Peer Exchange: Financing Mechanisms for Energy Efficiency and Decarbonization Projects

By Better Buildings Beat Team on Nov 07, 2022

Overview

An important part DOE’s work with partners across the Better Buildings Initiative is convening leaders to discuss ongoing challenges and opportunities. In these peer exchanges, organizations from different sectors of the economy can learn from each other and share best practices in energy efficiency and decarbonization.

In a recent peer exchange, Better Buildings partners from the healthcare, hospitality, and retail, food service, and grocery (RFSG) sectors met to discuss successful financing mechanisms available for energy efficiency and decarbonization projects as well as the resources available for organizations.

The Better Buildings Financing Navigator offers more information on a range of traditional and specialized financing options for energy efficiency and renewable energy projects.

Better Buildings partners including University of Nebraska Medical Center (UNMC), Carnival Corporation, Wyndham Hotels & Resorts, CKE Restaurants Holdings, LLC, Kohl’s Inc, Whole Foods Market, and Staples discussed successful project implementation, the benefits of efficiency-as-a-service (EaaS), and best practices for working with third-party financing groups.

Franchisee Engagement: Financial Strategies for a Successful Project

As corporations with a franchise ownership model continue to set emissions reduction targets, actionable pathways must be established with franchise owners to effectively meet these targets. With franchise owners bearing the brunt of capital costs for their buildings, including retrofits and renewable energy integration, support and resources at the corporate level are crucial to successful project implementation.

One partner identified a need for more energy-efficient boilers at franchised locations but recognized that this type of equipment typically had a payback period of more than three years. To mitigate the increased capital costs, the partner piloted a financial strategy to integrate local-level utility rebates and government IOUs available for the boilers, which decreased project payback to two years. The partner took this successful strategy to the CFO and developed a scalable and marketable approach for this energy efficiency project that could be presented to franchise owners across the nation, which has since proven to be a successful approach for the partner.

Using EaaS to Reduce the Burden of Project Management, Financing, & Maintenance

As organizations consider the management, financial components, and maintenance of a project, they may become overwhelmed with all the facets involved, especially if they don’t have dedicated staff to fulfill these roles. To manage capacity, one partner highlighted EaaS as an option, which provides customers with an end-to-end project experience. EaaS providers manage all steps of a project and can also provide operations and maintenance (O&M) services after installation. This pay-for-performance, off-balance sheet financing solution is also beneficial in that there are zero upfront capital costs for the customer. The EaaS provider pays for project development, construction, and maintenance costs, and once a project is operational, the customer makes service payments that are based on actual energy savings or other equipment performance metrics, resulting in immediate reduced operating expenses.

For further information on EaaS, explore the Guide to Efficiency-as-a-Service.

Best Practices for Working with Third-Party Financing Groups

Partners discussed the following best practices to ensure an effective and transparent relationship between a financier and their customer:

  • As a customer, over-communicate with the third-party financing group – especially if working with one for the first time. It is crucial for the customer to fully understand all terms of the agreement to ensure they’re choosing the best option for their needs. This may even result in pivoting from one mechanism to another.
  • Assign an internal “project champion” to run point managing the relationship and overall project components with the third-party financing group. Allocating this role allows the project to have special attention paid to it to ensure a higher chance of completion and success. Even if this person doesn’t have the financial or legal background to negotiate the granular terms of the project agreement, they should be empowered to pull coworkers in from the necessary departments as needed.
  • If working with an EaaS provider, utilize their O&M services, if available. Most perceive EaaS providers as just the financiers of a project, with not much involvement after installation; however, if a customer has difficulty implementing an O&M plan, outsourcing this support to an EaaS provider could be more effective and lead to longevity of the equipment. 

 

Learn more about how healthcare, hospitality, retail, food service, and grocery partners are successfully financing energy efficiency projects: