November 26, 2019
So you’ve decided to do an energy efficiency project. Now, how are you going to pay for it? In today’s Two-Minute Tuesday, we’re going to review on-bill financing as a way to pay for your energy efficiency project.
What is On-Bill Financing?
Under on-bill financing, your energy supplier will pay for the cost of your efficiency project. You will sign a supply agreement with that supplier for some defined period that will include a monthly fee that the supplier will use to help pay back the cost of the efficiency project.
Here’s an example of how this works:
Company A is currently spending $50,000 per month on electricity, using 1,000 MWh at $50/MWh.
Company A negotiates a 3-year agreement to fund a lighting efficiency project. Once the efficiency project is completed, the energy usage reduces 10% to 900 MWh. This customer pays a monthly financing fee of $5,000 on their invoice. As you can see, their monthly spend on electricity stays at $50,000 during the term of the agreement.
Once the 3 years are up, the financing fee is eliminated from their bill, and the customer’s monthly electricity spend is reduced by 10%.
So what are the advantages of on-bill financing? Well, most on-bill financing programs are considered “off balance sheet,” so getting internal company approval for these types of programs is often easier than for traditional funding.
Secondly, many clients declare the monthly fee on their bill as an operating expense since it is included on your monthly energy invoice. So there may be some tax advantages* to capitalize on from this financing.
Consider on-bill financing for your energy efficiency project.
In short, supplier on-bill financing for efficiency projects is another way to pay for your energy efficiency project. There are many advantages of this option that aren’t provided by other forms of funding.
Thank you for watching our video, and be sure to catch December’s Ask An Advisor video in which we showcase a client who used on-bill financing to fund their lighting efficiency project.
Nania Energy Advisors is not a licensed tax professional, and this article does not constitute tax advice. Tax exemption benefits are unique to each business. Any action you take to manage your exemption status after reading this should be verified with a licensed tax professional before implementation. Nania Energy Advisors assumes no liability.
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