For many building owners, managers and engineers, energy-efficiency upgrades may seem like an unlikely goal at a time when profits are down and cash for investments is scarce.

This is where equipment financing can be employed to help building owners realize energy-efficiency retrofits that can actually pay for themselves.

Just about every kind of facility, whether government building, retail center, office complex, school, manufacturing plant or other commercial structure, has an opportunity to benefit from energy-saving equipment upgrades.

Energy-efficient lighting and HVAC systems, for example, are some of the most logical and cost-saving improvements. Other possible upgrades include solar photovoltaic and hot-water systems, small wind systems, and geothermal heat pumps, to name a few.

But while these green technology advances are expected to play a leading role in the global economic recovery, the ability of building owners to access funds to pay for such upgrades remains compromised by the sluggish economy.

The question is how to make energy efficiency retrofits for buildings happen when businesses in general have fewer profits to invest in improvements and a strong need to conserve their cash.

Working with an equipment finance partner, however, gives building engineers and owners an option that can be cash-flow-neutral, and in many cases, even cash-flow-positive.

How?

Because such installations can generate energy and maintenance cost savings that surpass financing costs. This results in a win-win solution for building owners looking for ways to lower their energy bills yet reduce their carbon footprint and create a more environmentally friendly facility for those inside.

As an example, consider an office building that could benefit from $150,000 lighting retrofit, a proven energy saver that is readily available, quick to install and has proven payback periods of two to four years.

Through equipment financing, the lighting retrofit can be completed without any capital outlay and save $57,000 per year in energy costs. The project becomes cash-flow-positive once those energy savings surpass the approximately $55,600 annual lease cost for a three-year agreement (or the $43,100 annual lease cost on a four-year agreement).

Equipment financing for energy-saving upgrades allows for projects that are cash-flow-positive from the start since both equipment and installation costs can be financed and no down payment is required to start the project. Also, when financing is based on a capital lease instead of an operating lease, the building owner receives the full benefits of ownership, including accelerated depreciation and a variety of federal, state and local energy efficiency incentives. 

Take solar photovoltaic systems, for example. These assets are long-lived and require up-front financing. They also provide a predictable supply of energy, are a proven technology and don’t cost a lot to maintain.

Now, more than ever, the government, as part of the American Recovery and Reinvestment Act (ARRA) of 2009 and the Emergency Economic Stimulus Act (ESSA) of 2009, is providing a variety of incentives for energy improvements, including solar, to existing buildings.

With these new incentives, a capital lease is likely to be your tax advisor’s finance instrument of choice to benefit from both energy efficiency and renewable tax incentives.

Building owners can also benefit as customers of manufacturers, vendors, contractors and Energy Service Companies (ESCO) who partner with an equipment leasing company. Such partnerships allow building owners to get their project and financing needs from one place.

Should a building engineer, owner or manager want to explore such options, a good place to start is by selecting an equipment finance partner that is experienced with energy-efficiency retrofits and can assess the unique finance needs of such a project.

  Selecting a partner with energy sector equipment financing expertise is particularly important given the many advances in green technology, sometimes-complex installations and the myriad economic stimulus options coming out of Washington.

It is effort well spent, however, when a building owner can realize the goal of an energy-saving upgrade that pays for itself, improves cash flow and reduces a facility’s carbon footprint all at the same time.