This guide provides examples of state-wide resilience considerations, important actions for states to enhance energy resilience planning, and potential funding and financing options to consider for energy resilience projects.
From 2011 to 2020, the United States faced an average of 14 distinct billion-dollar disasters annually at an average cost of $93 billion. Beyond impacting lives and livelihoods, major natural disasters can devastate energy systems and require expensive repairs and improvements. For this guide, NGA and NASEO are defining resilience as the ability to withstand disasters better, respond effectively, and recover more quickly and to a more improved state.
Threats to energy infrastructure are not just physical. Cyber-attacks cost U. S. businesses $3.5 billion in 2019. Energy companies are the third most frequent target of cybercriminals, just behind the manufacturing and finance/insurance sectors, experiencing 11.1% of known cyberattacks in 2020. Through planning or luck, many of those attacks did not affect energy supply or delivery; yet, the 2021 Colonial Pipeline ransomware attack, which limited the fuel supply for millions on the East Coast, underscores the potential severity of the cyber risks to the energy sector.
The costs and impacts of disasters affecting energy infrastructure and supply are not felt evenly across an economy or population. Communities of color, lower-income communities, and communities on the front lines of climate change tend to bear a disproportionate burden in terms of costs, time and resources needed to return to normalcy, health impacts, and lives lost. As natural disasters and malicious attacks become more frequent and costly, particularly to already-disadvantaged communities and people, states are shifting attention to pre-hazard mitigation – investing in system resilience in advance of an incident. Energy resilience planning activities yield high savings potentials, as investing in hazard mitigation saves six dollars for every dollar spent.
How to Use This Guide
To help Governors and State Energy Offices strengthen state preparedness, this guide describes the range of resilience governance structures, plans, and funding mechanisms that states are leveraging to enhance energy resilience. The report is underscored by descriptive examples and case studies throughout. There is no single “best” approach to energy resilience and the path taken will likely depend on multiple factors. As a result, many of the practices highlighted in this paper can be implemented in parallel. But as state leaders continue to shift focus to pre-disaster mitigation, this report illustrates how energy, can be included as a core facet to those efforts.
Governance Approaches to Enhancing State Resilience
Governors and State Energy Offices are establishing new roles and mechanisms to defend infrastructure against a wide range of threats in their states. Efforts include appointing resilience leads (often with a title of “Chief Resilience Officer”), establishing cross-cutting task forces, tasking state agencies with developing state resilience plans, and engaging stakeholders. Energy resilience is a core focus for these efforts due to its interdependencies with public health, transportation, safety, and the economy. As the leads for energy resilience planning, State Energy Offices are further expanding these efforts through policy and program development, grant programs, and support for local government, the private sector, and households. This section highlights relevant best practices for states to consider and implement.
Appoint a state-wide, multi-agency resilience lead
At least 11 states have positions for resilience officers. These positions are housed in various agencies from state to state. In Oregon, the state resilience officer sits directly in the Governor’s office. The Governors in Colorado and North Carolina established dedicated resilience offices working at the direction of a Chief Resilience Officer. In Colorado, the Chief Resilience Officer coordinates activities among state agencies and local governments, provides technical assistance to state and local partners, and supports community recovery efforts. In other states, such as Florida, Louisiana, New Jersey, Rhode Island, South Carolina, Virginia, Washington, West Virginia, and Wyoming, the state’s Chief Resilience Officer is housed within established state agencies or also working as an agency director
By designating a Chief Resilience Officer, Governors can signal the importance of resilience planning and cross-agency planning and collaboration. Appointed state resilience leads have been instrumental in leading interagency working groups, developing cross-cutting state resilience plans – often with energy as a core focus – and coordinating resource deployment.
“Through proper coordination, cooperation and collaboration, the South Carolina Office of Resilience can ensure that the state is maximizing the effectiveness of all available resources to best protect the lives and property of our citizens.”Ben Duncan, South Carolina Resilience Officer
Develop a state resilience plan
State resilience planning is a relatively new yet important tool for states to assess threats and identify policies and investments to improve mitigation. Distinct from energy security plans and state hazard mitigation plans, state resilience plans are generally led by the Chief Resilience Officer or a designated state agency, in collaboration with State Energy Offices and other partner agencies and organizations from across the state.
While they vary in focus and approach, state resilience plans often address the following actions:
- Assessing vulnerabilities
- Planning for critical infrastructure protection including but not limited to:
- o Energy
- o Transportation
- o Water and wastewater
- o Communications
- o Emergency services
- o Healthcare delivery
- Engaging local communities
- Leveraging federal, state and private funds to mitigate economic impacts
- Identifying nature-based solutions and services
- Boosting environmental justice and equitable outcomes
Many states develop their resilience plans based on the need to prepare for a particular hazard that they deal with regularly, such as coastal flooding, wildfires, or earthquakes. For example, The Oregon Resilience Plan addresses preparedness needs for a Cascadia subduction zone seismic event and tsunami. The plan details seismic vulnerabilities in critical infrastructure systems, preparedness measures that can be implemented by those sectors, including energy providers, and fuel delivery security. To further these energy priorities, the state resilience officer and Oregon Department of Energy were part of an NGA-facilitated team that worked with utility leaders across the state to develop the Oregon Guidebook for Local Energy Resilience. This guidebook helps small utilities strengthen business continuity planning, identify funding and financing sources for distributed energy resources that can bolster resilience, and provides guidance on operational resilience.
Other plans, such as the North Carolina Climate Risk Assessment and Resilience Plan, focus more broadly on the threats posed by climate change. North Carolina’s plan includes assessments of 11 key sectors, with the energy assessment led by the state Department of Environmental Quality. In the energy section, the plan assesses the energy systems’ vulnerabilities to multiple climate-oriented threats, including heavy precipitation and flooding, sea level rise and coastal storms, and increased temperature and drought. Non-climate stressors such as population growth, aging infrastructure, supply chain interruptions, and critical interdependencies are also included. The analysis identifies multiple acute vulnerabilities in the energy sector along with metrics to measure possible impacts and potential solutions the state could adopt.
The New Jersey Climate Change Resilience Strategy also explores solutions to prepare for climate-related threats. Released in October 2021 at the direction of Governor Phil Murphy’s Executive Order. The plan outlines actions such as retrofitting buildings to withstand natural hazards, encouraging clean energy in new developments, and prioritizing state agency funding for resilient infrastructure. Energy-adjacent and governance actions include prioritizing engagement with and investment in underserved communities, establishing resilience leadership across all state agencies, and proactively engaging with local government partners. The plan builds on existing gubernatorial goals to develop the clean energy sector and expand energy storage.
While energy may not always be the core focus of a state resilience plan, it is often interwoven throughout. Virginia’s Coastal Adaptation & Resilience Master Planning Framework was created in 2020 in response to former Governor Ralph Northam’s 2018 Executive Order 24, Increasing Virginia’s Resilience to Sea Level Rise and Natural Hazards. It highlights the roles that energy efficiency and clean energy can play in mitigation efforts and identifies mechanisms to fund/finance those upgrades (such as Commercial Property Assessed Clean Energy (C-PACE) and Green Banks). Notably, the commonwealth’s C-PACE programs were expanded by the General Assembly in 2020 to better support hazard mitigation efforts. The Colorado Resiliency Framework includes a section on the infrastructure sector highlighting the need to adopt climate-resilient standards by incorporating energy efficiency and clean energy in retrofits as well as developing resiliency hubs to support community’s key facilities during power outages.
Evolving physical and cybersecurity threats will warrant regular updates to state resilience plans. These updates can include a discussion of progress to date and ongoing challenges that the state needs to address. For example, Oregon’s five-year update to its initial resilience plans details accomplishments by indicating whether prior recommendations have been completed or are still in progress and builds the next series of strategies accordingly.
Convene new or leverage existing working groups
Resilience investments – particularly those supporting the energy sector – can be complex to plan and often involve coordination across state government, with local governments, and with the private sector. Energy resilience is implemented to support critical assets often regulated by other agencies, such as health care facilities. Local governments and communities often have the best understanding of who is in the greatest need of these investments and the private sector generally owns and operates the grid and will be the implementer of many resilience measures.
To proceed with the best information and undertake investments that maximize resilience investments, states frequently organize their planning processes through inter-agency working groups and task forces. These working groups can include representatives from multiple state agencies, local governments, community organizations, utilities, and other private sector providers. Often, a broad approach is effective to identify local or sector-specific resilience needs and maximize the impact of any investments and energy is generally a core component. To address the energy resilience needs of local communities, direct engagement and involvement of those communities – or trusted community advocates – is important.
These can be charged with resilience as a core charge or may be focused on a broader threat such as climate change, with resilience as a focused track. New Mexico, for example, conducted a Climate Resilience Gap Assessment, using an adapted version of NGA’s State Resilience Assessment and Planning Tool, through its Climate Change Task Force. This effort compiled input from all major state agencies and offices using the National Governors Association’s State Resilience Assessment and Planning Tool. Much of this assessment focused on energy resilience, assessing the state’s current coordination with local and tribal governments, understanding of the vulnerabilities facing energy systems and solutions that could address them, identifying opportunities for improved local and community engagement, and addressing the energy resilience needs of multiple critical sectors. To complete the tool, input was sought from all New Mexico Climate Change Task Force members.
Former Rhode Island Governor Gina Raimondo signed an Executive Order in 2017 to create a chief resilience officer position housed in the Rhode Island Infrastructure Bank and to develop an action plan for climate resilience efforts, now known as “Resilient Rhody.” The plan was created with guidance from the state’s Executive Climate Change Coordinating Council (EC4), which had been created in 2014 through legislative action. After the Resilient Rhody plan was developed, EC4 was tasked with leading implementation of the Resilient Rhody plan strategy and continues to provide regular updates to the Governor and public on progress. To date $20 million in funding has been provided by the state for resilience projects, establishing a state microgrid grant program and a zero-emissions vehicle program for purchasing new electric buses.
Design and implement energy resilience programs through state agencies
State Energy Offices play a leading role in in-depth resilience program design and deployment. The Connecticut Department of Energy and Environmental Protection led an interagency working group and report to identify how the state is responding to climate change and increasing resilience for all. This is part of a process to develop a statewide resilience plan and identify vulnerable assets for all state agencies. It builds on the state’s long-running and legislatively-established Microgrid Grant and Loan Program, which provided funding to local communities, universities, and other grantees for microgrid design and installation.
The Indiana Office of Energy Development energy office operates several grant programs to achieve varying energy policy goals by leveraging U.S. Department of Energy State Energy Program funds. Organizations can apply for funding for projects that bolster energy resilience. Applicants must detail how projects improve resilience, how energy disruptions impact communities, and how the project incorporates new technologies or innovations. The Washington State Department of Commerce’s Clean Energy Fund has provided funding for microgrid projects across the state. Projects were funded through the state’s capital budget and supported 18 grid modernization projects worth nearly $4 million total in 2021.
States can also consider programs to improve the resilience of state facilities. Many Governors order state “lead by example” initiatives – often administered through a state general services agency or State Energy Office – that address the energy efficiency, energy expenditures, and overall environmental impacts of state-owned and leased facilities. Resilience can be a core component to these initiatives and multiple funding mechanisms exist that can offset the upfront costs of these investments, limiting reliance on capital budgets and shifting some risk and responsibility to private sector partners. For example, energy savings performance contracts and energy-as-a-service models can be used to improve the efficiency of facilities and deploy on-site generation and storage, improving the ability for state facilities to remain online during a grid outage. Kansas offers a Facility Conservation Improvement Program, which allows local governments, universities, or other entities to retrofit their energy systems. Projects are budget-neutral, with the cost of conservation measures paid for by energy savings.
Engage stakeholders through meaningful forums
When designing energy resilience programs, it is important to consider how resilience investments can impact or benefit communities, industries, and other important stakeholders. To achieve this, establishing meaningful stakeholder engagement processes allows communities and other stakeholders to voice their concerns, highlight priorities, and provide input to help the state maximize any resilience investments.
Many states are incorporating equity-focused engagement by proactively seeking input from underserved and disadvantaged communities. NASEO recently identified equity-focused stakeholder engagement strategies that include:
- Transparently explaining how state programs are structured
- Coalition building by identifying areas of mutual interest
- Empowering communities to take ownership over projects
- Engaging trusted community organizations to understand their needs and how energy transitions or investments will impact citizens
State energy resilience plans and activities are typically developed through an active stakeholder process, incorporating many of the previously mentioned principles. One example of robust stakeholder engagement lies with the New Jersey Interagency Council. The Council, led by the Governor’s energy and climate policy advisor, involved hundreds of key participants, including the New Jersey Board of Public Utilities, in their planning processes through workshops, webinars, and other engagements. The state conducted a survey to identify concerns and highlight preferred strategies. The Council worked extensively with environmental justice and low-income communities to understand and meet community needs, approach planning responsively and transparently, and build capacity in priority areas.
Important Actions for State Energy Resilience Planning
As Governors, State Energy Offices, and other states leaders pursue energy resilience, it is important that careful planning is in place at the outset to maximize the impact of investments, ensure the success of projects, and to meet the needs of communities across their states. Drawing on experience from recent state resilience planning and governance efforts, this section describes some factors and actions that state leaders will need to consider. These include the need to:
Establish state-level energy resilience governance
Recognizing the complex and multi-sector nature of energy resilience planning, it can be valuable for Governors to establish and formalize resilience governance structures or mechanisms with an energy sector focus, adapting a broader multi-agency and multi-sector approach. Such mechanisms may include resilience leaders, dedicated resilience offices, cross-agency and intergovernmental task forces, and/or the designation of leadership responsibility to a sector-specific agency such as the State Energy Office.
Identify energy security threats
A key first step in energy resilience is assessing the state-specific physical and cybersecurity threats and vulnerabilities that may lead to energy supply disruptions or leveraging assessments already undertaken through other processes, such as the development of state energy security plans. These not only vary by state but can vary by region or locality within a state, given varied topography, climate, and infrastructure types. The solutions that will need to be deployed are dependent on the nature of the energy and interdependent infrastructure systems and the threats they face.
Further complicating this analysis is the evolving nature of natural hazards resulting from a changing climate. Data indicates that storms, droughts, and extreme temperatures are becoming more frequent and severe in many parts of the country, underscoring the need for proactive investments. A comprehensive assessment of these threats will serve as a backbone to state energy resilience planning as it allows state leaders to understand where the need for investment is highest and what those investments will need to protect against. As these threats inflict a disproportionately high impact on disadvantaged communities, it is critical for state decision makers to understand how these communities are impacted during disasters and what mitigation tools are available.
Catalog technologies and actions to avoid or mitigate identified threats
With threats and energy infrastructure vulnerabilities identified, states can then catalog the technologies and policies that can be adopted and implemented to address those vulnerabilities and prioritize their deployment accordingly. These may include distributed resources such as on-site solar generation, energy storage, microgrids, building or grid automation and control technologies, and grid hardening.
States are implementing policies with inherent energy resilience benefits, such as energy efficiency measures, transportation fleet fuel diversification, and clean energy technologies with energy storage. Energy efficiency, for example, can contribute to energy resilience by reducing demand and thus enabling facilities to right-size back-up power sources; by allowing customers to stay in buildings longer and more comfortably during a power outage; and by enabling buildings to operate in energy-saving mode and thus shorten recovery time to restart the electricity system after a power outage. Resilience value can be found across a variety of existing and new state energy programs, and states should be cognizant of resilience benefits and implications across all their program areas.
Governors can also coordinate with local, academic, utility, and private sector partners to identify the optimal solutions for each use case. This becomes particularly important where the state does not own or operate the assets in question. In those instances, the state can partner with infrastructure and facility owners to offer technical assistance, make grant funding available, or address any legal or regulatory barriers preventing resilience investments. Additionally, partnering with community-based organizations can help state leaders identify high-impact actions to serve underserved areas.
Identifying viable sources of funding and financing
A perennial need and ongoing constraint to robust energy resilience planning and investment is limited funding. State governments can encourage the private and utility sectors to make resilience investments where there is a viable business case or where they can recover costs through rates. Federal funding through programs like the Federal Emergency Management Administration’s Building Resilient Infrastructure and Communities grant program and the U.S. Department of Energy’s State Energy Program offer direct funding to states that can be used to support resilience. The state can expend these dollars directly or grant/lend them to the private sector, homeowners, or local governments to facilitate those investments. Additionally, for some larger resiliency projects the customer may require multiple streams of funding and/or financing to cover the costs of the upgrades. Helping customers identify potential institutions or capital providers to partner with to share costs (where needed) early in the funding/financing process is therefore critical to the success of these projects.
Ensure investments in resilience are equitable
Not all communities or demographics face the same threats, and some are more vulnerable to energy disruptions than others. Low-income communities, communities of color, disabled individuals, and elderly populations can be disproportionately impacted by an energy outage. They are also less likely to have the means to purchase resilient technologies or invest in the housing upgrades that could help them weather an outage. When crafting outreach strategies, it is important to work closely with communities to understand their needs and desired outcomes so effective and appropriate solutions can be deployed. State officials should also consider the need for a multi-modal and multi-lingual communications as not all individuals have access to affordable or reliable internet service and may not have full mastery of the English language.
By working with vulnerable and underserved populations directly and including them in state planning processes, Governors and State Energy Officials can effectively prioritize and address their needs, ensuring that energy can be more resilient for all. For example, Maryland’s Resiliency Hub Grant Program provides “grant funding for the development and construction of solar plus energy storage systems to serve as ‘Resiliency Hubs.’” These resiliency hubs are intended to provide low- and moderate-income neighborhoods capital for installations that generate no-cost resilience to the communities they serve. Applications are submitted by those communities, businesses, and non-profits, providing ground-up input on where investment will be impactful.
Prioritize investments across communities, industries, and facilities
With threats assessed, projects identified, and funding secured, it is unlikely that a state will have the full funding needed to address all of their identified energy resilience needs. A prioritization exercise can help state officials to identify critical assets and underserved communities, pursue partnerships with key stakeholders and funders, and ultimately deploy resilience funds where they will be most impactful. For example, in 2021, Kentucky released the Commonwealth of Kentucky Regional Microgrids for Resilience Study, examining the potential resilience benefits of site-specific and community microgrids from more than 6,000 potential sites. A core component of the study is an assessment of Kentucky mapped natural hazards overlayed with data on population, demographics, critical infrastructure facility locations, energy burden and, if citizens are underserved, prioritize sites by potential benefit.24 Resilience prioritization can be a challenge since the potential impacts and cost of an avoided energy disruption – in particular one that is longer term – are difficult to estimate. As a result, there is no commonly agreed-upon method to quantify resilience benefits in project cost effectiveness screens. (However, there are several efforts underway to do so, as documented in a recent report by the National Association of Regulatory Utility Commissioners).
Given the challenges of estimating the value of resilience, states can work with experts from DOE’s national laboratory system or their in-state academic institutions, including minority-serving institutions, to perform more targeted analyses, estimate resilience values, and use qualitative data points to identify impactful investments. For example, Sandia National Laboratory and Los Alamos National Laboratory worked with the city of New Orleans, Louisiana, to conduct a city-wide assessment of the electric grid. The labs modeled the impacts to the city of a hurricane of various strengths, assessed potential damage to grid infrastructure, and mapped those impacts with critical infrastructure assets to calculate the resilience benefits of system modernization investments. Other national labs developing methods to value and prioritize resilience investments include Lawrence Berkeley National Laboratory, the National Renewable Energy Laboratory and the Pacific Northwest National Laboratory.
Engage with State Agencies, Local Communities, Private Sector Partners, and the Public to Identify, Prioritize, and Coordinate investments
Economy-wide resilience requires a whole-of-government approach with involvement from local communities and the private sector. Resilience plans should have clearly stated objectives and, to the extent possible, take local and private sector needs and constraints into account. This involves proactive outreach from the state to include those entities early and frequently in the process.
For public engagement, states may want to consider using a range of communications methods, including digital and social media, along with traditional media and partnerships with trusted community organizations. Recognizing that connectivity is variable and not everyone has access to affordable broadband, a multi-modal approach to public messaging will help the state reach the broadest audience in a more equitable fashion. For effective outreach into multi-lingual communities, communications may need to be adapted into languages other than English.
Governors and State Energy Officials can partner with a wide array of government agencies, companies, and non-governmental organizations to study, prioritize, and deploy energy resilience technologies and practices. The section on Governance Approaches to Enhancing State Resilience describes some of the formal mechanisms, such as resilience task forces, that Governors have initiated, but this intergovernmental and cross-sector coordination can also happen through less formal means such as informal relationship-building.
Energy systems are interconnected across state borders and natural disasters are often not confined to a single state. Collaborations through regional, multistate, and national organizations can provide meaningful opportunities to identify interstate infrastructure dependencies (such as a state relying on liquid fuels refined in and pumped from another). FEMA’s 2016 Cascadia Rising event, for example, was a multi-state exercise through which states in the Pacific Northwest, along with federal, local, and tribal partners, examined the impacts and response to a Cascadia Subduction Zone earthquake and tsunami. Planning is underway for Cascadia Rising 2022, which is anticipated to involve participation from Washington, Oregon, and Idaho. State officials can also learn from one another through direct coordination and through technical assistance offered by organizations like NGA and NASEO.
As discussed in this section, there are multiple actions states can undertake for a robust and deliberate approach to energy resilience. These actions can be implemented as stand-alone efforts or together as part of a robust strategy. However, state officials opt to proceed, it is important to seek input from entities and experts across the state given the complexity of comprehensive energy resilience planning.
States may implement these actions individually, implement a subset of these actions, or opt for a more comprehensive approach that involves all six. Appendix 1: State Resilience Plans describes many of the recent state resilience plans. Some of the actions recommended in the plans are described below.
Funding and Financing Mechanisms for Energy Resilience
To enhance the resilience of the energy sector, states, the federal government, and the private sector are taking advantage of innovative finance and funding approaches. Funding a project entails using public funds (for example tax revenues) to provide grants or other financial support to the project. Financing mechanisms use capital funds through bank financing or private capital investments to furnish the needed capital for a project.
This section provides an overview of how states have utilized various funding sources and financing mechanisms to finance resiliency improvements, which can enable State Energy Office and Governor’s office staff to assess different funding mechanisms and evaluate the best opportunities. Additional information about each funding opportunity and additional considerations and limitations are in the body of the report
Summary Table of Resiliency Financing Options
The table below provides a summary of the various financing mechanisms covered in the case studies in this section. It highlights the potential technology categories that each mechanism can fund/finance, the unique mechanisms by which each program operates, and the roles that Governors’ Offices and State Energy Offices can play to determine which financing mechanism is optimal.
The case studies represent examples of states using each funding/financing mechanism in action to help support state resilience goals. Each case study describes the use of the financing mechanism in each scenario, what measures the mechanism financed, and how the customer will repay the financing mechanism. The second part of each case study describes each mechanism more generally and how it works to provide financing for resiliency improvements.
|Funding/Financing Program||Program Mechanisms||Potential Roles for Governors / State Energy Offices*||Associated Case Study|
Utility borrows funds to finance projects;
Capital repaid through customers’ utility bills;
Utility earns a specified rate-of-return on investments (subject to regulator approval and can be ratebased or added via surcharge)
|Governors’ Offices:||PSE&G Energy Strong Programs|
|On-bill Financing/On-bill Repayment||Utilities fund or borrow capital from a third-party lender to complete projects which the customer, will repay over time through a surcharge on their utility bills||Governors’ Offices: ||Holy Cross Energy’s Power + Program|
|Public-private Partnerships (P3s)||State and local governments partner with private sector firms to design/develop/operate resiliency projects.|
P3s shift some of the project risk and revenue/ownership from governments to the private sector.
|Governors’ Offices:||Pittsburgh Airport Microgrid|
|Energy Savings Performance Contracts (ESPCs)||A P3 model in which a state or local government contracts with an energy service company (ESCO) to perform efficiency/resilience retrofits to a guaranteed level of energy savings, and then repays the ESCO using those savings over time.||Governors’ Offices: ||Cannon Air Force Base Upgrades|
|Energy-as-a-Service (EaaS)||A state or local government contracts with an EaaS provider, which designs, finances, constructs, owns, and operates a resilience project. The customer pays for the technology and manage over a set timeframe.||Governors’ Offices:||U.S. Marine Corps Recruit Depot|
|Commercial Property Assessed Clean Energy |
|A customer repays loans for efficiency and resilience projects through an assessment on their property taxes.||Governors’ Offices:||Single-Building Microgrid in Hanover, Maryland|
|Green/Resilience Banks||Lend capital to provide financing that fills “gaps” in the clean energy marketplace, and/or develop products that incent the private sector to invest in target areas.||Governors’ Offices:|
|Florida Solar Energy Loan Fund Resilience Loans|
|Bonds||Issued by state and local governments to finance infrastructure and other projects, including resilience upgrades||Governors’ Offices: |
|Louisiana Public Service Commission Bond Issuances for Grid Repairs|
Other Funding/Financing Sources
State Energy Revolving Loan Funds
Many State Energy Offices operate one or more State Energy Revolving Loan Funds (RLFs). These programs enable state energy officials or similar entities to use an initial capital allocation to offer long-term, low-interest financing for various uses, from commercial and public building retrofits to industrial efficiency and renewable energy adoption. The loan repayments are then used to re-seed the fund, enabling RLFs to continue to catalyze energy efficiency and renewable energy investments for years. The ability of these programs to finance various energy projects with long-term, below-market interest rate loans can make them very attractive to resilience projects looking for capital. They are also relatively flexible in what they can finance, which can provide opportunities for resilience projects to use the capital for part or all of their components. Many RLFs are capitalized with U.S. State Energy Program (SEP) funds, which support the deployment of energy efficiency and renewable energy technologies throughout the country. However, RLFs may be limited by the technologies they are allowed to fund under state rules governing their funds. Additionally, many RLFs were capitalized with funding from the American Recovery and Reinvestment Act (ARRA), so Davis-Bacon, Buy American, and ARRA reporting provisions apply to those funds. This may make them more cumbersome and expensive to use than private capital.
Regional Greenhouse Gas Initiative (RGGI) Auction Revenues
Most states in the Northeast and Mid-Atlantic have access to Regional Greenhouse Gas Initiative (RGGI) auction proceeds. RGGI is a cap-and-trade system where states auction a specific number of allowances to various carbon emitters. The states then use the revenues from those allowances to invest in energy efficiency, renewable energy, and GHG abatement programs. Several states, including Delaware and Maryland, allow RGGI funds to be used for climate resiliency projects in addition to energy efficiency and renewable energy. This provides a potentially large source of funding to support resiliency improvements to the electric grid and critical infrastructure in those states, and can enable them to set up the other programs discussed in this section to efficiently deliver capital to vulnerable communities in need of resiliency upgrades.
Federal Funding Opportunities
Case Study: Electrical System Ice and Wind Storm Mitigation Projects in Kansas and Nebraska (FEMA HMGP and BRIC)
In 2007, the Federal Emergency Management Agency (FEMA) funded two projects in Kansas and Nebraska that aimed to increase the resiliency of the local electric grid to ice and wind storms. FEMA partnered with the City of Kiowa, Kansas, and the Southwest Public Power District (SWPPD) to fund three projects: the replacement of electric poles and installation of stronger conductors on two different sets of transmission lines in Nebraska; and the replacement of distribution conductors, poles, and transformers in Kiowa itself. FEMA’s Hazard Mitigation Grant Program (HMGP) provided $1.15 million for the two projects. In the winter of 2006-2007, Kansas and Nebraska experienced a severe ice storm that damaged many parts of the state. A FEMA study examining how the resilience improvements fared found that total losses avoided amounted to $1.33 million, providing a return of investment of 115 percent for the projects.
FEMA’s Hazard Mitigation Grant Program (HMGP) funds projects in areas under a Presidential Major Disaster Declaration that is determined by the state’s Governor. The formula for HMGP provides funding for disaster areas depending on the amount of disaster assistance required for the designated area. State governments apply for the funding and then award funding to subapplicants, who administer the grants and comply with program requirements. Qualifying uses of this funding include infrastructure retrofits that mitigate risk to existing utility systems. Resilience projects that prove they fit this category may be awarded funding for development. In 2021, for example, FEMA awarded the Utility Board of the City of Key West over $5.5 million for the protection of utility poles form future storms. The HMGP funding will “help pay for protection from corrosion due to water and salt air for 119 water crossing transmission poles near the north end of the Seven Mile Bridge in Marathon Key, resulting in a more resilient electrical grid for southern Monroe County.”
FEMA also provides assistance through the Building Resilient Infrastructure and Communities (BRIC) Program (formerly the Pre-Disaster Mitigation Grant program), which is designed to assist state and local governments with mitigation planning and projects while reducing reliance on federal money in a future disaster. These grants are awarded , based on an annual state and territory allocation, a tribal set-aside, and a national competitive selection process, with the latter making up the bulk of BRIC funding. State, territorial, tribal, and local governments need to adopt hazard mitigation plans before applying for funds for Pre-Disaster Mitigation projects. Once the governing body has developed and adopted a hazard mitigation plan that is approved by FEMA, it can apply for project funding consistent with the plans. Localities may be eligible for funding for microgrid projects if those projects meet the mitigation goals. FEMA announced the availability of $1 billion in funding under the program for FY 2020. Governors can play an important role here in prioritizing energy investments across state agencies (including the State Energy Office and Office of Emergency Management, which is typically the lead on these applications), bring project partners to the table, and facilitate effective applications.
Case Study: New Jersey Energy Resilience Bank (HUD CDBG)
In 2014, New Jersey used $200 million in U.S. Department of Housing and Urban Development’s Community Development Block Grant – Disaster Recovery program (HUD CDBG) funds to capitalize an Energy Resilience Bank. The Resilience Bank’s mission is to finance the installation of distributed energy resources to improve the resiliency of critical facilities throughout the state. Technologies eligible for the Resilience Bank to finance include (but are not limited to) combined heat and power systems, fuel cells, and solar panels. Eligible facilities include water/wastewater treatment plants, hospitals, transportation networks, emergency response facilities, and schools that function as shelters. Since its establishment, the Resilience Bank has made several low-interest grants and loans to increase critical facility resiliency. For example, in 2017 the Resilience Bank financed the installation of CHP systems at three New Jersey hospitals to ensure their operation during future black sky conditions. The bank also provided funding to improve the resiliency of a wastewater treatment plant’s existing CHP system, to raise the substations serving the plant to above flood levels, and to install a biogas storage tank to ensure availability of gas for the plant’s CHP systems in the event of a disruption. The Resilience Bank is no longer accepting new applications for funding at this time as it has no further funding to distribute.
HUD CDBG offers funding for resilience projects in areas affected by recent natural disasters. The program aims to assist communities in developing projects to mitigate the risk from future disasters. Potential grantees must develop action plans that include Mitigation Needs Assessments, which analyze current and potential disaster risks to develop a baseline for potential resilience improvements. As of 2018, HUD had nearly $16 billion available to award for resiliency mitigation projects.
Case Study: Transmission and Smart Grid Upgrades in Minnesota (USDA Electric Loan Program)
In 2021, the U.S. Department of Agriculture’s Electric Loan Program provided $22.8 million in low-interest loans to Minnesota Valley Cooperative Light & Power to build transmission and smart grid improvements in its service territory. The improvements will connect 132 customers to the utility grid and improve over 137 miles of electric lines. The utility plans to install over $1.3 million in smart grid technologies to improve grid operations and resilience.
The U.S. Department of Agriculture’s Rural Utilities Service (RUS) operates an Electric Infrastructure Loan & Loan Guarantee Program which loans capital at low interest and long repayment terms to rural utilities in order to assist those utilities with upgrading their infrastructure. Eligible improvements covered by this program include maintenance, upgrades, and replacement of transmission and distribution facilities; energy efficiency; and renewable energy upgrades. The program recently invested $598 million in eleven states to improve rural electric infrastructure and install smart grid technologies in rural communities and Tribal lands.
Other Federal Resilience Funding/Financing Options
HUD Section 108 Loan Guarantee Program
HUD’s Community Redevelopment Block Grant program also offers low-cost, long-term financing for economic and community development, including to improve the resilience of infrastructure damaged by natural disasters, under its Section 108 Loan Guarantee Program. State and urban local governments are eligible to borrow funds, and states can borrow funds on behalf of local governments that would otherwise be ineligible for funding. Eligible projects for these funds include green infrastructure projects or activities, or reconstruction of public facilities. Section 108 financing is usually used to fill gaps in the financing for larger projects, or to provide security that private investors may need to invest in a project. HUD currently has $83.9 billion allocated for this program, of which $55.1 billion is in active grants. HUD also provides several tools and resources for states and other stakeholders to learn more about how to use CDBG Programs and grant for a number of resilience-related investments.
The passage of the Tax Cuts and Jobs Act of 2017 created Governor-designated Qualified Opportunity Zones (QOZs) that provide tax incentives for businesses to invest in underserved communities in specific census tracts. 8,763 census tracks in all 50 states, the District of Columbia and the 5 territories were designated as QOZs. The Act allows investors to develop Qualified Opportunity Funds, (QOFs) which are investment vehicles designed to invest into QOZs. Investors are allowed to defer taxes for capital gains reinvested into QOFs until December 31, 2026, or when the investment is sold. If the investor holds the investment in the Opportunity Fund for over ten years, the investor may also permanently avoid capital gains taxes altogether.
Key Questions and Considerations for Financing a Resilience Project
To help state and local governments understand their options when considering financing for resilience projects, NASEO and NGA have developed a list of key questions and considerations that underlie a customer’s decision to invest in a resilience project. Please note that many projects can use several of these financing options in concert with one another and that this is not an exhaustive list of the decisions a state or local government may need to make as part of the financing process. Please consult with state or local tax or financial experts before making any final decisions on the financing projects highlighted in this report. DOE has several tools that provide additional information on these questions (for example the better building financing navigator, a flowchart of traditional and specialized financing options for renewable energy and energy efficiency, and a resilience roadmap for commercial buildings).
1. Who owns/will own the project?
2. What type of project is the decision-maker considering?
- a. Energy infrastructure?
- b. Public sector/MUSH market, or private sector?
- c. Single-building?
- d. Multiple-building?
- e. Campus/base?
3. What is the capacity of the decision-maker to take on the funding or the financing of the project?
- a. Are there grant funds available (via state or federal or other sources)?
- b. Does the decision-maker have its own budget for the project?
- c. Does the decision-maker have the ability to issue a bond?
4. Are there willing or interested partners to share costs?
- a. Other state agencies?
- b. Local agencies?
- c. Owners of the property or infrastructure in question?
- d. Can federal funding be leveraged?
5. Is financing an option and is so what financing preferences to you have (shorter vs. longer, complexity, timeline of project, etc.)?
6. What potential revenue streams are accessible through the project?
- a. What policies are in place from the state that the decision-maker can leverage?
- b. What technologies can produce monetizable outputs?
- c. Are there interested parties available to finance the project in part or whole with the monetizable outputs identified?
This material is based upon work supported by the U.S. Department of Energy under award numbers DE-OE0000810 and DE-OE0000817. This report was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States government or any agency thereof.
This report was authored by Sam Cramer, Campbell Delahoyde, Kelsey Jones, and Kirsten Verclas of the National Association of State Energy Officials and Dan Lauf and Matt Rogotzke of the National Governors Association Center for Best Practices.
The authors extend their gratitude to Tim Blute (NGA), Sandy Fazeli (NASEO), and David Terry (NASEO) and the multiple state officials who reviewed the report and provided vital input. The authors also thank Brandi Martin and Jason Pazirandeh from the U.S. Department of Energy Office of Cybersecurity, Energy Security, and Emergency Response for their support and guidance.
About the National Governors Association Center for Best Practices
The National Governors Association (NGA) Center for Best Practices is a 501(c)(3) nonprofit that develops innovative solutions to today’s most pressing public policy challenges and is the only policy research and development group that directly serves the nation’s Governors. The NGA Center is organized into multiple policy areas prioritized by Governors. By covering an extensive range of policy topics, such as workforce development, cybersecurity, public health and infrastructure, our team is ready to assist Governors on any number of policy issues and challenges. Through the NGA Center, Governors and their advisors learn what works and what lessons can be learned from other states facing similar challenges.
About National Association of State Energy Officials
The National Association of State Energy Officials (NASEO) is the only national non-profit association for the governor-designated energy officials from each of the 56 states and territories. Formed by the states in 1986, NASEO facilitates peer learning among state energy officials, serves as a resource for and about state energy offices, and advocates the interests of the state energy offices to Congress and federal agencies.