We recently met with the owner of a building that represents a fairly typical scenario. His facility was over 50 years old and badly in need of a wide variety of energy efficient upgrades. The old equipment was draining profit from his company and the owner realized something needed to be done to reduce his energy expenses.
The owner is in his 70s and doesn’t want to take out a loan or use money out of his pocket for energy efficient or “Green Energy” technology. He was quite frank when he noted “I’m not sure I’ll even be alive next year!” Taking out a loan would be a burden for his heirs and investing cash out of his pocket wouldn’t make sense if he’s not around long enough to see a return on that investment!
At this point he said to us:
“If you can show me how to become energy efficient, without it costing me anything – I’m interested!”
The building in question would benefit from a wide variety of energy efficient upgrades. Solar, geothermal, windows, equipment, coolers, HVAC are all options that would result in a massive reduction in energy cost and use. The challenge is how to incorporate all those changes without creating a drain on cash flow. The goal should always be cash flow positive energy upgrades! Can it be done? In many cases, using some unique financing solutions, the answer is YES!
The primary challenge to cost neutral energy upgrades is arranging financing that can be paid back using only the funds freed up from the lower energy use. That typically requires a longer term loan and most banks will not provide anything other than shorter term financing – typically no longer than five (5) to seven and a half (7.5) years for energy upgrades. They also want the owner to be personally responsible for the loan which is not ideal if a building is going to be sold in the short term (the loan would be payable at the time of sale) or if there is an aging owner.
Several unique financing solutions have been created that are geared towards making energy efficiency upgrades affordable. Two options are Property Assessed Clean Energy (PACE) and NECA E-CAP – Energy Conversation and Performance platform. PACE financing offers building owners funding up to 100% of the cost of energy upgrades. The money is repaid with assessments added to property tax bills for up to 20 years. The PACE obligation stays with the building upon sale, and allows the owners to pass payments through to tenants who enjoy the benefits of energy efficiency and lower utility costs.
These options require a cash flow positive result in order to qualify. In other words the amount of the monthly loan payment must be less than the average monthly energy savings. This results in an increase in a company’s cash flow plus improved profitability.
“When can we start?”
Now let’s get back to the owner of the company discussed in the first paragraph. When he understood that no out of pocket expense energy upgrades are indeed possible he wanted to know what the first step would be. We explained to him our Integrated Energy Resource Plan which involves looking at all of a company’s energy upgrade needs, the cost of the technology that would replace it, the resultant energy savings and all of the available options for incentives, rebates and financing that would result in a cash flow positive solution. Upon hearing our “first step” his next comment was “when can we start?”
Improving a company’s energy efficiency often requires a complex set of resources, technology and financing. When all of those components are brought together the result should be improved cash flow, increased profit and no additional expense. If you would like to know more about energy savings we offer a Complimentary Energy Use Assessment. It’s a way for us to showcase our expertise while at the same time giving you ideas that could help you save money today.