energy conservation

Change Your Perception of Financing and Reap the Energy Savings

Posted on by abrahamwien18

An overview of funding options for your next project
By Eric Woodroof, Ph.D., CEM, CRM
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Psychologically, when most people hear the word “financing,” they have a quick and negative reaction about cost. I understand the perception. If you look at the total financing cost on your home, you pay an amount over 30 years that can be twice the purchase price!

But most energy projects are different from your home mortgage. The savings is greater than the finance cost (especially with today’s low interest rates). Yet lack of capital and financing cost are the most common reasons why good energy projects are delayed or cancelled.

An energy project can have a rate of return over 30% – higher than most investment opportunities and many companies’ profit margins. Even with a 10% financing cost, you are still 20% ahead compared to doing nothing.

Lack of capital is solvable for many projects. I will outline solutions, some old and some new. I hope this article inspires you to challenge anyone who tries to block a good project based on the premise that money is not available and the financing cost too high. The truth is, you are probably throwing bags of money out the window – and that money cannot be recovered, even if you do a conservation project at a later date.

Innovative Options

Among recent financing innovations are Utility Energy Service Contracts (UESC), Power Purchase Agreements, on-bill financing, and Property Assessed Clean Energy (PACE) financing.

Utility Energy Service Contracts are basically performance contracts that are developed and implemented by utilities. The contracts offer some streamlining because utilities can provide the project funds and make deals with neutral cash flow.
Power Purchase Agreements (PPAs) are commonly used for solar PV and wind generation. In a PPA, solar is put on the roof at no upfront cost to the building owner, who agrees to purchase the kWh produced over a long-term contract. The PPA is typically structured so that the building owner is paying about the same price for the solar kWhs as they would for power from the grid. This works well when the grid price is high, the utility is cooperative, and local incentives are available.

On-bill financing is offered by some progressive utilities, typically as part of a Demand Side Management Strategy that benefits the utility. As the name implies, building owners repay the installation costs with an extra charge on their future utility bills. The deal is structured so that the monthly savings is larger than the extra charge. The improvement can be linked to the meter, so that if the owner sells the building, the savings and the repayment are taken over by the new owner.

PACE is very similar to the on-bill financing concept except that the savings and repayment are linked to the property tax, so that if an owner sells a property, the new owner would assume the property tax amendment (i.e. extra payment). However, any new owner also reaps the savings cash flow. In recent years, PACE has become very popular. This financing vehicle has now been enabled by legislation in 31 states.

Traditional Financing

There are also many traditional financing options available to facility managers. If you decide to finance a project with a loan, bond, true lease, capital lease, or other leasing variation, you may have some new vocabulary to learn. You may also need an accountant to evaluate such things as depreciation. (And note that there are some new tax regulations for depreciation in 2014.) Take a little time to understand this information as well as the view from the CFO (or whoever signs the contract). To get approved, the CFO has to say “yes.” Try to make it easy – or even irresistible – for him.

Performance contracting has been around for decades and allows projects to be developed by an Energy Service Company (ESCO) that offers a performance guarantee on the savings in which the savings are greater than the finance payment, which is usually handled by a third-party financier. This approach can be attractive because, in theory, the savings are risk free due to the guarantee.

Performance contracting is more common with government, institutional, and educational facilities because financiers are more comfortable lending money to organizations that are likely to survive a recession and other difficult business cycles. Contracts can become complex (for both the ESCO and the facility) and it takes time to understand them as well as get legal endorsement, which adds time and cost.

Local incentives and rebates from utilities can be substantial and improve the return on investment if you are willing to do some before/after documentation. For example, my utility will give a $10 rebate on LED lamps that cost $20. A list of free rebates, tax credits, and other incentives is available at www.dsireusa.org. Also ask your local government, chamber of commerce, and economic development office because they may have special grant money. Because the local community benefits, I have seen funding available to help pay for solar, energy efficiency, and water conservation projects.

Additional Resources

It is clear that energy financing options have increased, leaving more choices for the facility manager – a great situation if you know where to look and how to leverage your options.

If you want some basic information about financing and performance contracting, I have a free webinar entitled Financing for Engineers that is available here. There is also information on the energy.gov and EPA websites.
For career-focused individuals that want to earn accreditation, you can look at a new certification program from the Association of Energy Engineers, the Certified Performance Contracting & Project Funding Professional. I think this type of training will help many facility managers and ESCO professionals navigate their options and accelerate project approvals.

Eric A. Woodroof, Ph.D., is the Chairman of the Board for the Certified Carbon Reduction Manager (CRM) program and he has been a board member of the Certified Energy Manager (CEM) Program since 1999. His clients include government agencies, airports, utilities, cities, universities and foreign governments. Private clients include IBM, Pepsi, GM, Verizon, Hertz, Visteon, JP Morgan-Chase, and Lockheed Martin.

With Temperatures Dropping, Interest in Energy Savings at Multifamily Properties Should be Heating Up

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By Tal Eyal, FirstService Residential, 1/15/2014
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While winter made its official debut on December 21, the cold weather has been upon us for some time now and has gotten to extreme levels, including 20-year record lows across the country at the start of the year.
For boards, managers and other key decision-makers at multifamily housing properties, the dropping temperatures bring a rising interest in energy saving strategies, and a renewed focus on negotiating better utility rates. Facing a host of pressing management challenges throughout the year tends to put the issue of energy efficiency on the back burner. But each year, as the cost of heating common areas rises and fluctuates, the questions flare back up again: how can we save on costs and reduce our carbon footprint, and how can we help residents do the same? The fact is, by helping residents reduce their energy costs, properties are more likely to gain buy-in for those critical capital projects that come along.

With this in mind, some condo associations and executive groups have created energy committees to explore potential infrastructure improvements to common areas that create efficiency, and to determine how to negotiate better energy rates. Other HOAs—and rental property managers—have worked with their management companies to take concrete steps toward savings: conducting energy audits, implementing comprehensive energy conservation plans, and leveraging their collective purchasing power.

At FirstService Residential, for example, through our affiliate FS Energy, which focuses exclusively on energy management and advisory services, we have implemented a benchmarking and energy savings program for nearly 600 of our multifamily properties. The program, which began in New York City, has expanded to properties in Florida, and is launching in Chicago. In essence, the approach involves analyzing a building’s energy use and comparing it to similar structures; developing an energy maintenance plan to reduce consumption based on the findings of the initial analysis; and in the case of our northern properties, integrating an Energy Aggregation Purchasing Program to reduce natural gas and electricity costs.

The simple fact is that energy conservation is not just an important environmental goal, it should be a critical financial goal for every multifamily property. The correlation between better energy practices and real savings is irrefutable. Our program in NYC has realized more than $19 million in cost savings, while reducing the carbon footprint of our buildings by 68,630 metric tons, or 15.6 percent. We expect a similarly positive result in other regions of the country.

Ultimately, every multifamily property can benefit from some basic energy planning, along with some long-term infrastructure considerations. Some of the most important steps for properties to take include:
Conduct an energy audit: By assessing current energy usage patterns and costs, and by determining where conservation opportunities exist within a property, management can begin to develop a plan for savings. Every property that has not conducted a comprehensive energy audit should get one under way.

Pursue efficiency: Not only should boards and managers implement a procurement policy that prioritizes energy efficient products—including lighting, water heaters, and water saving devices—for common areas, they should develop a communications plan to encourage individual residents to take similar actions. Building management should consider offering regular energy savings tips in communications with owners and residents, along with opportunities to purchase energy efficient products at wholesale prices.

Train property management staff in energy conservation: Simple steps such as programming thermostats in common areas around usage patterns, and turning off lights in unoccupied rooms, can lead to savings. Staff should be trained to pursue strategies that reduce energy use.

Consider infrastructure improvements: Based on the outcome of their energy audit, properties may want to undertake more significant energy saving improvements, such better insulation, insulating window film, landscaping changes, and automated systems that monitor energy use.

While the winter weather puts energy use in the hot seat, the fact is that conservation and savings are year-round endeavors. Just consider the fact that in warmer climates, such as Florida and Southern California, cooling is the greatest expense. Even in New England, A/C use in the warmer months is a significant energy drain. With this in mind, decision-makers at multifamily properties should keep energy issues high on their list of priorities.

Tal Eyal is founder and president of FS Energy, the energy management subsidiary of FirstService Residential which advises residential property management clients of ways to reduce energy consumption, costs and emissions while improving property values and quality of life. Eyal oversees FS Energy’s operations, energy procurement business, as well as the data analysis and reporting of energy usage.