The Case For Solar Endowments

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By David Lapp Jost

University and college endowments in the U.S. looking for strong, sustainable revenue streams would do well to embrace on-site solar generation, and the solar industry would thrive if it could forge the partnership. Solar installations would deliver stronger and more reliable returns than current investments, and create many opportunities, including enhanced fundraising, positive press, and community appeal to current and prospective students. If even 1% of educational endowments were shifted into solar power, this would be one of the largest sources of growth in the industry’s history.

Higher education in the U.S. is partly funded by huge investments. These are called endowments, and they are mostly invested in a mixture of stocks and bonds. Most years, the stocks and bonds deliver a payoff. Each year, money is taken out of endowments to fund the operations of the school. Endowments vary in size, with the largest belonging to Ivy League schools like Harvard (a mind-boggling 36 billion dollars) and Yale ($25 billion). While not every university or college is covered in the study, recent research found 774 of the main schools in the country have endowments totaling $630 billion. For comparison, the value of investment in the U.S. solar industry was $18 billion last year (and, yes, Harvard’s endowment is indeed twice as large as that).

Endowments are somewhat conservatively invested, because schools seek stable performance to balance revenues. Universities want to avoid seeing their investments vanish when, for example, a major virus destabilizes markets. Endowments delivered a return on investment of 5.3% last year, and 5.2% over the last five years. This is propelled upward by the tiny number of endowments that are worth over $1 billion, as these grow faster. Most institutions see substantially lower payoffs.
*Note that 10-year returns are unusually high due to recovery from the Great Recession. Image from National Association of College and University Business Officers.

Universities and colleges would do well to consider solar power to increase returns and diversify. The price of solar varies, but even in the cloudiest parts of the contiguous U.S., a solar installation generates about 10% of its value each year in electricity savings, and perhaps as much as 20%. This hugely exceeds the roughly 5% from endowments on average. Because electricity prices have grown substantially and panels are slow to atrophy, savings from solar installations have grown year to year. If schools prefer preserving endowments, they could use electricity savings to fully replenish endowment reserves over, say, a decade, and still save hugely in the long run. Solar would also reduce risk. Panels don’t go anywhere in a recession, and fixed costs like electricity grow as a portion of budgets during cuts.

Institutions that explore major solar investment may discover a host of other potential benefits. In addition to investing endowment funds, schools might invite sustainability-minded donors to make large pledges or matching gifts or seek grants, and/or launch crowdfunding campaigns, attracting young and new donors. Local and regional media are glad to cover stories about solar installations and such stories already abound. Overwhelming majorities of Americans support deploying solar power, and according to a survey [download] of 11,900 people conducted by the Princeton Review, 64% of prospective students consider the sustainability of prospective schools to some extent in making attendance decisions. Solar power is attractive and exciting.

So far, solar deployment in higher education has been minor, and so much more is possible. A few years ago, about a quarter of U.S. colleges and universities and 5% of U.S. K-12 schools had solar, but almost all institutions could deploy more. With budgets under strain all over the country, it is critical to emphasize that endowment funds, fundraising, and loans are the tools schools should use to fund solar, and that limited general budgets need not be affected at all.

Solar installation at Goshen College (Source: Goshen College)
Solar installation at Goshen College. Source: Goshen College, used with permission.

Even a small shift toward solar power as an investment strategy would hugely benefit the solar industry. At over $630 billion, U.S. endowments represent a huge amount of wealth. If $6.3 billion of that was spent on panels, that would increase the value of the $18 billion solar industry by over one third and would likely exceed the value of the U.S. stimulus for the solar industry in 2009. Needless to say, these investments in solar would also popularize and spur renewable energy development in university communities and benefit the local and global environment.

How can solar advocates and businesses promote this potential partnership? A first step is for solar installers to make sure to approach schools in their geographic areas and become aware of schools as potential clients. It is advisable to ensure multiple institutional stakeholders have been invited to support the effort. Individual, overworked administrators or endowment managers may not have the time or energy to in the moment to consider a solar proposal, but if multiple people in leadership are presented with the idea, that may facilitate conversation.

Even more important, we must find and encourage advocates for renewable energy and sustainability and help them understand the arguments for these new approaches. From student activists to environmental science or business faculty members to sustainability-minded donors, advocacy for institutional investment in solar can come from many directions. Educational institutions present some of the clearest opportunities for renewable energy development. We can help schools see this for the chance that it is, and take it together!

About the Author: David Lapp Jost works for a peace organization. He is conscious of ways that fossil fuels exacerbate racial and economic inequality, war, and climate change. He devotes much of his spare time to promoting solar power and sustainability initiatives.

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