How investing in energy efficiency can pay for itself
A loan to finance energy-efficiency investment can easily lead to positive cash flow — with energy savings amounting to more than the repayments. Enter the Energy Efficiency Financing scheme to finance such investment, as Darren Riva of the Energy Efficiency Financing scheme explains.
Non-domestic buildings account for nearly a fifth of the UK’s carbon emissions, of which almost half originate from heating (46%), followed by lighting (23%), then cooling and ventilation (11%). In retail, lighting is the highest consumer. In the hospitality sector the largest consumer of energy is catering. Industrial premises, retail, hotels/inns/restaurants and commercial offices are the four biggest contributors to carbon emissions. Worryingly, emission levels have only fallen slightly since 1990.
Currently, more than 75% of non-domestic buildings were built before 1985 and pre-date any Building Regulations with specific energy-efficiency requirements. By 2050 half of these buildings will still be standing.
Clearly, there is a major opportunity to cut carbon emissions and, at the same time, potentially generate the financial benefits accruing from energy efficiency. Using technologies and approaches that exist today, it is possible to achieve 15% carbon emission reduction from existing buildings and 45% from new ones.
Simple measures ranging from turning off lights and optimising heating start times to installing presence detectors for lights and programmable thermostats can already help cut down energy use. Complemented by the implementation of energy-efficient technologies — biomass boilers, low-energy lighting and variable-speed drives, amongst others — the energy efficiency of non-domestic buildings can be substantially enhanced. Seizing these cost-saving opportunities could lead to a net economic benefit to the UK of £4 to 5 billion by 2020.
The economic pinch, aggravated by the escalating trend of electricity prices, is prompting organisations to examine the issue of energy efficiency with increasing seriousness. For many businesses, a 20% reduction in energy costs represents the same bottom line benefit as a 5% increase in sales. The investment required to seize such cost savings can often be recouped within three years with an internal rate of return (IRR) of 48%. However, the tight credit climate has made green investments unattainable for many companies. According to the Bank of England, the annual rate of lending to UK businesses fell in the three months to August. The stock of lending to SMEs and large businesses also contracted.
To help businesses overcome the financial hurdle in their ambitions to go green, the Carbon Trust and Siemens Financial Services (SFS) have initiated the Energy Efficiency Financing scheme (EEF). The scheme is designed to provide finance for organisations acquiring energy-efficient equipment, with affordable monthly payments designed to match — and be offset by — the average monthly savings on energy bills.
In some cases, the energy savings can be greater than the monthly finance payments, allowing the end customer to be cash positive from day one. In addition, any energy-saving assessment will be conducted by the experienced specialists of the Carbon Trust, giving businesses the assurance that the expected carbon reduction, and financial savings over time, will match or exceed the finance payments.
Suppliers of energy-efficient equipment can also apply to become a recognised supplier of the scheme, which will allow them to integrate the financing offer into their overall sales proposition. This removes the obstacle of large up-front capital investment for customers and helps suppliers to close more deals as efforts can be focused on providing the best solution, rather than being constrained by businesses facing capital budget restrictions.
The EEF scheme has helped a wide range of organisations exploit cost-saving opportunities and reduce their carbon footprint, as illustrated by the examples below.
Nailcote Hall Hotel, Golf & Country Club, at Solihull has brought down its heating costs with the installation of a 100 kW biomass boiler. It runs on a combination of wood pellets and the by-product of a bio-digester. The hotel has also undertaken a project to install a food digester to reduce food wastage costs, in addition to delivering supplementary supply of burnable fertiliser. The combination of biofuel production and biomass boiler represents a £50 000 investment but delivers savings in the region of £20 000 a year.
Spark Response, a leading provider of customer contact centre and eCommerce order fulfilment service, also leveraged the EEF scheme to exchange its warehouse lighting to 80 W T5 high-output tubes and also installed motion sensors and lux daylight sensors in the premises to reduce unnecessary lighting. These efforts have resulted in energy savings between £1000 and £1500 per month since the installation in December 2011. The £40 000 project has payback of between three and four years.
In light of the UK’s targets for carbon-emission reductions of 80% by 2050 (vs 1990), non-domestic buildings have a pivotal role to play in the nation’s transition to a low carbon economy. In fact, the Government has stated its ambition for emissions from all buildings to be ‘close to zero’ by 2050. To achieve this ambitious goal, organisations require an effective energy-management programme with the use of energy-efficient technologies at its heart. By removing the need for up-front capital, the EEF specialist financing is an essential tool in helping the non-domestic buildings sector realise its enormous potential to contribute to a greener future.
Darren Riva is head of green financing for the Energy Efficiency Financing scheme.
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