, instead of higher education.
• Public schools are affected by a shrinking tax base: With state support already fledgling in many cases, a loss of tax revenue is forcing many states to freeze higher education funding. It is unclear if there are implications for state support beyond this fiscal year, but the uncertainty is resulting in universities further tightening their belts.
• Enrollment is expected to be affected: Enrollment is expected to be affected by the pandemic, extending potential financial effects well into the 2020-2021 academic year. Retention is a key concern, as many students might choose not to return to campus. Additionally, first-year students might not enroll as expected, since spring admitted student events are cancelled and students might choose to take a gap year or stay closer to home.

The combination of these factors is creating a challenging environment for higher ed leaders that must spend less and make decisions on budgetary priorities moving forward. The next post in the series explores the implications of this budgetary environment on energy service contracts and EaaS opportunities.