National Academies Press: OpenBook

Revolving Funds for Sustainability Projects at Airports (2019)

Chapter: Chapter 1 - GRF 101 High-Level Overview

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Suggested Citation:"Chapter 1 - GRF 101 High-Level Overview." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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Suggested Citation:"Chapter 1 - GRF 101 High-Level Overview." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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Suggested Citation:"Chapter 1 - GRF 101 High-Level Overview." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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4 1.1 What Is a GRF? A GRF is an internal investment vehicle dedicated to financing energy efficiency, renewable energy, and other sustainability projects that generate cost savings. These savings are tracked and “revolved” back into the GRF, maintaining the funding stream for sustainability projects over time. GRFs are broadly defined by two criteria: 1. The fund must finance measures to reduce resource use (e.g., energy, water, or waste) or to reduce carbon emissions (e.g., by installing renewable energy technology). 2. The fund must revolve. Savings generated from operating cost reductions attributed to funded projects must be used to fully repay the initial loan or investment. An individual or a committee (existing or newly established) is typically assigned to manage the responsibilities of operating a GRF, which include project identification and selection, imple- mentation, performance tracking, and overseeing financial transfers. 1.2 Benefits of Utilizing a GRF There are many benefits to utilizing a GRF including the following: • Hedging against rising energy prices—GRFs are an effective strategy for hedging against rising energy prices without the downside of traditional energy price hedges, which incur losses if energy prices stay flat or decline. • Institutionalizing a mechanism for funding efficiency—GRFs provide a perpetual funding source, even if budgets tighten and funding becomes scarcer in the future. A dedicated fund, rather than a series of one-off investments, provides a formal and more secure commitment that ensures cost-saving efficiency projects will be funded. • Implementing performance tracking—A GRF includes measures to monitor cost savings and energy consumption. The collected data can then be used to benchmark against the per- formance of peer institutions (Sustainable Endowments Institute 2017). • Establishing an independent and flexible funding source—Higher education institutions with operating GRFs have found they have greater latitude to pursue actions with a return on investment (ROI) or payback period that might have been delayed under existing formal processes (Sustainable Endowments Institute 2017). For airports, there may be additional benefits including the following: • Catalyzing sustainability impacts across stakeholders—A GRF offers an opportunity to recruit airlines and other tenants in a systematic and structured process to save resources. Improved tracking may provide data for future incentives and shared savings. C H A P T E R 1 GRF 101—High-Level Overview

GRF 101—High-Level Overview 5 • Gaining a streamlined sustainability funding source—With airline acceptance, an airport could implement the GRF as an independent method to pursue efficiency projects. A new GRF can reduce demands on capital and operating budgets. 1.3 Advantages of a GRF in an Airport Context The following are several key advantages that GRFs have over traditional non-revolving expenditures (Sustainable Endowments Institute n.d.-a): Demonstrate the Business Case for Sustainability Despite the significant operational savings potential of energy efficiency and sustainability investments, airport staff may not fully pursue cost-effective measures. Rather than simply allowing the savings from these projects to be absorbed into the operating budget, a GRF tracks the savings distinctly and directs them into future projects, thus creating a measurable ROI. Engage and Educate the Passengers and the Public Traditional capital improvement investments are typically managed by a small team of airport staff. Adopting a GRF can help elevate the profile of these projects by tracking and sharing the enterprise-level benefits achieved through the fund’s cumulative impact. Convey Reputational Benefits Having a GRF can signal an airport’s commitment to sustainability and operational efficiency in a way that one-time investments cannot. It is a unified, purposeful investment vehicle that generates a more compelling organizational story than conventional investments. Catalyze a Culture Shift A GRF also represents a commitment to larger airport strategic goals, such as greenhouse gas (GHG) reductions, and provides a tangible vehicle for achieving them. A GRF provides constant focus on the concept of continuous improvement until a carbon footprint of zero is reached. That is unlikely to happen with conventional debt financing or some other kind of capital financing. Create a Programmatic Approach A GRF creates a formalized program of sustainability investments rather than a series of one- off projects. GRFs typically include specific requirements to ensure fiscal discipline, environ- mental responsibility, and a clear financing process that funnels savings from past projects into current airport spending plans. In some cases, this source of funding enables projects to be implemented that may otherwise fail to demonstrate a strong case to pursue. 1.4 Leveraging Savings into Opportunity A GRF is an effective way for organizations to capitalize on the savings from energy efficiency projects to promote sustainability (Indvik et al. 2013). By adopting a GRF, airports gain the ability to track savings or revenues from capital projects and apply those benefits to new sustainability projects. The airport can leverage those financial benefits into flexible, self-financing opportunities for future sustainability projects. Figure 2 provides an illustration of the basics of a GRF.

6 Revolving Funds for Sustainability Projects at Airports 1.5 Working with Airlines GRFs are a cost-effective tool for airports and airlines to accelerate resource savings and secure a range of sustainability benefits. This report provides suggestions on how to present the value of GRF to all airport stakeholders including airlines. Airlines may have limited famil- iarity with the GRF concept. Airports can educate their airline partners and reach agreement on how operational savings can be managed. Section 3.4.2 provides detailed guidance on how to advance GRFs with airlines. Figure 2. Airport GRF 101.

Next: Chapter 2 - Where Are GRFs Already Working? »
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Airports continually balance demands to improve infrastructure within the realities of available budgets. Green revolving funds (GRFs) offer an alternative approach for investing in projects that generate operational savings. These funds work by tracking verified cost reductions from implemented actions, and then transferring those savings to a reserve that provides capital for future qualified projects such as energy system upgrades.

A number of universities have managed GRFs for over a decade. Municipalities are starting to adopt them as well. ACRP Research Report 203: Revolving Funds for Sustainability Projects at Airports includes several non-airport-related case examples that have managed GRFs and two airport-related case examples. Airports require a modified GRF approach because of financial structures, Federal Aviation Administration (FAA) regulatory requirements, airline agreements, and the wide range of tenant roles.

This ACRP report provides guidance to determine whether this innovative funding approach is suitable for a particular airport and instructions on how to deploy it. Airports that have the ability and determination to launch a GRF will gain a robust method for advancing their sustainability goals.

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