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One of the biggest hurdles experienced energy and sustainability managers face is getting funding approved to implement the programs and projects they have identified which reduce energy consumption and costs. Every one of them can share stories of how their ideas have languished in the form of dust covered audit reports and capital expenditure requests. This happens for many reasons, but often because businesses have other more compelling needs for precious capital investment, or because other people in the organization present more appealing business cases for those investments. Wouldn’t it be nice for these professionals if there was a new way to adopt their ideas and achieve their energy and sustainability goals without having to ask for that capital? Well there is.
Making Energy an Asset®
Today, there are new options available to finance energy efficiency and sustainability programs and projects that don’t require internal capital approval. These options lower operating costs and improve profitability while that capital is invested to meet other, more pressing, needs. It sounds too good to be true, but it is simply a matter of financial markets becoming interested in financing energy efficiency and sustainability programs and projects. With their help, you can start Making Energy an Asset® for your organization without the need for approved capital expenditures.
Where to Start
As an energy or sustainability manager, your first step in taking advantage of these financing alternatives is probably your most important. Get authority inside your organization to drive cost and consumption out of your business permanently, while lowering your carbon footprint. You can accomplish this by establishing as your baseline your current energy consumption and spend levels across the enterprise. From this budget, you will agree to identify and pursue all qualified opportunities that effectively fund themselves and lower costs and your carbon footprint over time.
Once you have been given approval to proceed in your fashion, you have turned Energy into an Asset™ to be leveraged to drive out needless cost and inefficiency. Your next step is to identify the Energy Conservation Measures (ECMs) that can be implemented in your facilities to permanently drive cost out of your business. You may find that an internal team of experts who understand your facilities and how their infrastructure operates to be an invaluable resource to help assemble ideas and preliminary lists. These teams can be supplemented by energy consultants who specialize in identifying and designing improvements, and in quantifying the economics – both costs and savings – associated with them. These two groups of “experts” can bring confidence and credence to your energy initiatives and resulting outcomes. At this point you are ready to consider financing alternatives.
While there are many financial options, let’s consider two for now that would effectively allow you to implement your list of energy optimization and sustainability projects in a way that they pay for themselves over time and generate immediate returns to your organization. One is a lease, and the other is an Energy Efficiency-as-a-Service Agreement (EaaS). Both are worth considering, and both may be part of your solution going forward. To understand which is best for your organization and your facilities, you will need to expand your team to get some accounting, finance, and legal advice.
The first financing option is a simple lease. You would select trusted energy management companies that perform implementation to design and build and commission the energy improvements. Under the terms of the lease, your organization would make a fixed payment to a third-party lender each month for a finite length to pay for the improvements. This lease payment would be less than monthly savings for the associated energy or sustainability improvements. Depending upon the simple payback of the improvements, different lease terms ranging from five to eight years should likely be sufficient to self-fund out of your baseline budget, and for you to retain a percentage of the savings. At the end of the lease term, your organization owns all of the improvements.
The second financing option which is growing in popularity is known as an Energy Efficiency-as-a-Service Agreement, or an EaaS. Under an EaaS, the improvements would actually be owned by a special purpose entity established strictly for the facilities to be improved. You select a qualified, specialized firm to design and build and commission the ECMs. The monthly energy savings would be measured using investment grade energy meters, and a percentage of the monthly savings would flow to you every month while the rest would flow to the special purpose entity to pay for the improvements. The meters required, as well as the measurement and reporting criteria to be used, would be described in detail to you and incorporated into the EaaS.
During the performance period of the EaaS, operating and maintenance responsibilities between your organization and the special purpose entity would be clearly defined, but it is likely that your team and sites would continue to be responsible for most maintenance. This option can be attractive if it is important to your organization to have this arrangement be considered off balance sheet (subject to your accounting standards and opinions), but it is generally a somewhat more expensive option due to the metering and measurement and reporting requirements.
No Capital Required
With either of these financing alternatives in use, you no longer need to request capital from your organization to drive results as an energy or sustainability program manager. You will be managing to your baseline energy budget, driving cost and consumption permanently out of your facilities while you simultaneously reduce your carbon footprint and meet your sustainability commitments. Truly you will be Making Energy an Asset®.
Author: Todd Jarvis CEM, CSR-P, Chief Operating Officer at Chateau Energy Solutions
Mr. Jarvis has more than 20 years of experience in the Energy Efficiency, Demand Side Management, and Sustainability areas. He currently serves as Chief Operating Officer at Chateau Energy Solutions. Mr. Jarvis is recognized as a subject matter expert with expertise in operations management and sales with a proven track record in leading successful companies. Through his 20 years in the industry, he has built and led teams that provide energy management consulting services, turnkey implementation of energy efficiency projects, and ongoing analytical managed services. Mr. Jarvis is a Certified Sustainability Practitioner and a Certified Energy Manager. He can be reached at Todd.Jarvis@ChateauES.com or on LinkedIn.
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