What is Commercial Energy Efficiency Financing?

Commercial energy efficiency financing refers to the possible methods an individual can pursue to secure funding to improve the energy efficiency of their building. Redaptive’s primary solution are  Efficiency-as-a-Service (EaaS) methods, which allows Redaptive to cover the cost of a building retrofit with zero upfront payment from the customer. The savings created from the project then pay for the retrofit itself. The Better Buildings Initiative Better Buildings Initiative describes   EaaS methods   as: “A relatively new but proven structure that has been used to implement multi-million dollar retrofit projects in Fortune 500 companies and major facilities across the U.S. It is most common in the commercial & industrial and MUSH (Municipalities, Universities, Schools, and Hospitals) sectors, but it can work for any sector. Efficiency-as-a-service is a flexible financing mechanism that can incorporate a wide range of efficiency measures, including water. Efficiency-as-a-service is often described as part of a broader transition to energy-as-a-service, in which third-parties provide technical, financing, and/or procurement solutions for energy technologies in exchange for a service fee, rather than having the customer purchase the systems outright. Efficiency-as-a-service is gaining popularity because it overcomes market barriers that other mechanisms do not, and it limits customer performance risk while still providing an avenue for short-term energy and cost savings.”

However, there are a variety of other energy efficiency financing options for retrofits that companies can take advantage of or even weave into an EaaS offering.

CapEx (Capital Expenditures)

CapEx or Capital Expenditures for instance are the most common form of energy efficiency financing, which simply is the company using its own capital to pay for the project out of pocket. One problem with this option is that it doesn’t include any of the third-party procurement and energy efficiency financing options offered by companies like Redaptive. This issue can lead to higher costs in the long run and a longer installation period as it requires internal resources and capital.

Energy Efficiency Lease

Lease options are another popular form of energy efficiency financing, which at least offer a financial incentive for customers but still as the Better Buildings Initiative notes, “Cost savings are not guaranteed and operation and maintenance of equipment must be arranged by the owner. Most forms of leases and loans are secured, meaning that the debt is backed by some form of collateral (generally the energy equipment or the facility) in the event of a default, which often requires lender (first mortgage) approval and can further complicate transactions.”

Commercial PACE

Commercial PACE financing is another option, though it is limited by state. In a Commercial PACE (Commercial Property Assessed Clean Energy) financing structure in which building owners borrow money for energy efficiency, renewable energy, resilience improvements, or other projects and make repayments via an assessment on their property tax bill. The financing arrangement then remains with the property even if it is sold, facilitating long-term investments in building performance.