Originally published in Interiors & Sources

11/01/2013

A New Scale for Energy Efficiency Financing

Facility managers can take advantage of project financing

By

 

Chris Olson
Chief Content Director

“There’s no such thing as a free lunch,” economist Milton Friedman said – but he didn’t know about today’s financing vehicles designed to tap the vast value of energy efficiency. In fact, building owners can structure a deal that allows them to have their cake and eat it too.

Facility managers have little control over the cost of their energy, but they can control their consumption through energy retrofits and high-efficiency equipment. However, they are daunted by the upfront cost of investing in energy efficiency. BUILDINGS surveys have repeatedly shown that initial cost is the No. 1 obstacle to implementing an energy conservation project in commercial buildings.

The solution to this conundrum is financing that enables the energy savings to pay for the upfront cost. This month’s article on energy financing (page 42) explains how new vehicles like PACE (Property-Assessed Clean Energy), utilities’ on-bill programs, and managed energy services agreements (MESAs) are allowing building owners to tap into financing with positive cash flow from the outset if the energy savings outweigh the finance cost. These vehicles can benefit both tenants and landlords in multitenant buildings, sidestepping the split-incentive disconnect that undermines efficiency in leased spaces. As the lending community becomes more experienced with the value of energy efficiency, some industry experts foresee a surge of private, third-party capital on a scale similar to what is available for infrastructure and commercial real estate development.

You may already have the funds for an energy improvement project – they’re hiding on your budget’s line item for energy expenses. A retrofit with financing that produces positive cash flow recovers the cost of energy waste that will otherwise be lost.

“He that goes a-borrowing goes a-sorrowing,” honest Ben Franklin said – but what did he know about energy financing with positive cash flow?

 

 
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