by Joe Sokol, Regional Manager - Professional Services, Palmer Conservation Consulting
Energy Challenges and Opportunities: What Ohio Districts Need to Know
Ohio school districts are navigating an increasingly complex financial environment where rising energy costs and infrastructure challenges threaten to strain budgets that are already tight. As electricity prices surge over the coming months, districts must confront not only the immediate impact on operational expenses but also the long-term implications for capital planning and facility management. Understanding the evolving energy landscape is critical for business managers and treasurers tasked with safeguarding district resources. This article outlines the key challenges facing Ohio schools, explores new legislative and federal opportunities for financial support, and emphasizes the importance of proactive, integrated planning to ensure districts can maintain fiscal stability while continuing to invest in educational success.
Challenges Facing Ohio School Districts
1. Infrastructure Strain from Increased Demand
Energy demands were steady for the past fifteen years. However, growth in AI data center electricity demand has begun to impact the market and is expected to test the limits of nation's power grid over the next few years. Our Regional Transmission Organization (RTO), called PJM, is focusing on balancing new intermittent generation from renewables with the 24/7 demand represented by AI data centers. In central Ohio, transmission capacity is expected to be at its limits in the next few years as new loads come online.
Time will tell what the reality of the situation will yield, but things are expected to get worse before they get better.
2. Rising Energy Costs
This new demand without a corresponding increase in baseload generation caused a large increase in generation capacity pricing. These increases, alongside other pricing pressures, are expected to result in up to a 20% increase for commercial customers, such as school districts, as their current pricing agreements reach expiration.
3. Budget Constraints
With energy costs rising and infrastructure demands increasing, school districts face budgetary pressures. Allocating funds to address increased energy costs may reduce available resources for educational programs and facility enhancements. It will become increasingly important to consider the energy demand when planning for facilities operations and facilities improvements.
Mitigation Strategies and Opportunities
1. Capitalizing on Ohio House Bill 15
Recently enacted, Ohio House Bill (HB) 15 establishes a loan fund to assist school districts in financing energy efficiency upgrades. This legislation provides financial support for projects that enhance energy performance, further alleviating budgetary constraints Districts considering clean energy projects should explore these financial options, along with Section 48 tax credits (see below).
HB 15 also creates a more favorable environment for energy companies to build power generation and power storage facilities which can ultimately help with increasing demand for power that we are seeing in the marketplace today.
2. Leveraging Federal Tax Credits
The Inflation Reduction Act (IRA) introduces direct pay options for tax-exempt entities like school districts. Under Section 48, schools can receive direct payments for investments in renewable energy projects, such as solar installations. This provision effectively helps subsidize the cost of these clean energy projects. If you are considering a clean energy project or a facilities improvement project, it will be important to have your design firm (architect or engineer) consider this financial aspect during the design phase/scope selection of your project. Be sure to monitor federal legislation before committing, as these rules may change.
3. Proactive Planning
Proactive planning for rising operational costs is crucial. Districts must anticipate increases and develop comprehensive capital improvement plans to avoid long-term setbacks. Each district should take a comprehensive planning approach that aligns both current and future operational expenses with their impact on the district’s ability to maintain and upgrade capital assets. Recognizing areas that require attention, whether operational or capital-related, enables districts to effectively manage financial challenges and capitalize on strategic opportunities.
Programs like Section 48 and Ohio HB 15 primarily provide incentives on capital expenditures, while rising energy costs will significantly affect operational budgets. Integrated planning is essential to take full advantage of these incentives and offset long-term operational costs.
Energy Market Outlook
Energy prices in Ohio are expected to remain elevated due to heightened demand and increased natural gas prices. Over the long term, energy costs are likely to stabilize but likely at a higher level as infrastructure investments and new generation comes online.
Conclusion
Ohio school districts are facing a complex energy landscape, shaped by rising costs and aging infrastructure. However, districts have a valuable opportunity to implement energy efficiency measures that effectively alleviate financial pressures in a thoughtful and strategic manner by taking advantage of federal tax credits, newly passed legislation like HB 15, and proactive planning. Embracing these opportunities is key to maintaining fiscal sustainability while continuing to invest in educational excellence.