As energy prices become a more significant contributing factor to overall profitability, an increasing number of businesses are looking towards energy efficiency upgrades in order to help reduce costs. In addition to the economic benefits of being sustainable, the safeguarding of our natural resources depends on greater energy conservation efforts. To meet these goals, cities such as New York are enacting clean heat laws as well as documenting energy usage and sustainability upgrades. Local Laws 84 and 87 dictate that buildings over 50,000 square feet must now document their energy usage and energy efficiency retrofits must be completed. By improving efficiencies with upgrades such LED lighting, HVAC upgrades and high efficiency HVAC systems, businesses benefit from lower energy bills through reductions in energy usage, while our planet benefits from the reduction of greenhouse gasses generated by power plants.
Implementation can prove challenging
Though Accenture noted in a recent study, that over 1000 top executives from 27 industries across 103 countries believe that the sustainability reputation of their company is important in consumers’ purchasing decisions, not all companies are quick to implement such measures. Unfortunately, internal political issues can sometimes keep an energy efficiency project from getting off the ground often due to a lack of perceived value and lack of urgency. “We will do it next month,” might invariably turn to next year or beyond if your company doesn’t have a solid plan in place to improve efficiencies. A particular challenge small to medium sized companies often face is a lack of in-house resources and technical expertise. All too often though, it’s the lack of access to capital or the length of time it takes to see a return on the investment required to complete an energy efficiency project that hold companies back. In order to meet these common challenges, on-bill funding can be a great alternative to other options such as energy performance contracting.
Enter “On-Bill Funding”
On-bill funding is a great choice for businesses without capital resources or in-house expertise to manage the implementation of energy efficiency projects. With on-bill funding your energy supplier pays for the upgrades, so there is no out of pocket cost. The payback of the upgrades are incorporated into commodity cost and then paid back through your utility bill. With this method, you are using your existing energy budget and upgrade costs are being paid for by your energy supplier, allowing cost savings to be more easily realized.
Here is a quick example.
ABC Company is upgrading its facility’s lighting at a cost of $50,000. Currently they are consuming 2,000 mWh of electricity and paying $80.00 per mWh for energy supply ($160,000 per year). They also pay another $140,000 in distribution costs or $300,000 total per year for electricity supply and delivery.
By upgrading their lighting, ABC will realize an immediate reduction of 10% in energy consumption, which nets an immediate savings of $14,000 in distribution costs. Then in year one and two the energy company funding the upgrade will charge a rate of $93.70 per mWh for electricity ($93.70 x 1800 mWh) = $168,660 per year. The extra $13.70/ mWh will be applied to paying down the $50,000 project cost over a two-year period. Even though the cost of energy supply is slightly higher during this period, the facility sees an overall reduction in cost through reduced consumption and would have a total energy cost of $294,660 during the payback period.
At the end of the payback period, the energy supply rate is returned to the market cost of $80.00/ mWh. Because the equipment has been paid off, the facility gets to reap the benefits of the reduced consumption by now paying ($80.00/ mWh x 1,800 mwh) or $144,000 for energy supply and $126,000 in delivery costs for a total cost of $270,000.
On-bill funding can be used for virtually any energy efficiency upgrade with a payback of 5 years or less, such as: Lighting, HVAC, Oil-to-Gas conversions, Controls, and Variable Frequency Drives for motors (VFDs). In addition to utilizing your existing energy budget and paying one bill to the utility on-bill funding provides the following benefits:
- Drastically reduces or eliminates out of pocket costs for the customer
- Streamlines the benefits of energy efficiency measures by generating immediate positive cash flow
- Can operate in tandem with any rebate program to reduce the total amount financed
- Bill payment history can be used instead of or to complement a full credit report
- Versatile financing tool that can be combined with a variety of different sources of capital and implementation strategies
- Utilizes expertise from your current energy service company if you don’t have an in-house energy manager
As you can see, neither wholesale changes to your entire operation or large out-of-pocket expenses are necessary in order to realize the benefits of energy efficiency. Now is the time to consider reducing energy consumption and being more sustainable, not tomorrow and not a year from now. There are many ways to reduce your energy consumption at this very moment by simply interacting with energy differently and opting into energy efficiency projects that can be paid through your existing energy budget with on-bill funding.