SEIZE THE OPPORTUNITY
While building owners have little control over the cost of their energy, they have far more control over their consumption. Rising costs for energy increase the value of energy efficiency. There’s no time like the present to capture that value.
These suggestions from energy experts and financial consultants will maximize the savings from an energy retrofit.
- Recognize that you may be able to arrange financing with little or no upfront cost. Your organization has probably budgeted the funds for a retrofit already – they’re hiding on your budget’s line item for energy expenses. A retrofit with financing that produces positive cash flow recovers current energy waste that will otherwise be lost.
- Take advantage of all available financial streams. Start the process by going to your state energy office and www.dsireusa.org to investigate rebates and incentives from utilities and from federal, state and local governments. “You can bundle a utility rebate, maybe some on-bill financing, maybe some PACE funding, maybe some third-party funds, and create a package that pays for an entire project,” says Jack McGowan, president of Energy Control Inc. Be aware of the time period when each stream is available so you can move quickly at the right time to assemble your package.
If you have buildings in various locations with different incentives, look at giving priority to the project that maximizes the funds available. “A lender may be interested in a certain kind of project in this location at a particular time but not a year from now,” says NAESCO president Don Gilligan.
- Don’t overweight interest rates. “Building owners look at interest rates as the litmus test of what is a good deal but that can be wrong,” advises Neil Zobler, founder of Catalyst Financial Group. “Rates are important but owners should not jump at a deal only because of a low interest rate. Terms, timing, lender’s restrictive covenants, and other factors are critical and can seriously detract from a low interest rate offer. Cash flow should be a primary concern when financing energy projects.”
Owners who wait in hopes of getting a lower interest rate may find that the cost of delay is greater than the savings from a better rate. ENERGY STAR’s free tool, the Cash Flow Opportunity Calculator, can compare the impact of interest rates and the cost of delay.
- Look for opportunities to carry an energy project on the back of another capital project. Adding an energy project to a large but unrelated capital improvement project can be an opportunity to leverage funds and acquire financing for little extra effort, according to Getting to “Yes” for Energy Efficiency: A Guide to Developing a Persuasive Business Case for Energy Efficiency in Commercial and Corporate Properties, a report by the Maryland Energy Administration and Catalyst Financial Group, Inc. Moreover, the savings from the energy portion might help pay for the other improvement.
- Use multiple metrics to evaluate energy projects. Simple payback and return on investment are good first-cut tools to evaluate the potential of different energy projects but more information is needed. For example, simple payback cannot account for savings that will continue to accrue beyond the payback point.
A better indicator is lifecycle cost analysis, which evaluates savings over the service life of the equipment. Internal rate of return (IRR) can be used to compare an energy project’s performance with a company’s profit margin and determine which is better. Cash flow analysis and net present value (NPV) also help to compare the return on an energy project to those of other investments.
- Calculate the hidden benefits. Research shows that energy projects deliver an average 11% return beyond the direct savings from reduced consumption, according to Eric Woodroof, founder of Profitable Green Solutions and a board member of the Certified Energy Manager Program of the Association of Energy Engineers.
These hidden savings include longer service life for equipment used less often, avoided capital cost for new equipment, and lower cost for maintenance labor. For example, a control system that turns lights off earlier extends the life of the lamp and the labor to switch it out. By reducing operating expense, efficiency projects can add to the value of a property upon sale.
Chris Olson email@example.com is chief content director of BUILDINGS.
Siemens Building Technologies Division is the sponsor of this special report and its industry survey.
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