Financing options boost the business case for energy-efficiency projects
Supermarket News, July 20, 2016
Capture the ‘free money’ of on-bill financing
[mks_pullquote align=”left” width=”300″ size=”18″ bg_color=”#8224e3″ txt_color=”#ffffff”]“Once the project is paid off, the store sees lower utility bills,” Tan said. “But the benefits of the new equipment start immediately. Along with reducing energy consumption and costs, an energy-efficiency upgrade can reduce or defer maintenance costs and improve the store environment with more comfortable aisle temperatures and better lighting.”[/mks_pullquote]With on-bill financing (OBF), a project is funded by a utility company or third-party investor at a very low interest rate — perhaps even 0% — and is paid back over time on a store’s utility bill. In a nutshell, energy-efficiency projects essentially pay for themselves. OBTs equate to free money, and they’re available in about 20 states and counting.
After an on-bill financing project is completed, a store’s monthly utility bill includes the cost of energy used and a partial cost of the project. But because the energy-efficiency improvements lower how much energy a store uses, the total amount of the bill is roughly the same as before the project.
A few more selling points: Utility rebates and incentives may be available to offset the cost of OBF projects. Some OBFs can be structured to tie repayment to the property, so that the debt transfers to a new building owner or tenant.
Don’t write off traditional financing
Grocers and C-store owners shouldn’t dismiss traditional financing for energy efficiency projects, Tan advised. “A retrofit project costs money, but so does not doing a project — especially for grocery stores, where energy consumption is among the highest of all commercial buildings.”
A typical grocery store consumes most of its energy for refrigeration (56%), lighting (22%), and HVAC (12%), according to the U.S. Energy Information Administration. Data from ASHRAE shows related energy-efficiency upgrades in 50,000-square-foot store could reduce the electric bill by as much as $10,000 a month (based on 11 cents per kilowatt hour, kWh). That means the store is paying $10,000 a month to use more energy than it needs to.
Go big with PACE funding for sizable projects
For larger energy-efficiency overhauls, store owners should look at funding option available through a property-assessed clean energy program, or PACE. Private investors cover 100% of upfront project costs, and the funds are repaid through property taxes. To date, 29 states and Washington, D.C., have adopted legislation for commercial PACE programs.
PACE features long-term financing terms, from five to 20 years depending on the project. Property tax assessments are tied to the property and automatically transfer to any new owner. And energy incentives, rebates and tax credits can be used to offset project costs or pay down a PACE loan.