For business owners, cash constraints can kill projects that would otherwise provide cost savings and environmental benefit via renewable energy and energy efficiency. That means that–due to the need for capital preservation or other competing capital needs–businesses don’t move on projects that could otherwise cut energy costs, reduce their carbon footprints, and reap public-relations advantages.
However, a number of innovative financing options can help your company overcome cash restraints and capital barriers—allowing you to move forward with projects that yield the triple advantage of benefitting people, planet and profit. And the best news of all? The following funding options make energy efficiency projects self-funding and cash producing!
They include Property Assessed Clean Energy Financing (PACE), equipment leasing, and utility on-bill financing.
“Despite enormous market opportunity, strong interest in corporate responsibility, and improving economics, solar deployment in the commercial and industrial (C&I) sector has been largely stagnant over the past 5 years,” says a whitepaper from the Solar Energy Industries Assoc., “Expanding Solar Deployment Opportunities in the C&I Sector.”
In addition to cash constraints being an obstacle to getting projects going, companies are also unable to monetize tax incentives, says the whitepaper.
Here are the three financing options that can overcome these challenges:
- PACE is Repaid Through Property Tax Bill
PACE pays for 100% of a project’s costs and is repaid for up to 20 years with an assessment added to the property’s tax bill. PACE financing remains with the building when it is sold. State and local governments sponsor PACE financing to create jobs, promote economic development, and protect the environment, according to PaceNation.
Thirty-three states and the District of Columbia have approved legislation that enables PACE in their states. Forty programs are now being offered in 19 states, according to the white paper.
“Relative to other financing options, PACE can produce better cash flow on a cumulative and present-value basis,” says the SEIA white paper.
PACE can be used for new heating and cooling systems, lighting upgrades, solar projects, water pumps, insulation and other items for residential, commercial, non-profit and agricultural properties, according to Pacenation.
To learn more and to see if whether there is a PACE program in your state, visit http://pacenation.us.
- Eliminate Capital Costs with Equipment Leasing
There are no up-front costs associated with equipment leasing. Commercial property owners can take advantage of leasing for energy efficient equipment, according to the US DOE’s Office of Energy Efficiency and Renewable Energy. Once you lease efficiency or clean energy equipment, you can use energy savings to pay for the financing cost.
Leases, which are contracts that allow you to purchase or use equipment or real estate, generally include an option that allows you to purchase equipment at the end of the lease term for $1.
Public entities such as schools and local and state governments can take advantage of tax-exempt lease-purchase agreements, says the DOE. These organizations can pay for upgrades by using money already set aside in an annual utility budget.
“A tax-exempt lease-purchase agreement, also known as a municipal lease, presumes that the public sector organization will own the assets after the lease term expires,” explains the DOE. “ Further, the interest rates are appreciably lower than those on a taxable commercial lease-purchase agreement because the interest paid is exempt from federal income tax for public sector organizations.”
For companies that opt for commercial leases, the commercial entity holds the lease and pays taxes on the interest. Commercial leasing is a good idea when the company or organization wants to cut costs, generate positive cash flow and preserve capital.
The lessor can claim the tax incentives. States and local governments, on the other hand, as public entities can’t claim tax incentives.
If you’re interested in leasing, you can look into single investor leases, also called private-placement agreements, which, according to the DOE, are attractive for smaller projects.
Another leasing option is a Certificate of Participation, which involves obtaining financing from more than one investor. Because the costs are spread across numerous investors, the costs can be smaller than those of private placement leases, according to the DOE.
- Repay Your Project Costs with Utility On-Bill Financing
A third option that may make it easier for you to get a clean energy project off the ground is utility on-bill financing. In this case, you repay the bill on your utility bill. This is sometimes also used for distributed energy. The idea, again, is to avoid paying the upfront costs of implementing clean energy projects, says the American Council for an Energy-Efficient Economy (ACEEE.)
On-bill financing might be more reliable than other traditional financing options, including unsecured loans or lease agreements, ACEEE says.
“The theory is that people and businesses tend to pay their utility bills; because of this, an associated charge on a utility bill may have a higher repayment rate than an equivalent charge not on the utility bill,” ACEEE says. “Given this potentially higher repayment rate, on-bill may lead to better financing terms than are available for unsecured consumer or small business loans.”
With all the options and financing terms available, choosing an innovative financing option that is best for your organization can seem daunting. You can contact Evolution Energy Partners to learn about your options for launching projects that save money and generate positive cash flow, preserve capital, reduce your carbon footprint and may even give your company a public relations boost.