Many clients I come across want to implement a smart energy efficiency project. They understand they have excellent ROIs, will reduce O&M costs, raise asset values, and improve comfort. So why isn’t everybody implementing every potential energy efficiency project? Most good energy efficiency projects require a large upfront investment, which many building owners do not have available.

Therefore, building owners can borrow funds to implement a good energy efficiency project. Most energy efficiency projects are so profitable to make up for interest payments, based on current conditions.

Here are ways to make an energy efficiency upgrade easier on the pocketbook.

Lease, Don’t Buy Equipment.  Just like it is common practice to lease a copier for the office, a building owner can lease new equipment. Lease payments become a standard operating expense. At the end of the lease term, the lessee may purchase the equipment, return it, or renew the lease. The building owner keeps more cash on hand for other business needs and preserves their corporate line of credit. A capital lease is a lease where while the building owner is a lessee, it may take advantage of any tax and depreciation benefits that the equipment may have. The equipment is listed as a capital asset while the lease payments would be recorded as a liability. At the end of the lease, the equipment transfers ownership to the building owner for a nominal price, usually $1.

Financing Equipment.  A finance agreement is similar to a capital lease in length of loan term and in lending to the credit of the building owner. However, a major difference is that the building owner gets credit for owning the equipment outright, is not considered a lessee, and gets all of the tax and depreciation benefits of the equipment.

A good financing program is structured such that monthly payments are lower than the estimated energy savings. In other words, a net positive. The building owner gets the benefits of energy savings while making payments over time without the need to dip into capital reserves to fund this project. The building owner’s net is not worse than if they did not implement the project. The building owner can preserve its cash and credit for other operations while getting the financial benefits. This differs from many projects which have no or a poor payback; the owner must spend money and not necessarily get a payback. Here, the project is net positive and allows the owner to look into additional energy efficiency projects.

With interest at record lows, this is a time when borrowing to successfully implement a good energy efficiency project may makes sense. Given the good payback of many energy efficiency projects and, therefore, the presence of capital to pay back a loan, institutions like making loans for energy efficiency projects. Therefore, there is competition to lend for a good energy efficiency project, reducing interest rates and other costs. Now is the time to move forward and upgrade equipment smartly for energy efficiency, knowing of the availability to easily borrow in order to succeed.

Please speak to a financial professional (i.e., an accountant) when seriously considering a lease or financing program. CCES has the experts to help assess the viability and payback of energy efficiency projects to allow you to select which ones to implement and how best to pay for them. Contact us today at 914-584-6720 or at karell@CCESworld.com.