Financing energy retrofits can be a real challenge. In this article, we share our experience along with three financing options to consider. Solving the financial issues concerning such projects is arguably the largest obstacle to be overcome. Let’s look at what the true options are.
Financing energy retrofits can be a real challenge. In this article, we share our experience along with three financing options to consider.
We’ve been down this road many times with many clients. A client receives a grant or incentive from a utility for a free (or semi free) energy audit and basks in the glow of responsible environmental stewardship. Over the next few weeks the glow fades and the client now begins the process of coming to grips with the actual work and challenges involved in taking action with this new information. Visions of debating with the capital projects department for justified funding or the precarious feelings associated with draining this year’s maintenance budget seem too burdensome to deal with this year.
This is a dilemma faced by many project managers and owners. It’s not uncommon by any means to find people with actionable conservation measures in hand that will save the company thousands per year while at the same time avoiding to take such action. Where does this reluctance come from?
Solving the financial issues concerning such projects is arguably the largest obstacle to be overcome. Let’s look at what the true options are:
1. Funding the project internally. Many organisations will cap the amount of funding spent on a particular building and consider it to be a capital improvement project. There are different criteria that must be met for this type of funding to be allocated. The process can be time consuming and daunting. This is because the funds come directly from the corporations resources and are competing with other [possibly more pressing] projects in their portfolio.
2. Traditional loan vehicles. These loans have an advantage over internal funding as the corporation can do more with their existing budgets but low interest rates play a significant part evaluating this strategy. Another issue is that these debts will be listed on the corporation’s balance sheet. This brings more parties to the decision table as it affects the financial picture of the whole corporation.
3. Leasing system improvements including equipment and installation labour. Interest rates are still low enough to make leasing practical. If the savings are enough to create a positive cash flow for the customer, this might be a great way to go. Equipment leases are not a balance sheet item for many corporations so the accounting objections aren’t as much of an obstacle as other financial methods. If leasing provides a streamlined path to project approval then there will be more savings to be realised more quickly.
If there is one point to take away from this discussion, it’s that even if financing adds to the cost of a project, delaying the project a year or two (or 3) would eliminate that capital in the first place.