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COVID-19 Effects on Higher Education and What That Means for Energy Projects: Part 2

May 15, 2020


The first post in this series discussed how the pandemic is affecting higher education budgets by undermining endowments, decreasing enrollment and fundraising revenues, and increasing new expenses. The impact has been swift, and it may have ripple effects into the next academic year.

For small schools that were already struggling with enrollment in crowded markets, the financial hit of the pandemic is likely to lead to mergers and closures. Analysts estimate that up to 20% of schools might meet this fate. Midsized and larger institutions are better equipped to weather the storm. However, higher education leaders will be implementing cost saving measures in OPEX and reducing CAPEX to the minimum.

Implications for Energy Projects: Opportunity for Energy as a Service

Traditional CAPEX-based and financed energy projects with on-the-balance-sheet treatment, including energy service performance contracts, are likely to slow down as universities work to strengthen their balance sheets. However, infrastructure upgrades and sustainability will remain strategic priorities for universities in the long term due to increasing prospective and current student demand for these initiatives. As a result, energy service companies might find opportunities in pursuing energy as a service (EaaS) contracts with higher education customers.

Definitions of EaaS vary, but the hallmark of most EaaS agreements is the off-balance-sheet treatment of the transaction. The customer pays a fee for the service from the OPEX budget and does not take on any debt. The savings generated by the project are greater than the payment, resulting in a ROI for the customer. Meanwhile, the service provider takes on the risk associated with the project, provides the upfront capital, and guarantees performance.

These contracts allow higher education leaders a rare opportunity to have their cake and eat it, too, by improving infrastructure, increasing efficiency, and generating savings all at the same time. Smaller, targeted energy efficiency projects such as LED lighting, HVAC, and controls are especially appealing in the current environment. These projects can deliver quick savings and operational improvements after just a month or two, freeing up cash for other purposes. This approach requires nimble vendors that can streamline project origination and quickly move to upgrade infrastructure.

Capturing Opportunity

While universities and colleges deal with the immediate fallouts from the pandemic such as transitioning operations online and deciding on summer and fall plans, energy service companies can develop and amplify their EaaS capabilities, marketing, and customer education initiatives. Most higher education stakeholders are not deeply familiar with EaaS, so now is the time to educate prospective customers and position this financing mechanism for long term success in this sector.