Financing Energy Efficiency Upgrades
Reducing energy costs is a major consideration for many businesses and government entities because lower energy costs translates into improved profitability and cash flow, and investments in sustainability can add significant value to assets, a topic explored in a recent article for MountainWest Capital Network's Utah Deal Flow.
In fact, studies show that sustainable technologies such as infrastructure control systems, building envelopes and solar power can reduce utility bills by 50 percent or more. In some cases, sustainable construction isn’t even an option – it’s a mandate.
However, the initial investment required for sustainability projects is sometimes a deal-breaker. Often, businesses that are interested in energy efficient upgrades, retrofits or projects are unsure how to pay for it.
How to Pay for Energy Efficiency Upgrades
Fortunately, there are several practical and attractive equipment financing options that make it easy to expedite renewable energy initiatives and help preserve business capital. Because financing allows businesses to break down large sustainability equipment acquisitions into monthly payments, companies can use the equipment now and pay for it over time.
Other benefits of financing sustainability projects include increased cash flow, potential tax benefits, the ability to avoid large down payments, and increased flexibility and control. In addition, qualified applicants can often bundle engineering, development, installation and equipment costs into one, predictable monthly payment.
Take These Steps for Sustainable Projects
Businesses that are interested in undergoing a sustainability project but are unsure where to begin should consider these steps:
- Create the right relationships
Qualified engineering firms, equipment vendors and financial contacts can help identify the best energy-efficiency and renewable opportunities and can help analyze relative costs and savings of each.
- Start with your business objective
Before beginning, make sure the project and financing strategy align with the business’ overarching goals.
- Lead with a pilot
Start small. If the objective is to replace all fluorescent lights with LEDs, beginning with one floor of a building allows businesses to measure the results and adjust for optimal savings.
- Meter diligently
Sufficient metering and tracking processes prove whether or not the initiative is achieving the projected savings and reduction of energy usage
- Leverage the results
The goal is to keep the yearly debt lower than the cost of the annual energy bill savings. Work with an experienced financial expert to create a customized lending strategy.
- Optimize the ROI
Grants, rebates and federal tax incentives can reduce the capital expenditure and accelerate the return on investment for sustainability and efficiency initiatives. Be sure to inquire about all of these options for maximum return.
- Secure funding
Once the project gets the green light, work with a financial expert to create a comprehensive strategy that aligns with the business goals and maximizes incentives.
Wondering What Questions to Ask Before Embarking on an Energy Efficiency Initiative?
As with any important business decision, companies considering an investment in energy efficiency equipment should do their research and weigh all available options. Here are questions to consider during the before, during and after stages to help guide the discussion around financing options.
1. Do I need construction financing?
2. Have you had an energy assessment completed for your operations?
3. Is the project cost within market norms?
4. If there is an energy offtaker, does it meet a finance company’s credit requirements, i.e., investment grade credit rating?
5. Do I have good site control?
6. What are the lease terms, including tenor, monthly lease payment, and end-of-term options?
7. What are my other financial obligations for the equipment (such as insurance, taxes and maintenance) during the financing period?
8. Can I purchase the system during the lease term?
9. Can I return the equipment or renew the lease?
With answers to these questions, businesses can effectively utilize equipment financing to conserve cash and build their balance sheets while implementing more sustainable, energy-efficient solutions.
Finally, seek out a relationship with a financial expert that can accommodate businesses with customized payments to match budgetary requirements. Above all, look for a well-established financial expert with a strong track record with renewable energy finance in any kind of economy, and a willingness to customize leasing solutions to help meet your company’s unique needs.
Amy Tieu of Key Equipment Finance’s Bank Channel team oversees business development efforts in Utah. She can be reached at email@example.com.
Jeff Eades of Key Equipment Finance’s Clean Energy team oversees Key’s Key4Green initiatives. The Clean Energy team works alongside companies to identify possible tax credits, rebates, grants or other financial advantages that might be available. Jeff can be reached at Jeffrey_J_Eades@keybank.com.