How to Incorporate Energy Efficiency into Capital Expenditure Plans

For small to medium-sized businesses, choosing which investments to make is a critical decision process. Cash flow limitations, resources and time are just a few of the top concerns of many small and medium-sized businesses. Businesses have to consider both capital expenditures (CAPEX) and operational expenses (OPEX).

The capital expenditure plan is a great opportunity to utilize effective capital expenditure planning to budget for energy efficiency projects. CAPEX investments in energy efficiency can result in same-year operating budget impacts and enable businesses to fund their CAPEX needs through projected energy savings goals. Businesses can also utilize available rebates, incentives and energy efficiency financing to offset the upfront investment that may occur with heating, ventilation and air conditioning (HVAC), lighting projects, refrigeration, food service equipment, water heaters and boilers, agriculture equipment and much more.

Defining CAPEX for energy efficiency
Energy efficiency improvements that require an upfront investment are typically addressed through a business CAPEX planning process. Depending on the size and structure of the business, the CAPEX process could be an informal review on an as-needed basis, or it could be a formal regular process that engages multiple stakeholders throughout the process. Energy spend, on the other hand, is OPEX, which could raise a different thought or approval process within the company. Leading companies look at OPEX and CAPEX in conjunction with each other, especially around energy efficiency.

Energy efficiency improvements in a commercial facility can often be categorized as a CAPEX; however, the savings from the project investment will reduce future OPEX (energy spend). Companies that have cash flow constraints for CAPEX can look at leveraging future OPEX spending to finance their investments using different energy efficiency financing options. For instance, PG&E's On-Billing Financing (OBF) program utilizes projected energy savings to calculate loan repayments. Additionally, rebates and incentives can offset same-year cash outflow and further enhance the ROI on investing in energy efficiency improvements in the facility.

Project considerations
According to a recent PriceWaterhouseCoopers report,¹ more than one-third of companies will plan for new capital investments over the next 12 months. Many small and medium-sized businesses can't afford to assign large capital expenditure budgets and have constraints with current-year operating budgets. Here are 4 considerations for energy efficiency financing, budgeting and planning:

1. Rebates and incentives: Businesses can alleviate upfront costs of an energy efficiency project and improve ROI with PG&E's rebates and incentives. Rebates are money that you receive after you've upgraded to new qualified, energy-saving products.² Incentives are for pre-approved customized projects that retrofit or install new energy efficient equipment to save energy.
2. Financing options: Energy efficiency financing options give businesses a longer payback period for energy efficiency improvements. Numerous energy efficiency financing options are available for business retrofits, upgrades, repairs or new installations. For example, PG&E offers 0% interest loans ranging from $5,000 to $100,000 with a 5-year repayment period.³ Businesses must determine factors that include project size, payback period terms and credit check requirements to identify the right program.
3. Dedicated energy efficiency budget: Having a defined energy efficiency capital budget establishes an organization's commitment to energy efficiency projects and can create a virtuous cycle⁴ as energy savings from past projects can be utilized to fund future projects. This virtuous cycle can also help engage company employees to increase the organization's commitment to energy efficiency, which can lead to even greater savings.
4. Getting started: To get started with an energy efficiency plan, businesses should first determine their energy baseline. This allows the business to identify the amount of energy used in a building. It is essential to provide contractors with accurate information to ensure they can calculate realistic savings for energy efficiency improvements. PG&E's My Energy tool can help businesses understand their current usage. Seasonal weather fluctuations can also change a building's energy use, so it's important to establish a baseline that considers multiple seasons of usage data.

Small and medium-sized businesses can afford to make energy efficiency improvements through a number of different energy efficiency financing and budgeting techniques. A capital expenditure plan, rebates and incentives as well as available project financing are all tools that can enable businesses of all sizes to reduce energy over the long haul.

To learn more about financing for commercial energy efficiency projects, download the "Insider's Guide to Financing Energy Efficiency Projects" from PG&E. This guide contains actionable information and proven resources to help you plan, finance and successfully complete energy efficiency upgrades, retrofits, repairs and replacements.

1. PriceWaterhouseCoopers LLP
2. Pacific Gas and Electric Company
3. Pacific Gas and Electric Company
4. American Council for an Energy-Efficient Economy