Energy Star Financing Options | Region 10 | US EPA

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Energy Star Financing Options

Regional Energy Star Resources
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Financing Energy Star Building Efficiency Upgrades


Your payment and financing options include:
No Immediate Investment
This is the decision to do nothing right now. It typically will show up continuously on the profit and loss statement because the energy expenditures are 30% to 40% greater than they would have been the case if the energy performance improvements had been undertaken. Therefore this drain on the bottom line will continue until the energy efficiency upgrades are finally undertaken.

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Purchases of Equipment and Services
Cash


Loan
Leasing
Capital Lease Operating Lease The Lessor Note: Since lessors to governmental organizations don't pay taxes on the interest from these leases, the rates to these organizations should be lower than the typical capital lease market rates.

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An introduction to Energy Service Companies (ESCOs)
An Energy Service Company, or an ESCO, is a business that develops, finances and implements projects designed to improve the energy efficiency and thereby reducing operating and maintenance costs for the customer.
The projects often have a long duration normally ranging from two to ten years. ESCOs differ from, e.g., consulting firms offering energy efficiency services or equipment manufactures by using the concept of performance contracting.
A performance contract ties payment and financing directly to the amount of energy that’s actually saved in the customers facility.

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Performance Contracts

In a performance contract, an outside party provides a services package.

This package can range from a simple audit, installation, and monitoring to full operation of a facility’s energy systems.

The service provider typically conducts an energy audit, designs the cost-effective projects, obtains bids, manages the construction, guarantees energy savings, obtains financing, and maintains the energy-saving capital improvements.

You use resulting energy savings to pay for the improvements.

Performance contracts are sometimes referred to as “Shared Savings” or “Paid from Savings” contracts. These terms refer to the manner in which payment is made for the upgrade.

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Shared Savings

With shared savings, the dollar value of the measured savings is divided between you and the service provider.

If there are no cost savings, you pay the energy bill and owe the contractor nothing for that period.

The percentage distribution of the savings between the service provider and the customer is agreed upon in advance and documented in the performance contract.

At the end of the contract, ownership transfers to the building owner as specified in the contract.

You either may purchase the equipment at fair market value or simply assume ownership of the equipment paid for during the contract term.

Paid from Savings

Almost all energy performance projects are paid for from the savings created by reduced energy usage.

Thus, the term “paid from savings” can be used for several different types of energy-upgrade contracts.

Here it is being used to refer to another performance contract payment whereby you pay the service provider a predetermined amount each period (for example, an amount equal to 80 percent of the expected energy bill before the upgrade.

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Performance Contact Summary

A Performance Contract does not show up on the balance sheet.

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Public and Institutional Options
Utility Incentives
Utilities often provide financial incentives for energy efficiency upgrades through:

Check with your local utilities to find out what types of programs are available.

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State Assistance
Some states offer financial assistance to nonprofit organizations or small businesses for operating improvement upgrades.
Contact the state agency that monitors the type of service provided by your organization (e.g. schools) to inquire about these opportunities.
Funding may also be available through State Energy Programs and energy conservation programs supported by the U. S. Department of Energy.

Payment and Financing Options--Quick Comparison Chart

Upgrades / Equipment
No Investment
Cash Purchase
Loan Purchase
Capital Lease
Operating Lease
Performance Contract
Utility Incentives
State Assistance
On Balance Sheet
Non Applicable
Yes--
Asset
Yes--
Asset
Yes--
Asset
and
Liability
No
No
Check with local utilities
Contact the proper state agency
100%
Paid for
Non Applicable
Yes
No
No
No
No
Check with local utilities
Contact the proper state agency
Down Payment Required
Non Applicable
No
Yes--
Could be
up to
40%
Little
or
none
Little or none
Little or none
Check with local utilities
Contact the proper state agency
Follow-up Payments Required
Non Applicable
No
Yes
Yes
Yes
Yes
Check with local utilities
Contact the proper state agency
Tax Deduct-
ibles
Non Applicable
Depre-
ciation
Depre-
ciation
and
interest
Depre-
ciation
and
interest
Lessor claims depre-
ciation
Contractor claims
depreciation
Check with local utilities
Contact the proper state agency
You assume
All Energy Performance / Savings Risks
Non Applicable
Yes
Yes
Yes
Lessor assumes
Contractor
assumes
Check with local utilities
Contact the proper state agency
You own Equipment
Non Applicable
Yes
Yes
Yes--
Even-
tually
Lessor owns until end of lease-then can be purchased or re-leased
Contractor owns until end of lease-then can be purchased or you assume ownership
Check with local utilities
Contact the proper state agency
Cost Savings from upgrades are immediatly available
Non Applicable
All
All
Residual*
cost savings are available
Residual*
cost savings are available
Residual**
cost savings are available
Check with local utilities
Contact the proper state agency
* Residual--Defined as moneys over and above lease payment
** Residual--Defined as moneys over and above payments to contractor

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URL: http://yosemite.epa.gov/r10/OI.NSF/Energy+Star/estarfinance

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