Financing Was Once a Big Barrier to Energy Efficiency. Times are Changing.
When it comes to the interrelated topics of climate change and the country’s energy resources, politics tend to generate the big headlines. However, innovation and corporate initiatives provide for countless untold positive news stories about energy optimization, improved bottom lines and other economic, social and environmental benefits. One rapidly emerging innovation, efficiency-as-a-service (and the financing solutions it provides) is driving a host of efficiency projects and new private sector investment.
Regardless of current administration policies on climate change, the Clean Power Plan and the Paris Agreement, U.S. companies small and large – and many with global footprints – are attuned to the value of energy innovation, responsive to a range of local and national regulatory requirements and concerned with the ramifications of climate change. If corporate America is going to truly fill the leadership void, energy efficiency planning and spending must be integrated and massively scaled. There are still too many companies implementing change on an ad hoc basis and they are likely to experience deleterious effects down the road.
A recent survey of business leaders on energy innovation and business resiliency, conducted by Siemens and the Harvard Business Review, reveals some of the angst being felt by executives. Many respondents say they are improving energy efficiency in facilities, but nearly 50% of companies acknowledge they pursue energy reductions on an ad hoc basis, and only 28% have resiliency plans in place.
I believe companies can take a more proactive approach – and we now have the tools to do so, even when upfront costs may initially seem daunting. Efficiency-as-a-service is an innovative financing approach that utilizes a performance-based service agreement called an Efficiency Services Agreement (ESA). While power purchase agreements (PPA) are a well-established financing structure for solar projects at commercial and industrial facilities, many don’t know there is a similar contract for funding efficiency retrofits. Like a PPA, an ESA enables third-party ownership of a project, in which a developer designs, finances, implements and owns a package of energy and water efficiency measures at a customer facility. In return for implementing the project, the ESA provider charges the customer for any realized savings, at a rate that is less than their current cost of electricity, gas or water. This continues until the end of the contract period, typically 10 years or less, upon which time the customer can renew the contract or purchase the equipment at fair market value.
The ESA is a market-proven solution that turns kilowatts into “negawatts” by financing 100% of the cost of efficiency upgrades and monetizing the energy savings. The versatility of this financing mechanism is exemplified in two recent transactions by my company, Metrus. The first, in partnership with Citi and SmartWatt, was with a Fortune 100 Technology Company that simultaneously implemented over $27 million of LED lighting upgrades across 10 sites, thousands of miles apart. Lighting-as-a-service enables customers like this one to improve indoor environments while saving energy and money. Much like buying solar power not panels and trading negawatts for kilowatts, lighting can now be effectively sold as a service.
The second transaction was with Parrish Medical Center, a coastal Florida hospital that implemented 17 different energy and water upgrades as part of a single project to boost its operational resiliency. Metrus funded this project in partnership with Sodexo and New Resource Bank. Hospitals consume large amounts of water, so they are eager to incorporate water efficiency in their sustainability plans. The water savings alone on the Parrish Medical Center equal 3.7 million kilogallons annually, the equivalent of 5,639 Olympic-sized pools. Coupled with the numerous energy upgrades which will save 8.9 million kWh/year of electricity and 257,000 therms/year of natural gas, Parrish will save more than $830K annually.
These customers have two vastly different businesses, but efficiency-as-a-service enabled them both to immediately reap the benefits of energy and water efficiency without capital outlay.
The headlines of tomorrow may very well depend on how well businesses plan and act on their energy futures today. The financial solutions and engines of innovation are here. Tune out the political noise and look to the marketplace; you’ll start to see a host of solutions already taking hold.
Bob Hinkle is the founder and CEO of Metrus Energy, a developer and financier of large-scale energy and water efficiency projects.