Plenty of Ways to Finance Sustainability Projects

Plenty of Ways to Finance Sustainability ProjectsBy Paul Studebaker, July 22, 2011 01:22:18 pm posted in Sustainable Plant

We had an energy audit done on our house in 2008 – I wrote it up for Plant Services magazine. We learned a lot, but the most significant finding was some pretty large air leaks into the attic around the HVAC duct penetrations through the second-floor ceilings. It took about two hours and $20 worth of foam backer-rod and caulk to seal them up. The auditor estimated annual energy savings of $91 for that little project.

The audit cost $500. Between the attic sealing and a few other minor projects it recommended, I’m confident we’ve more than broken even and the house is more comfortable, with no drafts and better humidity control.

But I was a little chagrined when I opened our latest utility bill and saw a promotion (one of those colorful flyers that usually offer a furnace service plan or a small rebate for installing a gas log) for free energy inspections. Not only will the utility now do for free much of what cost us $500 – they will also contribute up to $750 of the cost to insulate and air-seal the attic.

Our house is obviously not a factory, but lately I’ve run across a number of sources at least as eager to help you cover the upfront cost of reducing energy and water consumption, and reining in greenhouse gas emissions.

We’re heard a lot over the years about pay-for-performance, where the project contractor or equipment supplier offers to take payment as a percentage of and contingent upon savings or return on investment. This approach usually doesn’t get much past the offering stage because once it’s in writing, the customer starts to believe the returns will be real and decides to keep them all for themselves.

But Siemens tells me it has financed many customer projects this way under its Conserv program, which structures facility or operational improvements as part a service agreement. The plant’s obligation to pay for the projects is limited to the extent that cost reductions are achieved. Each period, usually a year, Siemens provides an extensive audit and verifies the actual amount of cost reductions. Payments are based on the results of the audit.

A recent Siemens Conserv project at BAE Systems upgraded boilers, chillers, controls and drives, putting the company on track to save $305,000 per year.

Engineering company Ameresco has a similar program to “answer the question of how to manage aging facility and municipal energy systems when political or financial pressures put capital out of reach.” The budget you currently allocate for utility payments can be used to replace or retrofit existing infrastructure. The company has helped its customers achieve savings of 10% to 35% at the facility level, and up to 65% at the process level. It also offers the engineering and personnel training to help commercial and government customers comply with zero net energy initiatives.

Ameresco recently completed projects on compressed air, pumping station and refrigeration systems at Eastman Chemical. The refrigeration project allowed Eastman to shut down an old ammonia refrigerant system.

Chicago, Illinois put the utility expenditures of its city buildings up for bid. It intends to raise up to $40 million in private financing to retrofit as many as 100 city buildings to improve sustainability. The guaranteed performance contracting program will tackle lighting upgrades, water conservation measures and mechanical retrofits expected to save up to $5.7 million in operational costs annually.

Investing in sustainability is such a good idea, it’s being taken up by entire countries. Australia has made plans to invest $10 billion in green power and clean technology. The Clean Energy Finance Corporation will start operating in 2013-14 with more than double the seed capital of its overseas counterpart, Britain’s $4.5 billion Green Investment Bank.

The fund will be independent of government and run by a board of banking, investment management, clean energy and technology experts. It will have a total budget impact of less than $1 billion because the investments will take the form of private business equity holdings and financing.

In the United States, senators including John Kerry, Democrat of Massachusetts, and Kay Bailey Hutchison, Republican of Texas, have proposed a similar American Infrastructure Financing Authority to move private capital, now sitting on the sidelines in pension, private equity, sovereign and other funds, into much-needed infrastructure projects.

Rather than sell debt to investors and then allocate funds through grants, formulas and earmarks, the authority would get a one-time infusion of federal money ($10 billion in the Senate bill), then extend targeted loans and limited loan guarantees to projects that need a push to get going but can pay for themselves over time.

For now, you may not be able to get plant project funding from government infrastructure programs, but the investments will improve the sustainability of your utilities and logistics. And as more investors recognize the returns, who knows, maybe you’ll be able to sell your plant’s upside potentials to the highest bidder.

Or maybe you’ll decide to keep it all for yourselves