Energy Efficiency | August 1, 2019
How to Finance Energy Efficiency Projects
Financing energy efficiency projects is a part of every sustainability initiative. Once a facility is audited and Energy Conservation Opportunities (ECOs) are identified, every company must tackle the next question: how are we going to pay for it? There are more options for financing efficiency projects that lower energy use and carbon emissions than many commercial/industrial businesses realize. These are the typical ways to pay for energy efficiency projects:
Utility incentive programs are stronger than ever
No longer a secret source, utility incentive dollars have been paying for energy efficiency projects for over 40 years. Despite their longevity, utility incentives are still a driving factor for facility energy upgrades. Utilities across the country are committed to helping businesses lower their energy use – and they’re willing to help pay for it.
In some of our home office markets, we’ve seen the following:
- Boston: Massachusetts and the greater New England area have long reigned as leaders in energy conservation. Our local utilities and programs (Eversource, National Grid, MassSave) continue to incentivize commercial and industrial companies to ensure efficient operations.
- Hartford: Connecticut has some of the most competitive utility incentives in the country right now. A small state, Connecticut nevertheless is demonstrating a strong commitment to lowered energy use through the quantity and availability of these incentives.
- New York: Also a competitive location for utility incentives, New York will be supporting a sharp increase in projects over the next 10+ years due to New York City’s new carbon emissions climate act. Long Island in particular, and New Jersey, are also strong representatives of utility incentive programs designed to make energy efficiency projects possible for commercial/industrial companies in all types of industries (higher ed, healthcare, manufacturing, data center, etc.).
- Chicago: While the cost of energy in the Midwest is one of the lowest in the country, Chicago announced this year an even lower cost per kWh for efficiency projects. This cost hadn’t changed in four years! This is undoubtedly the best time for efficiency projects in the Midwest – the programs have never been better for business.
Nearly every utility in the country boasts energy efficiency incentive programs. Having the right contacts and understanding how to get the best possible programs (they’re often tiered based on efficiency gains) are important to qualifying for incentive dollars.
C-PACE financing is an option, but it’s a tricky one
C-PACE (Commercial Property Assessed Clean Energy) programs allow property owners to finance efficiency projects on the property itself rather than tying the financing to an individual or company. Authorized state by state, C-PACE may be financed by private or public funds at the local, multi-jurisdictional or statewide levels.
However, because this type of financing is tied to a property vs an individual, it’s sometimes not the right choice for the efficiency projects we develop. As of October 2017, PACE Nation market data reported $493 million in cumulative C-PACE financing and 1,000+ commercial projects successfully completed, but in our experience, this option is usually best for municipal clients or special circumstances.
Private financing opportunities for energy efficiency upgrades
As with so many things in business: you have to know the right people. There are many different providers available for energy project financing but it’s important to have connections to know which one is the right partner for you. Energy engineering companies should have their own roster of preferred partners that have proven success financing projects for other customers. Financing partners help demonstrate that loan or lease payments can be less than annual savings from an efficiency project, so that the company achieves positive cashflow. We wrote more about how this works in this piece, “Cash Flow Positive.” With proper financing in the forms of loans, service contracts or lease agreements, companies can meet their EBITDA savings goals while minimizing an impact to cash flow.
Our Efficiency Solutions Division completes hundreds of projects per year, helping clients understand payback period and ROI on every upgrade. Energy efficiency projects end up paying for themselves, but until you get there, we’ll uncover every financing opportunity available to help bridge the gap.
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