When preparing to move forward with an energy efficiency upgrade, it is important to completely understand your financial options. According to Emilygrene Corp. CEO Burke Ewers, “We have so often heard feedback from prospective customers that cash flow is the only thing standing in the way of ‘going green.’ We understand and want to show businesses through Emilygrene Financial that not only are these projects affordable but also profitable.”
Never let financing get in the way of successfully implementing your clean energy initiatives. It can be incredibly helpful in making your decision, or convincing a decision-maker, to outline possible financial scenarios that demonstrate every possible option available to your business. This often serves as a very realistic way of ensuring that your money is spent wisely, meeting both your budget and energy goals.
Below is a layout of three possible financial options presented in a typical energy efficiency upgrade. The descriptions include the most common financial setups, including: pay for the whole project immediately, pay for half the project immediately and continue the other half when more funds are available, and borrow the money immediately to use energy cost savings in later payments.
According to Selling Energy Blog, “A lot of people are laboring under the myth that Scenario 3 is the least attractive option because a significant portion of the project’s return would be consumed by the interest you have to pay to gain access to the capital.”
Based on examples provided by Mark Jewell, author of Selling Energy Blog, the following descriptions explain possible financial options in-depth.
In Scenario 1, you pay for the entire investment today (“Date 0”) using your own cash, and your net present value over a ten-year period is $53,000 and some change.
In Scenario 2, you decide that you only have sufficient capital to fund half the project now (“Date 0”), so you wait to do the second half of the project until a year from now (“Date 1”). In this scenario, you would lose half of the upgrade’s projected savings for the first year. You might also lose half of the rebate or incentive because it might expire before you have a chance to fund the second half of the project. In fact, our Scenario 2 worksheet is configured using those exact assumptions. It proves that delaying half the project by one year reduces your net present value to about $42,000. You’ve lost more than $10,000 of NPV just because you waited a year to do the second half of the project.
In Scenario 3, you finance the entire project today (“Date 0”) by borrowing the necessary capital and paying a reasonable interest rate. For our example, we assume 12%. In this third scenario, the net present value turns out to be only about $1,000 lower than what you would have realized if you had funded the entire project at Date 0 using your own capital. Why? You have the entire project installed immediately, which means you get the entire project’s energy savings within the first year as well as the full amount of the rebate. And it turns out that the interest you’re paying pales in comparison to the return you’re generating by having both halves of the project implemented at Date 0.
Emilygrene Financial is thrilled to provide these hypothetical scenarios from Selling Energy Blog as an example of how financing a project can save your project from ending up in limbo or incomplete. Financing is a viable option that can make clean energy a reality for your business. At Emilygrene Corp., finance matters. For more information, please visit http://www.emilygreneblog.com/finance.
Source: Selling Energy Blog
This content is reprinted from Mark Jewell’s Selling Energy Blog, a source of daily motivation for professionals advancing efficiency. Mark Jewell is the Wall Street Journal best-selling author of Selling Energy: Inspiring Ideas That Get More Projects Approved! Subscribe at SellingEnergy.com.