Erb Institute students to help Michigan's "Cities of Promise" save money, gain energy efficiency

2/10/2011

Facing budget challenges and pressure to reduce costs, Michigan's cities and towns are seeking creative solutions. With Ford Motor Company's help, students from The Erb Institute for Global Sustainable Enterprise at the University of Michigan are helping create one solution for Michigan's poorest cities: an innovative financial model that will provide desperately needed capital to upgrade facilities, reduce energy consumption and save money.

The Erb Institute's students' work is fueled by a $50,000 grant awarded by the Ford Motor Company Fund to The Erb Institute to implement a "revolving energy fund" (REF) for some of the state's eight "Cities of Promise," including manufacturing centers Flint, Pontiac and Saginaw. Part of a larger program led by the Clean Energy Coalition, a Michigan nonprofit, the REFs will deploy $4.4 million in seed funding from the Michigan Public Services Commission. This initial capital will fund energy efficient building upgrades in municipal buildings. As these upgrades decrease the cities' utility bills, they will use that savings to repay the REF. This will create a growing pool of capital that can be used to fund additional energy efficiency projects in the future.

The grant from Ford is a part of the Ford College Community Challenge (Ford C3). Started in 2008, Ford C3 is a national challenge grant competition that recognizes colleges and universities that utilize a school's resources to address an urgent community need related to the grant's theme: Building Sustainable Communities. Proposals also are expected to incorporate the use of alternative energy in a unique way. Unlike many traditional college grant programs, Ford C3 requires colleges to create proposals that have significant student input, involvement and leadership from beginning to end. Given this requirement, winning proposals have a distinctive student perspective on what it means to have a sustainable community. The grant to the University of Michigan's Erb Institute team is one of only five grants given out this year.

REFs are an innovative, but well-proven approach to the challenge of generating capital for energy efficiency and upgrade projects at cash-strapped municipalities across the country. Cities from Ann Arbor to Portland, Oregon and Phoenix, Arizona have successfully used REFs to support these programs and have seen energy savings in excess of program costs.

The City of Ann Arbor's experience demonstrates how an REF can benefit cities. Beginning in 1998, the city contributed $100,000 annually for five years to establish the initial pool of capital. Initially, the fund was used to perform energy audits on city buildings and pay for lighting upgrades. An $87,000 expenditure resulted in a 22% annual return, which was used to recapitalize the fund and pay for future retrofits. The initial investment of $500,000 has resulted in $1.4 million in energy savings and $3.4 million in labor savings in its first 10 years.

"This program is a great opportunity to help strengthen local Michigan economies and simultaneously reduce environmental impacts through long-term investments in energy efficiency," notes Ryan Flynn, Erb MBA/MS candidate, 2012. "I'm thrilled to work with my Erb colleagues and the experts at the Clean Energy Coalition, and thankful to Ford for helping make this program possible."

Graham Brown, Mike Elchinger and Ryan Flynn, MBA/MS candidates in The Erb Institute's class of 2012, and Andy Lubershane, University of Michigan MS/MAE (Master's of Applied Economics) candidate, 2012, will be part of the team developing the fund. Because they have studied both the business and the science of sustainability, these students will draw on their unique understanding of the technical and the financial issues related to energy efficiency projects to design a "fund optimization" financial model. Retrofits performed in each City of Promise will be based on the students' project-evaluation and financial models.

"We consider The Erb Institute to be a valuable partner in our efforts to keep Michigan's economy strong while delivering on our commitment to social and environmental sustainability around the world," said Mike Schmidt, director, education and community development, Ford Motor Company Fund. "With this grant, our intent is to help Michigan communities better utilize energy management and conservation tools to reduce their energy costs."

"This project provides not just a quick fix, but a sustainable solution to energy infrastructure challenges in some of Michigan's most disadvantaged communities," said Rick Bunch, managing director of The Erb Institute for Global Sustainable Enterprise. "The Erb Institute has collaborated with Ford on both a local and global level, from student internships to Advisory Board relationships, for years, and we deeply appreciate Ford's support on this important new initiative."

About the Frederick A. and Barbara M. Erb Institute for Global Sustainable Enterprise

Created in 1996, the Erb Institute for Global Sustainable Enterprise is a 50-50 partnership between the School of Natural Resources and Environment and the Stephen M. Ross School of Business at the University of Michigan. The Institute fosters professional education, public outreach and scientific scholarship supportive of the transition to sustainability -- that is, meeting the fundamental needs of a growing human population in an equitable manner within the means of nature. Utilizing a collaborative approach, the Institute helps business, government and civil society organizations to achieve meaningful progress toward sustainability. Its mission is to be a premier source of knowledge and leadership for the achievement of environmentally, economically and socially sustainable development and enterprise. For more information, visit www.erb.umich.edu.

About Ford Motor Company Fund and Community Services
Ford Motor Company Fund and Community Services works with community partners to advance driving safety, education and American heritage and community life. The Ford Motor Company Fund has operated for more than 60 years with ongoing funding from Ford Motor Company. The award-winning Ford Driving Skills for Life program teaches new drivers through a variety of hands-on and interactive methods. Innovation in education is encouraged through national programs that enhance high school learning and provide college scholarships and university grants. Through the Ford Volunteer Corps, more than 20,000 Ford employees and retirees work on projects that better their communities in dozens of countries each year. For more information, visit www.community.ford.com

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Meghan Gardner
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