Robert Macklin, Chief Financial Officer at Powerstar, discusses the benefits of funding energy efficiency projects ‘as a service’, a flexible funding option that allows businesses to invest in the benefits of energy management solutions without investing a significant portion of the business’ capex.
The full article was published by Robert on LinkedIn on Wednesday 28th March 2018.
Energy Efficiency as a Service: invest in the benefits, save on the solution
Due to ever-mounting pressure from the UK Government, including its “Road to Zero” plans, the Clean Growth Strategy, and its overall commitment to reducing carbon emissions across the board by 2050, businesses are under scrutiny more than ever to implement energy efficient processes and technology to reduce their impact on the environment and contribute to the UK’s future sustainable, low-carbon economy.
In addition, the cost of electricity for business users in the UK has more than doubled over the past decade, and experts across the industry predict that costs will continue to rise at the same rate in the future. Because of this, more and more companies are seeking ways to reduce energy costs not only to conform to the increasingly stringent targets, but also in order to free up capital which can be reinvested into core operations and activities.
For this to be viable and achievable, businesses must plan and organise their budgets to allow for investment into energy efficiency projects, and although implementing such projects will provide economic benefits and savings as energy consumption is minimised, many companies are understandably put off by the idea of investing a sizeable portion of its capex to undertake energy efficiency improvements. In addition, energy audits can lead to several solutions being recommended and, sadly, when there are other priorities competing for investment, particularly those tied to the business’ core operations, the viability of implementing those energy efficiency measures plummets.
However, this doesn’t have to be the case as there are alternative ways of acquiring energy efficiency technologies that still reduce energy consumption without compromising a business’ cash flow, helping companies remain cash positive from day one of the project and overcome the conflict of capital expenditure versus cost savings.
One such funding option that provides this is a serviced business model. This model enables the benefits of the energy efficiency improvements to be experienced whilst the technology is supplied ‘as a service’. Ultimately, this allows businesses to implement energy efficiency improvements whilst spreading the cost over an agreed service term, negating any potential complications caused by unavailable cash flow. Also, these funding models often include the maintenance and upkeep of the equipment presenting added value to the customer.
What does ‘as a service’ mean?
energy efficiency as a serviceIt’s a term that in recent years has become mainstream, having been applied to many sectors from IT (Software as a service) to Gaming (Games as a service). As a result, due to the flexibility and benefits-driven nature of the ‘as a service’ model, it has been adopted by market leaders within the energy industry and utilised as a way to support the heightened focus on energy efficiency responsibilities.
It goes without saying that, regardless of its size, how a company opts to fund an energy efficiency project is a crucial factor in order to determine when, or if, they can consider implementing the energy efficiency improvements required.
Acquiring this technology and associated services ‘as a service’ means that, instead of investing a significant amount of capital upfront, the needs of the customer are evaluated and a solution is provided to best suit those needs with the terms and payment plan agreed upon by all parties.
Responsibility for the equipment, its performance, upkeep, maintenance, and servicing then all fall on the supplier under the terms of the service agreement, providing a risk-free solution to the customer.
Is energy efficiency ‘as a service’ the best option for your business?
Ultimately, the decision of how a company decides to fund its energy efficiency projects depends on the unique situation and requirements of the business and its available capital, but there are a few compelling reasons why funding a project through a mutually agreed-upon service agreement is often better than outright purchase, even when cash flow isn’t a concern.
Firstly, utilising an ‘as a service’ funding option means a company can move ahead with its energy efficiency project straight away, without having to wait for the allocated capital to become available, meaning the business will start to benefit from the energy reduction savings sooner.
It also enables businesses to implement its energy efficiency improvements whilst simultaneously utilising its cash flow to invest into other projects such as R&D, which could deliver significant competitive advantage to the business.
Additionally, funding the project ‘as a service’ offers a degree of flexibility otherwise unavailable to the customer. It allows businesses to avoid certain barriers by reducing or avoiding upfront costs, and the terms can scale up or down as required, at any point in the agreement. This means that the project in place can easily respond to accommodate changes to the business’ requirements, (a) without the need to raise further capital to secure additional equipment, or, (b) if the equipment is suddenly no longer required, without significant financial loss, providing a future proof solution that offers a level of security not available with outright purchases.
Flexible funding models can also provide stepped payments, which increase or decrease at specific times to accommodate the impact of seasonal pressures on operations. For example, a customer may wish to pay a higher payment in the winter when sales increase due to the holiday period, and utilities are more expensive thereby increasing the amount saved through energy reduction.
A common concern, however, when undertaking fully serviced energy efficiency projects is the perceived complexity of financial agreements and contracts. But, modern finance contracts are designed to be transparent and straightforward, and, with the right supplier, can be extremely adaptable based on bespoke solutions that best suit the business, its priorities, and how it operates.
Finally, funding energy efficiency improvements ‘as a service’ enables the customer to invest purely in the benefits of the project, rather than the technology or equipment itself, through an ongoing payment term that is often lower than the savings achieved through the project, ensuring the customer receives a fully results-driven service while remaining cash positive from day one of the installation. And, unlike some funding models, the total expenditure of the project is not restricted, meaning significant investment can be undertaken utilising the de-risked model.
Where can I find more information?
The benefits of utilising the ‘as a service’ model hinge on the unique requirements of each business. Because of this, companies interested in exploring this method to fund energy efficiency projects should seek a provider who can offer a bespoke solution with flexibility to meet their needs.
Powerstar offers its range of energy saving solutions utilising a flexible, bespoke as a service funding model supported by a funding partner with expertise in the energy industry. If you’re interested in learning more contact Powerstar by emailing firstname.lastname@example.org, or call the office on 01142 576 200.