Research by Schneider Electric shows energy and sustainability project funding relies more on the energy business case than capital availability. The question is which of the many investment priorities will deliver the best end-result for the organisation? This depends in part on the significant shifts occurring in today’s economic and energy landscapes.
Companies are wary of debt, but when disruption is the new business-as-usual, there’s pressure to innovate and take risks. For example, companies are using joint ventures or public-private partnerships to continue investing in R&D. It is important to recognise the evolution of new funding models are also beginning to evolve, including outsourcing.
Investing in sustainability and advanced energy programmes can pay dividends for many years to come. But the number of competing business priorities also makes it difficult to get management approval and buy-in for them. In progressive businesses, many of the easy wins have already gone and finding new solutions to your energy business case needs a different approach.
Making an energy business case
Energy projects are growing in complexity and often go outside the traditional skills of an energy manager. Workforce turnover and changing business contribute to gaps in in-house expertise needed to champion such projects. This lack of internal resources delays investment payback making it seem less attractive than other investment opportunities.
Understanding how a project aligns with your organisation’s priorities is also key to gaining buy-in. Securing buy-in starts with education and a shared understanding of what energy and sustainability investments can do for the business.
Specifically, the complexity and relative newness of many of today’s most impactful energy investments, executives may have a limited understanding of the solution, making it difficult to check the risks of innovation.
Along with the need for education, innovative funding models are emerging to help align project proposals with organizational ambitions – and the realities of day-to-day business, which seem to be always changing. The resulting business model provides greater financial security, operational flexibility and ensures they translate into long-term value for the organization.
There are three top benefits executives look for when evaluating potential energy and sustainability investments. Finding funding models that address these issues can improve executive support and increase the likelihood of gaining buy-in:
Faster payback times
Improving payback times allows management to assess energy and sustainability investments using the same time horizon as competing priorities. Shared savings mechanisms improve payback time for energy saving schemes as non-capital projects with simple payback can move forward faster. These quick wins can bring longer payback projects within a business’s hurdle rate requirements.
Reduce Financial Risk
Performance contracting, energy services agreements and power buying agreements can protect cash flow by allowing businesses to recover capital faster. By providing clear ROI projections, these models reduce financial risk and improve the alignment of energy projects with business priorities. Moreover, performance contracting allows energy savings or operational improvements from efficiency investments can be re-invested in core business activities.
Outsource Operational Burden
Energy-as-a-service models and power buying agreements can remove the balance sheet burden and operational responsibility from a project through outsourcing. This can be in part or even whole facilities, buildings, or portfolios. Outsource funding models centralise accountability of vendors and service providers involved in a project, providing a holistic oversight.
Finally, there is no one-size-fits-all solution to matching your business’ energy and sustainability objectives with an appropriate funding model. Companies can choose from a variety of innovative funding models to move energy and sustainability projects forward. Schneider Electric has prepared an interactive toolkit to help managers understand these new funding models that companies are using.