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Energy Efficiency at Zero Upfront Cost

Financing Options that Allow for Immediate Simple Payback

It is no secret in today’s stormy economy… cash flow is tight in businesses and organizations. For many, it has been a downward spiral of spending more on operations and being further unable to upgrade systems. However, there are ways to “turn the ship around” and head out of the storm. Although cash flow constraints delay about a third of good energy management projects from getting implemented, this article describes financing mechanisms that can allow your projects to get implemented…now. Plus, at the end of the article is a link to a free webinar that will show you much more. This free webinar was part of a paid webinar series in 2010 and has over an hour of useful financing information.


If your company doesn’t have the upfront capital to fund an energy project, you could finance the project (just like your home mortgage) so that the implementation costs are spread out over time and this cost per year is less than your savings cash flow. Financing does not have to be complicated. In fact, financing energy efficiency/green projects can be very similar to your mortgage or car payment with fixed payments for a length of time. The bigdifference is that your car will not “save” you money like an energy project, which might have a 25 percent return on investment. Even if you pay 15 percent interest, you are still saving more money than the finance payments, which means the project becomes “cash flow positive” and does not impact the capital budget. This can allow your CFO to move forward without sacrificing any other budget line item. Unfortunately, when presented with financing options, a common reaction is to hesitate as people don’t like to enter into long-term contracts or pay an additional financing cost to a lender. However, with many energy management projects, the cost of financing is usually less than the cost of delay. Plus, if you do finance the project, the simple payback is effectively zero.

Table 1 below shows the cash flow for a non-financed project. Assume the project costs $100,000 and saves $28,000 per year for 15 years. This project could get approved IF the client has $100,000 in cash to fund it. The project has a Net Present Value of $ 102,700 and an Internal Rate of Return of 27 percent.

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4 thoughts on “Energy Efficiency at Zero Upfront Cost

  1. Thank you, Eric, for the informative article. Given that the public perception is that going sustainable or green always costs more, we really need to spread the word about energy efficiency solutions with zero upfront cost. Our company, Incenergy, currently offers total solution financing for our commercial building energy management system. Without financing, our clients typically receive a one to two year payback. With the financing they can become cash flow positive the day the system is installed, as you illustrated so well above. It is a no brainer, and we appreciate your work to help spread the word. I’ll be sure to check out your free webinar above. Thank you again.

  2. It is great reading stories about this, and the more larger businesses that proceed with it, the more banks will understand the concepts and be willing to lend to smaller businesses.
    My business Easy Efficiency this past week announced a financing package for Medium sized businesses in Australia to take advantage of. Renting the products goes one extra step in the savings column in that the debt is not recorded ‘on the books’ and so is simply a monthly fee payable. As electricity costs are increasing in Australia at 10-20%pa for the foreseeable future, the positive cash flow goes from good in the first year, to better, to great over the 5 years. That is the payments stay the same and the energy savings improve each year due to the higher cost of electricity. Maintenance savings are usually also achievable due to the new technology involved.
    We can be contacted on 1300 07 11 22 in Australia or via our website.

  3. I agree with the main point, but (taking the example in the article) how many owners will take on a 15-year loan for energy efficiency upgrades? The federal & MUSH markets seem ok with it, hence the relative sucess of ESCOs – but what about the rest of the commercial market? Many won’t hold properties for that long so are looking for much quicker payback, others don’t have easy access to capital, others simply don’t care, etc.

    I confess I have no practical experiences to share – I’ve been researching this topic, and just don’t seem to be able to get clear answers on what it’s going to take to unlock the full potential of energy efficiency. I’m hoping someone can help me out….

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