Financing Project

7 Key Questions Businesses Should Ask Before Starting Any Energy Efficiency Project

By Al Gaspari

California businesses are embarking on energy efficiency initiatives like never before, and with good reason. There are many benefits to increasing energy efficiency, and they're not all environmental in nature.

More than 20,000 commercial buildings and industrial plants have earned the ENERGY STAR certification since the Environmental Protection Agency launched the program in 1992. That represents more than 3 billion square feet of commercial space and a cumulative cost savings of $2.7 billion. It also equates to 14 million MtCO2e (million metric tons of carbon dioxide) that were not emitted into the atmosphere.1

Before launching an energy efficiency project, there are a number of important considerations that businesses must take into account. The following questions provide California businesses with guidance and benchmark information related to all types of energy efficiency projects.

1. What do I need to calculate my business's energy savings?
Business owners and managers need to know their building's energy baseline in order to accurately calculate energy savings. The energy baseline is the amount of energy a building currently uses. This information is integral to making a smart investment in energy efficiency. When establishing a business's energy baseline, owners or managers should consider external variables, such as weather, building occupancy and operating hours, which can all affect the baseline calculation.

Those who are uncertain of their business's current energy consumption can use My Energy on pge.com. Understanding and tracking current energy use is essential in establishing a business's energy baseline.

2. How do I determine if my projected savings are reasonable?
Once an energy baseline is established, the information can be used to guide an energy efficiency project's savings calculations. The accuracy of a business's savings calculations depends on the energy conservation measures selected for that business. Contractors can recommend several types of energy conservation measures, such as upgrades, repairs, retrofits or replacements, to help a business stay in line with its budget. Contractors can also explain the pros and cons of each measure.

Additionally, business owners and managers should analyze the payback period of a project to gauge their investment threshold. While energy efficiency projects often have short-term benefits by reducing energy usage, they are generally a long-term investment. It is important to consider the ROI over the entire payback period to accurately determine the projected savings.

3. Do payback periods vary by project?
The number of years that it takes for the dollar value of the projected energy savings to repay the cost of the installation is often referred to as the project "payback." Once the project reaches its payback, the business will realize the energy savings for the remainder of the life of the energy conservation measure and it goes straight to the bottom line.

The challenge for business owners is that they have to pay for the installation of the energy conservation measure up front, while the energy savings benefits they realize will come down the road. Energy savings are viewed as a reduction of operating expenses, while the installation of the energy conservation measures is typically considered a capital expense. The resulting budget challenge can make it difficult for businesses to make smart investments in energy conservation measures.

Some energy efficiency projects offer quicker payback periods than others. For example, lighting projects tend to offer faster payback periods than heating, ventilation and air conditioning (HVAC) projects. For this reason, business owners and managers who use large amounts of energy have found that it can be cost-effective to combine these measures into a single project.

4. What are the considerations for financing options?
Key financing considerations should include a business's financial needs, energy efficiency goals, technologies that can be funded by technology, timing on installation, project size, loan interest rate, payback period terms and credit check requirements. Adjusting the scope of an energy efficiency initiative can directly influence the financial side of a project.

5. Does energy efficiency improve cash flow?
Choosing the right financing option for a business's energy efficiency project can improve cash flow and lessen the amount of upfront costs for owners and managers. Some energy efficiency projects will yield immediate cost savings in the form of lower utility bills, which also has a positive impact on cash flow. Additionally, when energy efficiency projects are combined, owners and managers are much more likely to experience both energy and cost savings.

6. What are my financing options?
There are several financing options available to businesses looking to implement energy efficiency initiatives. Loans can be obtained from financial institutions as well as energy providers such as PG&E. Business owners and managers also have the option of pursuing a financing contract such as an Energy Savings Agreement (ESA) or a Managed Energy Savings Agreement (MESA).

Financing can also be obtained directly from PG&E, with no upfront out-of-pocket investment. PG&E offers 0% interest loans between $5,000 and $100,000. The monthly loan payment amount appears on a business's energy bill, and owners and managers are allowed up to five years for the repayment period.

7. How do I measure the success of my energy efficiency project?
Business owners and managers can examine both short-term and long-term measurements to determine the success of an energy efficiency project. With the right financing, businesses will see lower bills immediately and a long-term return on investment.

Answering the questions above will help California businesses decide what kind of energy efficiency project is right for them. One additional question that business owners or managers might want to ask themselves is what the cost of not implementing an energy efficiency project will be. The most energy efficient buildings in America — those that have earned the ENERGY STAR certification — use 35% less energy than typical buildings, all without trade-offs in performance or comfort.2

Research also shows that more efficient buildings have higher occupancy rates and increased asset value compared to typical buildings. Tenants want real estate with lower utility bills, and more and more organizations are implementing leasing policies mandating environmentally friendly space.

For more information on energy efficiency projects, download "Insider's Guide to Financing Energy Efficiency Projects" by PG&E. This guide will help businesses leverage the same planning and financing techniques that already work for other companies.

Referenced in article:
  1. ENERGY STAR
  2. ENERGY STAR

Ask the right questions before an energy efficiency project with this guide:
  • SMB Blog Author
    Al Gaspari
    Principal Program Manager for Energy Efficiency Finance for PG&E. Oversees the On-Bill Financing (OBF) Revolving Loan Program, and the upcoming energy efficiency finance pilots, including the On-Bill Repayment option. Al works with PG&E’s Account Managers and Channel Partners to help customers overcome investment hurdles for energy efficiency. Formerly, Al was Finance Director for the Greater Cincinnati Energy Alliance, a nonprofit that helped homes and businesses invest in energy efficiency, and a Senior Manager with KPMG LLP, advising large utilities, IPPs and industrial conglomerates. Al can be reached at EEFinance@pge.com.
 

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