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.
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.