Energy Pros Take on Finance – The First Steps
A general understanding of efficiency finance is quickly becoming a competitive advantage for professionals working in energy efficiency. Building owners installing efficiency upgrades are increasingly looking to energy professionals to help guide them in getting financing for their projects. And, while efficiency finance is a hot topic in the industry, many energy professionals are unsure about how to get comfortable enough to help their clients with financing. Everyone, from auditors, engineers, project developers to efficiency program staff, is facing the challenge of having to educate themselves about efficiency finance to best serve their customers. This can be tough because finance is outside of the traditional scope of what energy professionals do. However, the continued growth of the industry and efficiency businesses relies on energy professionals being able to connect clients to the funding they need to get their projects completed.
As a part of my work at Noesis I get to interact with energy professionals in our community seeking information and resources about efficiency finance and many of them share similar frustrations around the challenges to getting started. They feel like they don’t have the time to devote to becoming an expert in efficiency finance and that most of the resources available to them are written for finance people, are too focused specific use cases and generally aren’t applicable to their customers and projects. The good news is that you don’t have to get a degree in efficiency finance to be able to help your customers navigate the process and there are great resources for out there for people who are just getting started- you just have to know where to find them. Here are some first steps to help you get you started and some helpful resources from organizations out there working to simplify efficiency finance, making it accessible for energy professionals.
It may seem like efficiency finance is all about leases, loans and PACE, but it’s important to take a step back and think about financing more holistically. From RGGI to WAP and utility funds, there are a variety of locally incentive programs available to help jump-start the process of funding an efficiency project. Being knowledgeable about the incentives and rebates available to your customers can be an important first step in beginning a dialogue about financing with your customer that leverages both incentives/rebates and other types of efficiency finance. ACEEE has developed a State and Local Policy Database, which provides among more policy related information, a summary of financial assistance for efficiency projects available in the state or locality. Additionally, DSIRE is a dedicated database of rebates and incentives that can be used as a research tool to find available local funds and contact information for getting started.
Understand financing vehicles
There are a variety of financing vehicles available to finance efficiency projects. From leases and loans to Energy Service Agreements and PACE, each is designed to finance projects with specific characteristics. Being able to identify the right finance vehicle for each of your customer’s projects consists of two things. The first is knowledge about the technical scope of the project- this includes technology, size, scope and other details that are familiar to energy professionals because they come from the audit. The second is knowledge about your customers financial preferences and constraints- understanding your customer’s tax situation, capacity to self-fund, balance sheet considerations and internal hurdle rates is just as critical to determining the right finance vehicle as knowledge of the project scope. Before you begin looking at financing vehicles you must work with your customer to determine the factors you need to consider in helping guide them. Knowing the right questions to ask your customers in order to gather the information you need can be the trickiest part, Metrus Energy developed a useful Roadmap to Efficiency Finance that helps guide you through the questions you’ll need to ask your customer’s when advising them in the project financing process. Once you know what financial characteristics suit your customer, you can use tools like the Financing Cheat Sheet Noesis created (which provides an at-a-glance summary of all of the most popular financing vehicles and the project types they are best suited to fund) to help identify the range of available vehicles that meet your customer and project criteria.
Learn about the different types of lending institutions
After you’ve identified a financing vehicle that makes sense for your customer and project, you will need to connect with an institution that offers that particular structure. And you’ll find that not all lending institutions offer all financing structures. ACEEE put out Energy Efficiency 101: Understanding the Marketplace a helpful whitepaper that breaks down the main types of financial institutions and the financing vehicles they typically offer. Depending on the number and types of products and/or services you offer, you should develop relationships with lenders that offer the vehicles most related to the work you do. For example, your customer may have a commercial bank where they traditionally have gone to get commercial loans, but for your particular project you’ve identified that an equipment lease makes more sense. There may be a private equity firm or boutique lender that is better to work with and more knowledgeable about equipment leasing. In this case, it’s ideal if you have a go-to lender for equipment leases when you have a client ready to finance, rather than starting the hunt for one at this point. Waiting to identify and select a lending institution when you have a project to fund can both delay the process and in some cases cause the project to stall.
Stay in the know
In order to stay on top of the trends and new advancements in the market it’s important to stay tuned into the latest news about efficiency finance. The media pick up the development of new lending institutions and the launch of new financing vehicles creating buzz and generating interest from the market. Your customers will assume that if they’ve heard of a new source of finance in the market that you will have too, after all you are their trusted energy professional. The best way to prepare for the questions that may come from your customers about these changes is to stay on top of efficiency finance. Luckily, many leading efficiency organizations are focusing their efforts on helping unlock finance for the efficiency market and some of them provide leading-edge news about the market. The Environmental Defense Fund’s (EDF) Investor Confidence Project (ICP)is working with industry leaders to develop Energy Performance Protocols that help define a clear road-map from efficiency retrofit opportunity to investment. As a part of this work they produce a blog and a market report that are helpful resources for staying on top of efficiency finance news. Noesis also has a dedicated energy project finance topic channel where professionals from across the industry connect and engage around efficiency finance. And even groups like the Association of Energy Engineers (AEE)are getting involved. AEE recently announced its Certified Performance Contracting and Funding Professional certification, which is designed around providing uniform standards for professionals working in per romance contracting and efficiency finance.
Understanding efficiency finance is a necessary step for energy professionals who want to stay competitive in the industry today. Taking the first steps in learning about finance can be the most challenging but ultimately also the most rewarding. Hopefully these steps and resources serve as a good place to get started.
Taina Palombo-Price is senior product marketing manager for Noesis Energy.
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