Financing Energy Efficiency in Retail


Monica Kanojia
Jun 14, 2016

Driving the reduction of energy consumption and greenhouse gas (GHG) emissions through efficiency projects in the retail sector can be difficult, particularly when many energy managers lack awareness of financing mechanisms available to them to fund their projects. To address this market barrier, the Retail Industry Leaders Association (RILA) and the Institute for Market Transformation (IMT) have partnered to create an Energy Efficiency Finance Calculator with support from the Energy Department (DOE).

The Finance calculator is designed to help retail professionals understand how to leverage external financing to fund energy or sustainability projects within their portfolios, as well as basic finance metrics for specific projects. Project managers enter project specifications into the calculator including:

  • Number of facilities the project will cover
  • Total projected cost across all facilities
  • Whether facilities will be leased or owned
  • Typical hold period for a single facility
  • Whether the company values the ability to pass upgrades on to the next occupant in the event of sale/move-out
  • Preferred timeline for financing
  • Management plan for installation
  • Whether third-party assistance with ongoing operations and energy management is preferred
  • Ability of the company to take on addition debt on balance sheet

The tool identifies what external finance mechanisms are best suited for the project based on user inputs. Each finance mechanism is explained and associated benefits and challenges described. Suggested finance options are highlighted in green, but those that may not be well suited are also included for reference in the event they are applicable in combination with other options, or for future projects.

Project managers must often make the case for funding of energy efficiency projects by addressing various finance metrics, which internal leadership must determine to be of a great enough value to justify the initial upfront investment. While each company has their own process to determine metrics for a given project, the Finance Calculator gives the option to calculate estimates of Internal Rate of Return (IRR), Annual Return on Investment (ROI), Net Present Value (NPV), and the simple payback period, based on three basic questions. The estimates are to be used as guidance and it is highly recommended that each company employ more complex modeling efforts to determine more accurate numbers.

Detailed research and calculations were conducted on each featured external financing mechanism included in the Finance Calculator. The expectation is that this tool will simplify the often arduous process selecting a financing vehicle for clean energy projects and catalyze more energy efficiency projects in the retail sector.