Power Down - Century Bonds

February 12, 2016

As bond market interest rates plummeted, Penn took this opportunity to propel the University into the modern age of energy efficiency and capital improvements. With millions of dollars generated through the issuance of Century Bonds, we decided it was time to learn how Penn uses this financial tool and why the decision is so instrumental in financing our future. We sat down with two people from Operations and Maintenance − Ken Ogawa, Executive Director of Operations and Maintenance and John Zurn, Century Bond Program Director − to get a better understanding of the program. Below is an edited excerpt of our discussion.


Green Campus Partnership: What is a Century Bond?

Ken Ogawa: Century Bonds are 100-year, taxable bonds. We went into the market in the spring of 2012 and took advantage of extremely low bond rates.

John Zurn: The University decided to issue $300M in bonds, lock-in these historically low interest rates [4.674%] for a hundred years, and then use that money to upgrade our oldest, most inefficient systems on campus. If we reduce the energy consumption in these buildings, the thought was that our utility savings would pay for themselves after a few years. $200M is earmarked for energy efficiency and deferred maintenance upgrades.


GCP: What is the money going to be used for?

Ken: First, around $10M of our $200M is being is allocated to lighting retrofits. 

John: We had identified 45 buildings with particularly old interior lights, and over the past 2-3 years have replaced or refurbished 57,000 fixtures and installed over 5000 vacancy sensors. From lighting alone, we save about 12M kWh per year, which translates to over $1M a year in utility costs (using 2012 prices). Including PECO rebates, these lights will pay for themselves in 8 years. Even more, there are huge savings in ongoing operations and maintenance as well. In some cases, lights only need to be replaced every 20 years instead of 1-2 years. This frees up time for our maintenance staff to take care of other issues.


GCP: What other initiatives will the money be used for?

Ken: The other $190M is being use for HVAC [Heating, Ventilation, and Air Conditioning] retrofits.

John: Out of the 17 most inefficient buildings on campus we have identified 9 buildings to completely upgrade. In the past, different air handlers in a building would be replaced at different times. But now, the HVAC systems for each building will be upgraded all at once. This not only gives us the opportunity to use the newest, most energy-efficient HVAC, but also prevents incompatibility between old and new systems. For instance, Chemistry 1973 was a $15.5M upgrade.  The upgraded system saves over $1.2M annually in energy costs alone, along with savings in ongoing maintenance.

Ken: Before, Chem 1973’s temperature used to fluctuate a lot. It was noisy and it broke down. Now the building’s temperature is consistent, it’s quiet, and it uses a fraction of the energy. Users are happy, teachers are happy, and I’m happy because we saved a lot of energy, and that’s what we hope we will see in the other buildings. Another example of a building we’re renovating with Century Bond funds is Stemmler Hall. The building will have 50% more occupants than it currently has and yet the energy use will still be 50% less than what it consumes today. It’s going to be a fantastic improvement.


GCP: How is this $190M for HVAC upgrades expected to last for 100 years?

John: For each HVAC upgrade, the Century Bond program is making an interest free loan to the school getting the upgrade. The school then pays back the principal over 30 years. This money goes back to the central pot to pay for future projects. It’s a self-perpetuating cycle, very sustainable. It’s also a great deal for the school. Going back to Chem 73, the School of Arts and Sciences had to upgrade the building sooner or later. The air handlers were over 40 years old. With these interest free loans, they could afford to do the upgrade.


GCP: Is there a certain energy reduction threshold these buildings must meet after being renovated?

John: There is no threshold when we choose projects to pursue. The best reduction has been Chem 73. They reduced their energy consumption by 70%, which is fantastic. That was an outlier though. Some smaller buildings see around 30-60% in savings. But remember there are a couple other benefits other than energy reduction. A lot of these buildings are old. Maintenance had been deferred for 40-50 years. Now, in addition to having more efficient systems, they are also easier to maintain. The maintenance guys don’t need to drive there all the time to change things. This frees up their time to do other work. It’s hard to calculate these types of savings.


GCP: So what’s the big takeaway concerning Century Bonds?

Ken: The big thing to know: The University is serious about our commitment to save energy. The decision to take out Century Bonds has given us a huge infusion of cash to make big changes for energy consumption. Combined with other sources of investment we have for energy improvements, these projects alone will reduce our entire campus carbon footprint by 4%.

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