Adam Fairbanks, CEO of a firm dedicated to providing cost-effective retrofit solutions for its commercial and industrial clients in the US writes on the Facility Executive website about seven facts about financing energy efficiency projects. Do you agree?
7 Facts About Financing Energy Efficiency Projects
Facilities need energy efficiency; this is no longer a new or questionable statement. Energy efficiency initiatives lower energy use, decrease carbon emissions, improve building operations and lessen a building’s impact on its environment. Operations teams all over the country can agree: facility management strategy today requires energy efficiency projects. However, as with all things, efficiency solutions are not free. Financing large-scale, significant retrofits or equipment upgrades can quickly become difficult to work into a budget or obtain approval for. Correctly designed energy efficiency projects should make sense both to the operations teams championing these projects and the finance teams funding them. These seven facts about financing efficiency projects outline what to know when budgeting for energy solutions.
Efficiency projects should deliver a clear Return on Investment.
If you don’t know what your project ROI is, start over. Determining ROI for an efficiency project is the most important step to financing. Setting this benchmark establishes a baseline for all parties involved. Efficiency projects, while important to building operations, should be financially viable when fully built and operating over time.
A 2-4 year payback period is realistic.
While payback period relies on numerous factors, projects designed with attention to equipment cost, installation, relevant savings and retrofit opportunities should typically deliver a payback period within 2-4 years. For most operations and finance teams, this number aligns with investment targets.
Significant utility incentives are available.
Developed alongside efficiency measures since the late 1980s, utility incentive programs are still impactful and available today. Although quantity and type of incentive varies from utility to utility, companies can take advantage of the dollars available to incentivize efficiency projects and implement energy savings solutions. The more comprehensive the measure, the better the incentive.
Annual operational savings are real.
More efficient use of energy translates into actual annual savings. Signature Breads, a Massachusetts-based food manufacturer, is saving over $200,000 per year due to an LED lighting upgrade and building management system optimization. Edward-Elmhurst Health, a hospital network out of Illinois, received a project payback of less than three years and is saving $1.9 million annually through a significant, campus-wide LED lighting project. These examples emphasize the point: operational savings from energy efficiency solutions should be taken into consideration when implementing energy projects. They can add up quickly and make a significant impact on overall OpEx.
Maintenance savings matter.
Although forming a smaller line item on the balance sheet, maintenance savings add-up over time. Consider: the financial maintenance required for bulb replacements on fluorescent fixtures, the cost of maintenance on failing HVAC equipment not tied into a building management system or the hours of labor needed to maintain exterior lighting. All of these maintenance costs can be mitigated through efficiency projects.
Efficiency measures improve cap rate.
Property value includes net operating income, operating expenses and asset value, which combined is essentially the cap rate of a property (the ratio of Net Operating Income to property asset value). Financing efficiency projects will increase net operating income through energy savings, reduce operating expenses through upgrades and increase asset value through facility improvements with new or upgraded equipment. Invest in your own facility.
There is a cost to waiting.
If you know a project ROI and payback period, obtain incentive dollars from the utility and understand the savings being made available to you, also know that the longer you wait to make a change, the more money is left on the table. Waiting months – even years – to install efficiency solutions that lower energy use lessens what should be a growing annual savings number. Every dollar spent on unnecessary energy use, un-optimized systems and inconvenient maintenance is a dollar that could otherwise be reallocated in your budgets.
Although financing efficiency solutions can be a substantial investment, it pays off. The right projects built with the right solutions will deliver important energy savings while making smart, financial sense.