Alternative clean energy solutions for higher education institutions: Understanding feasibility and benefits of energy storage opportunities

Introduction

In today's economic and policy landscape, many colleges and universities are shifting their focus from long-term decarbonization targets to more immediate operational cost savings challenges. Achieving decarbonization targets is becoming increasingly difficult for higher education institutions, particularly in the face of escalating energy costs, limited funding and aging infrastructure.

Escalating energy costs and limited funding

Energy prices have become a significant burden on institutional budgets. With utility rates rising and demand charges increasing, some campuses are struggling to manage operational costs while maintaining reliable service across sprawling facilities. Many institutions are experiencing lower student enrollment combined with reduced public funding, which introduces new constraints on clean energy procurement. This can limit their ability to make a large capital investments in energy infrastructure, even when long-term savings are clear.

Given these challenges, institutions are encouraged to explore alternative financing models such as energy-as-a-service, performance contracting and public-private partnerships. Operational audits and resource reallocation can help streamline administrative functions and prioritize core academic and infrastructure needs. Explore options for long-term utility cost savings is even more vital during these turbulent times.

Aging campus infrastructure

Much of the energy infrastructure on U.S. campuses was built decades ago. Outdated systems are often costly to maintain, inefficient and sometimes ill-suited for integrating modern clean energy technologies. Deferred maintenance and limited capital budgets further complicate efforts to modernize. Most campuses operate like small cities with diverse and interconnected systems. Central utility plants, combined with incremental utility add-ons to serve local loads and distributed generation assets, result in a mix of old and new systems to manager and maintain. The result is not just higher energy bills but also increased safety risks and barriers to integrating modern clean energy technologies. Universities can adopt phased upgrade strategies and modular retrofits.

In this evolving environment, alternative energy technologies like geothermal, battery energy storage, biomass and thermal storage offer scalable solutions that align with federal incentives and reduce long-term operating costs. These technologies not only offer substantial operational and environmental benefits but also provide colleges and universities with greater flexibility and a longer runway to plan, implement and scale their sustainability initiatives.

Benefits of storage projects (i.e., battery energy, thermal storage and microgrids)

As colleges and universities seek to diversify their clean energy strategies, microgrids support by clean power generation and battery energy storage are a powerful tool to enhance resilience to power outages, lower utility costs and decrease greenhouse gas emissions. Microgrids are self-contained electric grids that supplement grid power that can often operate as an "island", independent of the central power grid, and allow a campus to keep the lights on even if there is an outage on the regional electrical grid. The self-contained nature of many campuses makes colleges perfect candidates for developing microgrids. These systems can operate independently from the central grid, ensuring that critical campus operations like labs, data centers and medical facilities remain functional during outages.

By integrating battery storage with existing renewable energy sources such a solar or wind, microgrid systems can:

• Provide resilience and resolve intermittency issues, storing excess clean energy for use during low generation periods and power outages
• Maximize behind-the-meter usage, reducing reliance on utility-supplied power and avoiding low-rate metering
• Lower peak demand charges by shifting or shedding loads, aligning energy use with lower time-of-use pricing and participating in demand response programs

These benefits are especially valuable for campuses:

• Located in regions with high utility rates or frequent outages
• With critical infrastructure that demands uninterrupted power
• That already have solar photovoltaic systems or other clean energy assets in place

While battery energy storage systems can be capital-intensive, they are increasingly technically and economically viable, especially when paired with utility incentives or structured through alternative financing models like energy-as-a-service or performance contracting.

Thermal energy storage provides another pathway to resilience and cost savings by storing thermal energy (heat or cold) for later use in heating or cooling campus buildings. These are ideal for campuses with large chilled-water or heating systems, improving operational efficiency and reducing energy costs.

Financing and policy considerations for energy storage projects

While capital costs for battery energy storage systems remain high, with most lithium-ion batteries imported from outside the United States, costs are expected to rise further due to the impact of import tariffs and the One Big Beautiful Bill Act (OBBBA) restrictions on materials sourced from foreign entities of concern (FEOC). Under the OBBBA, energy storage projects starting construction after Dec. 31, 2025, must ensure 55% or more of the total material costs of their installations are not sourced from FEOCs, which include many entities in China, the largest manufacturing location for lithium-ion batteries worldwide. Imported batteries that touch Chinese supply chains are unlikely to qualify for federal tax credits. U.S.-manufactured batteries will qualify for these credits, but market scarcity has driven their prices to a premium, adding another layer of complexity to project financing.

Unlike lithium-ion batteries, which rely heavily on supply chains tied to foreign entities, thermal systems primarily use domestically sourced materials such as tanks, piping and insulation. This reduces FEOC exposure and simplifies compliance with federal sourcing rules.

For colleges and universities that have already made headway or are planning to establish battery storage or thermal storage projects, federal tax credits offer significant advantages. Eligible clean energy projects that begin construction prior to 2033 can qualify for federal investment tac credits under IRC section 48E that can substantially offset project expenses. Furthermore, not-for-profit institutions (i.e., tax-exempt entities) can take advantage of the direct pay option for investment tax credits under IRC section 6417, which provides tax credits as direct cash payments from the U.S. Treasury. Energy storage systems, and other energy infrastructure improvements, can be financed through an energy-as-a-service performance contract model, allowing colleges and universities to install and operate the technology with little to no upfront capital cost. Under this approach, a third-party provide owns, finances and maintains the system while the institution pays a predictable service fee funded by the resulting energy savings and resilience benefits.

There are also various nationwide utility and state incentives that an institution can access to further reduce overall project costs. By leveraging these local incentives alongside federal tax credits, institutions can significantly lower the upfront cost of advanced energy storage and enhance their energy resilience.