How to pay for energy efficiency projects
July 19, 2011
by Lime Energy
A recent Deloitte study, reSources 2011
reports that an astonishing 90% of companies have set specific goals for electricity and energy management. On average, these companies are targeting a 25% reduction in consumption or cost, with 3.8 years as the average time frame to achieve the reduction.
Despite these lofty goals, the survey further reports that the lack of capital and funding challenges are the largest barriers to achieving success — as reported by 50% of respondents. A landmark study by McKinsey
in 2009 also identified the trade-off of initial capital vs. long-term savings as the most important barrier to achieving energy efficiency.
A 2010 white paper from CalCEF Innovations
and authored by Bob Hinkle and David Kenny attacks this problem head-on. The paper describes six successful methods to provide loans through municipal organizations, utilities or private sources, and these loans are repaid through savings in utility costs. Solution No. 5 in this whitepaper is an approach that is structured like a Power Purchase Agreement (PPA), the type often used to place solar energy on private property at no cost to the property owner, and an agreement for the owner to buy the energy over time.
Metrus Energy, San Francisco, CA, offers this solution as an Energy Services Agreement (ESA) where Metrus owns title to the new energy efficiency assets and establishes an ongoing service charge that is based on the cost per unit of avoided energy, and set below the current baseline utility costs. Payments to Metrus are like paying a regular utility bill, except that customers are using a portion of their current utility spending to pay for energy efficiency upgrades. At the end of the ESA contract term, customers have the option to purchase a project’s assets at fair market value.
Energy cost savings are another way that corporations are achieving the vital gains in productivity that will ensure future success. The McKinsey report estimates that $1.2 trillion in energy waste can be eliminated through energy efficiency by 2020. Important new financial tools are now available to achieve higher efficiency that does not require any up-front capital investment. Read more about Sustainability