Financial

Have you considered allowing the energy savings to fund your capital project? Are there others that would like to own and operate the equipment? Upfront costs can be a major barrier to implementing energy savings projects for a business or municipality. Explore some of your options and choices.

How EnerG3 Financial Engineering works

EnerG3 provides consultation that includes a site survey, recommendation, and a financial analysis based upon your unique needs and objectives.

EnerG3 provides recommendations and has an information sharing discussion on choices and options. Once you decide on a solution, we walk through the financial options with you.

EnerG3 designs, installs and connects the efficiency or production system to the building and utility grid as part of the services.

For on site self generation systems, our clients pay for the power consumed at a rate typically less than that charged by the utility company. If the structure is a lease or a loan, our clients pay a fixed amount monthly.

EnerG3 continues to monitor and often maintain the system while our client saves on their energy bill. Performance guarantees are available from the 5th largest Global insurance carrier.

We Work to Find the Best Financial Solutions, So You Don’t Have To.

EnerG3’s experienced staff understands which efficiency solutions can work at your facility. As we develop a proposal, we calculate the financial and nonfinancial benefits of each specific project in order to present our clients with a list of opportunities ranked according to financial performance.

 

Different types of solutions have different drivers of financial value. 

A Combined Heat and Power system creates value based on the difference in price between natural gas and electricity. A solar production system derives its value from utilizing free sunshine, and capitalizing on local and federal tax incentives. Understanding what aspects of a project create value is important in making a decision to move forward. We make sure you have all the information you need to make and justify that decision.

Solution Financing

EnerG3 can offer a lower, predictable cost of energy with no upfront costs.

$ 0 / no upfront cost | Pay for energy:
Produced on site, “host” for a fixed term

OR

$ 0 / no upfront cost | Fixed Monthly Payment:
“Host” for a fixed term, keep system over production at no additional cost

 

Options for Financing a Project

 
A project that initially looks viable cannot be implemented if there is no capital to pay for the implementation costs. There are various financing tools that can be used to access capital that helps to pay for an energy efficiency or self-generation project. EnerG3 will identify, apply and guide you through the process of getting those funds,  beginning with “free capital” through grants, tax credits and deductions, and other incentives.
Grants & Incentives
The first thing EnerG3 determines is the “free capital” available in your area and for your industry, in the form of grants and incentives. Local incentives and grants range from environmental grants that are available through your state, to rebates for an energy efficiency project that your local utility awards. Federal incentives include grants, tax credits, and tax deductions. Finding the free money, incorporating it into the financial return, and then underwriting to secure those funds is what EnerG3 does daily.
Tax Exempt Municipal Lease
Municipal Leases are below market interest rate leases, because the lender does not have to pay income taxes on the interest. These are well known and used in the municipal world because they do not require a voter referendum, only mayoral and commissioners approval. These leases are typically non-appropriation, which allows a public agency to cancel the lease annually if sufficient funds are not appropriated for payments due during the next fiscal year. These leases comply with newly issued GASB standards on lease accounting rules.
Operating Lease

If your company has balance sheet constraints, an off-balance sheet financing solution can be explored as a way to get a project funded. The most well-known off-balance sheet funding source is an Operating Lease. Much like a traditional lease, it has monthly payments for the use of the equipment, but due to certain accounting rules, the lease payments are a pretax expense, not repayment of a loan. EnerG3 is familiar with US GAAP FASB 13, newly revised FASB Accounting Standards Update No. 2016-02, Leases (Topic 842), and International IFRS requirements to keep the lease as an operating lease and off the balance sheet for your accountants and shareholders.

Property Assessed Clean Energy (PACE) Bond
In some states, legislation has been passed to attach the energy producing equipment to the building and not the business. Because the building is the “owner”, the equipment lease is attached to the property tax assessment. Typically, property tax assessments are due annually and thereby the capital associated with the energy equipment is not listed on the business’s balance sheet.
Traditional Equipment Capital Lease

A Capital Lease is like getting a loan from your bank to pay for new equipment. Because it is a lease, the equipment serves as collateral. You make monthly payments for the term of the lease and at the end of the term you own the equipment.

We structure the lease so that the annual payments are less than the savings realized from the efficiency improvement. These are not just for large pieces of manufacturing equipment, they can also be used for things like heating and cooling equipment and even LED fixtures and bulbs.

Energy Efficient Loans
Many states, often funded through local utilities, have subsidized or energy related loan programs that are designed to fund energy efficiency projects. EnerG3 has relationships with many of these different capital providers and can walk our clients through the process of getting approved for grants, loans, or other incentives. These loans are centered on the reduction of electrical loads and not on-site production.
Power Purchase Agreements (PPA)

A power purchase agreement (PPA) for energy generation projects allows the purchase of energy from the owner of the equipment on-site. Under a PPA, a financier pays to install the generating piece of equipment, and your company buys a predetermined amount of energy, at a predetermined rate, from that project for a specified length of time.

Since this payment replaces the payment to your utility company, it is considered an expense and the capital cost is not seen on your balance sheet. PPAs are available for production projects like Solar and CHP.

Energy Service Contracts (ESC)
An energy service contract (ESC) is similar to a PPA but for energy efficiency projects. The ESC allows for the equipment to be used on-site based on hours used or kWh. Under an ESC, a financier pays to install the generating piece of equipment, and your company buys the use of the equipment for a specified length of time with some minimal levels of use.

Since this payment is for a service, it can be considered an expense, and the capital cost is not seen on your balance sheet. ESCs are available for lighting, HVAC, air compression, and refrigeration/freezer projects.

Performance Guarantee

The solutions that EnerG3 offers all come with some sort of manufacture’s warrantee that covers product replacement due to manufacturing defects. These warranties do not cover the performance of the project. While EnerG3 has installed all of our solutions and seen the promised performance realized, we know that our customers can be wary of new technology when committing capital for a project.

To help alleviate that concern, we have partnered with a top 5 global reinsurance company to offer a product-specific performance guarantee for all of our projects. This can remove the technology and performance risks over a specific period of time. This performance guarantee can help decision makers get comfortable with a product they may not know that much about. the business is using a lease or debt to secure capital, the performance insurance becomes a credit enhancement for bank underwriters, and gives banks further comfort regarding the credit risk.

The Tax Benefits of Partial Asset Dispositions

EnerG3 is not a legal or accounting firm to make recommendations on the newly revised tangible property regulations, but we do not want our clients to miss out on the benefits as our Energy Projects often qualify for these benefits.
Before the final tangible property regulations, renovations projects generally came with some unwelcome tax consequences; one could not write off the remaining basis of any replaced components. Instead, one had to capitalize and depreciate both the replaced and the replacement components. Technically the business could not take a loss on the old components unless and until you took a loss on the entire building. The final regulations allow taxpayers to elect to apply the property disposition rules to a building’s component. So one now can claim a partial disposition on the replaced component and take an immediate deduction on its remaining basis.
One may also be able to avoid recapture tax in the future. When one sells a building, one could be subject to a capital gain recapture tax of 25% of the depreciation claimed in the building. If you make the partial disposition election, you reduce the building’s accumulated depreciation and, in turn, the recapture tax. In EnerG3 discussions, ask us about these benefits and we will model the the asset disposition into the project financial benefits separately.

Interested in learning more about your specific needs and obtaining a white paper on one of the financial structures?

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