Investments, Efficiency, VA Tech, and the DC Area

Last Tuesday's Washington Post featured a great article about the confluence of economic value and actions to reduce energy use and climate change. Virginia Tech and investor Hannan Armstrong along with other partners, including PEPCO Energy Services, are investing $500 million to improve the efficiency of at least 100 buildings in the DC area. The initiative is called the Energy Efficiency Partnership of Greater Washington.

It's important to note that Mr. Armstrong is not doing this because he is an environmentalist. He's doing it because he can make money at it. Opportunities to improve efficiency in buildings are enormous and profits can be made. The concept is pretty simple: invest money in energy performance improvements and then share the savings that come out of the utility bills. The building owner pays nothing up front and enjoys same or lower utility bills. The investor creates a stream of income from the utility savings that yields a good or excellent return on the initial capital investment. Both parties win . . .and so does our environment. The expectation is that the buildings they are investing in will reduce their energy use by 20% - 50%.

You can do this yourself, too, actually. In the short term, investing $200 in changing out the lighting in your house can yield up to $100 per year in investment returns--a fabulous return rate. If you have a home equity line of credit you can create your own positive cash flow--it's like printing money. By investing in efficiency improvements that have rates of return higher than the interest you pay on your loan, you can create a cash cow right in your house. Here's an example: $3000 wisely invested in improvements could save you $30-$40 month or more on your utility bills. A 15-year home equity loan payment is $27.81 at 7.5%. So every month you essentially print yourself a $5 or even a $20 bill (because you save more on your utility bill than you pay on your loan). As utility rates rise your savings go up, too, but your payment stays the same. Many improvements will also add to the value of your home, so if you move your house will sell for more--recouping your investment again.

I've always thought that investment resources like Money Magazine and Kiplinger's should recommend these investments to their readers. They can create better returns at lower risk than a lot of the other investment recommendations they make. The environmental benefits are just gravy.