Businesses Can Achieve the Following Benefits through Energy Project Finance
One of the biggest challenges of implementing a green energy project is the financial feasibility. It is no secret that all businesses compete with each other (energy sources notwithstanding) and calculate profits on the basis of returns earned on investments made. That is the ultimate litmus test. Passing this litmus test results in the following tangible benefits:
1) Tax Relief
- Tax credits – These enable businesses to define a certain percentage of the investment cost related to the qualifying equipment as credit against taxes on profits made by the business or individual income.
- Tax deductions – These reduce the sales tax of qualifying equipment during the point of sale.
- Tax rebates – These facilitate a refund of purchase/sales taxes of the qualifying equipment. Businesses can apply for tax rebate after applying for tax deductions.
- Accelerated depreciation allowance – Businesses can write-off the depreciation costs of the qualifying equipment more promptly as compared to standard equipment, thereby decreasing the total cost of the equipment.
- Tax exemptions – Businesses can be exempted from paying custom taxes on purchasing qualifying imported equipment, or excise tax on purchase/consumption of certain products.
2) Cost Savings
There is a lack of established and recognized methodologies to quantify, authenticate, monetize, and track non-energy benefits of energy project financing, which leads industries to underestimate the economic potential of energy efficiency measures. The reality is possible transformational effects on business processes and productivity are often overlooked.
Similarly, when non-energy benefits are excluded from policy appraisal and evaluation, the benefit-cost ratio of industrial energy efficiency policies is grossly underestimated. One cannot, however, negate them as they do exist and are substantial.
3) Carbon Footprint Reduction
The core activities of a company usually determine the extent of carbon footprint it produces. But, when businesses go green, they help reduce greenhouse emissions and other environmentally harmful practices, thereby having a positive impact on the environment.
No company wants to be known as one that damages the ecosystem. Being environmentally responsible helps companies fulfill the sustainability goals and is often considered the first step towards achieving them.
Depending on the capital investment, complexities in policies and production processes, and subsequent investments, there can be several variations in energy project financing.
Sustainable goals are typically expressed as a percentage of total consumption. If overall energy consumption is reduced, less renewable energy will need to be produced. Hence, it is important to assess energy consumption and right-sizing potential to be able to determine the type of renewable energy technology needed.
Measuring industrial non-energy benefits is a complex task but the potentially revolutionary nature of these impacts makes for a strong case to track and quantify them.
When it comes to revenues, conserving energy can have great effect on fossil fuel costs. Apart from that, other benefits, such as reduced environmental compliance costs, enhanced productivity and competitiveness, decreased operations and maintenance (O&M) costs, extended equipment shelf life, reduced waste disposal costs, improved process and product quality, improved work conditions, and decreased liability cannot be ignored.
4) A Clean Image
- Reduced local and global pollution: Lowered levels of pollution ensure better health for people worldwide.
- Stimulation of new business sectors: With a boost to energy efficiency initiatives, more and more companies would start offering services and technologies related to energy efficiency.
- Enhanced energy security: Making the utilization of renewable energy sources a habit will reduce dependence on non-renewable sources and make lead to self-sufficient in terms of energy supply.
- Improved company image: Environment-friendly efforts will not go unnoticed. Once customers begin to acknowledge your contribution to sustainable practices, it will create positive associations in their minds. It will also differentiate your business from your competitors.
Increasing energy consumption is a matter of global concern. And because energy project financing has energy and non-energy benefits, it is a very attractive option which can be used to mitigate an imminent energy crisis. However, energy efficiency projects need financial backing. While getting project approvals is difficult, it isn’t impossible. It is important to remember that CFOs do care about the climate. Proposals need to be pitched in a way that convinces them that energy efficiency is the way to go. Because, from the looks of the current scenario, sustainability seems to be the future!
Andrew Cravenho is the CEO of CBAC – one of the leading invoice financing companies. As a serial entrepreneur, Andrew focuses on helping both small and midsize businesses take control of their cash flow. Follow CBAC on Twitter.