Financing solutions to lower your energy costs and climate change risks

Financing solutions to lower your energy costs and climate change risks

With the carbon price yet to be repealed and the details of the Emissions Reduction Fund still unclear, climate policy uncertainty remains high. However, the fundamental drivers for implementing projects to reduce your energy use and greenhouse gas emissions have not changed. Energy prices are high and forecast to continue rising, businesses need to reduce their costs to stay competitive, and climate change risks continue to threaten business resiliency.

This article considers how you can better position your business by implementing projects that reduce your energy costs and emissions using smart financing solutions. With previous sources of government funding, such as the Clean Technology Investment Program and the Clean Energy Finance Corporation, not currently available, now is a particularly compelling time to consider financing solutions. These financing solutions overcome cash flow, capital and technical risk barriers to your projects.

How to get projects ready for implementation and financing

Before seeking finance for your projects, you need develop business cases that define their scope and assess project risks.
The main elements you should consider when developing your business cases are shown in our framework.

These business case elements include:

  • Technical – Define the technical requirements for the project. Assess whether the project is technical suitable for a site, including consideration of any possible interference with existing equipment and operations. Assess the complexity of the proposed project, maturity of suppliers for project implementation, and the level of risk of the project not achieving the desired energy and carbon savings once implemented.

  • Environment – Assess the likely impact of projects on the environment and the community.

  • Financial – Conduct financial analysis, including whole of life modelling, to determine the financial needs of the project and expected returns. Run sensitivity analyses to quantify project financial risks. Having a financial model of a project is required to determine suitable ownership and financing options.

  • Commercial – Undertake a commercial assessment of the viability of the projects and identify relevant state or federal legal or regulatory constraints. Consider possible guarantees, insurances and mechanisms that could assist in overcoming potential implementation hurdles.

With a completed business case, you are ready to determine which financing solutions suit your project.

The best financing solution for your project

The Australian market for energy efficiency equipment financing has become more mature in recent years. There are now a number of financing options offered by the big four banks, some energy services companies and other financiers.
You should consider which option best fits the scope of the project, as defined in your business case, your risk preferences and your financial constraints.

The options available include:

  • Capital and operating leases: rather than buying energy efficiency equipment yourself, you can lease this equipment for terms up to fifteen years. With a lease, this equipment can either be off balance sheet (operating lease) or on balance sheet (capital lease).

  • Targeted bank loans: a number of the banks now offer loan products specifically for energy efficiency equipment. Some of these banks have pools of money targeted at this market, and in some cases offer better terms for such loans compared to regular loans.

  • Energy Performance Contracts: project is implemented by an energy services company which guarantees the savings that will be achieved by the project over the life of the contract. This can include financing, or be combined with another financing option.

  • On-bill financing: financing is provided by or through your energy retailer. The repayments are incorporated as a separate line on your energy bills.

  • Environment Upgrade Agreements: these are similar to on-bill financing, however repayments are incorporated as a line on the building owner(s) council rates bills.

  • Range of Energy Service / Supply Agreements: external finance with a range of operating models; including Power Purchase Agreements and Build, Own, Operate and Transfer agreements.

  • Self-financing: financing directly from your cash flows.

You should consider the following questions when selecting the right option for your project:

  • What are your capital constraints? Does the project need to be off balance sheet?

  • What repayment mechanism best matches your cash flows?

  • Do you need to own the asset, either now or at the end of the financing agreement?

  • What is the risk that the expected energy savings won’t be achieved? Who is best to manage this risk – you or an energy services company?

  • Do you need to contract for commissioning and maintenance of the equipment? If you already have a maintenance agreement in place, how will contracts for the new equipment tie in with this existing agreement?

There are financing solutions that will suit your specific projects and requirements.  Review your projects today to better manage your energy costs and climate change risks.

Please contact one of our experts to discuss the approach your business should take.

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