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Part 1: Financing Facility Retrofits: The Power of the Negawatt
By Bob Hinkle
May 2014 -
Facilities Management Article Use Policy
Most energy efficiency projects in institutional and commercial facilities leave a great deal of energy savings on the table. Why? The technical scope of a retrofit project is developed within the restrictive confines of a company's capital budgeting process.
But the energy efficiency market is rapidly evolving to include no-first-cost financing options that finally enable facilities to implement projects that not only have deeper energy savings with longer paybacks but also improve the bottom line and the sustainability of their operations.
Capital constraints often become a roadblock to implementing energy efficiency projects in facilities. Most organizations use their own capital to fund projects, which forces retrofits to compete against investment opportunities in their core business. When pitted against investments that relate more to a company's core business, energy-efficiency projects are typically shelved, or they are limited to small, single measure upgrades with very short payback — in many cases, less than two or three years.
Other traditional options to finance an energy-efficiency retrofit, such as leases or loans, can burden a company's balance sheet and limit future borrowing capacity. And when an organization self-funds a retrofit or takes on traditional debt it retains all of the project performance risk.
Conversely, third-party financing options that fund 100 percent of a project's costs enable organizations to implement integrated retrofit projects that increase energy savings and achieve much-needed facility improvements without the performance risk and adverse impact to their balance sheet. Eliminating upfront project costs also eliminates restrictions imposed by internal capital budgeting processes, freeing managers to optimize their retrofits to include efficiency measures with longer payback periods.
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Part 2: What is a Negawatt?