Green Deal for business vs Energy Performance Contracting
Green deal for business is part of the Government’s plan to bring huge improvements to building energy efficiency. With no upfront cost, building owners and tenants will be able to access £10,000 of finance to upgrade and replace infrastructure with new energy efficient technologies from October 2012.
With the cost of energy and carbon only going in one direction, it isn’t surprising that Finance Directors and Energy Managers are now starting to investigate how the Green Deal can benefit their business.
Green Deal for Business: what does it mean
It is anticipated that DECC will roll out the Green Deal for commercial premises sometime in 2013, once domestic installations are underway.
The Green Deal appears to be a very shrewd proposition for finance directors as it avoids the impact of upfront capital expenditure [and protects cashflow], accelerates energy efficiency improvements and underpins a business’ green credentials.
Green deal for business: key points
- Loan available will be higher than for homeowners
- Payback will be via the energy bill
- Specialist energy assessment required by specialist non-domestic assessor (EPC, Display Energy Certificate).
In its eventual format the Green Deal may not be a panacea for businesses, particularly where energy consumption is exceeds 1 per cent of operating overhead. Finance directors and energy managers need to fully understand the implications and risks of the Green Deal and consider the main alternative, namely Energy Performance Contracting. Here we outline how the Green Deal and Energy Performance Contracts are compared that you should consider when looking to finance energy efficiency projects:
1. Energy savings and performance risk
For any project, you have an expectation that that it will meet its predicted ROI. But with the Green Deal there is no guarantee that the ‘expected’ savings will be delivered. If the energy efficiency measures you purchase don’t actually work, who picks up the bill for the ‘unexpected’ energy consumption? You do – through your energy bill.
Contrastingly, an Energy Performance Contract comes with proper remedies and penalties if savings are not met. The expected savings are guaranteed with an EPC and so removes all of your delivery and performance risks. Often, like we do as routinely at Envido, energy saving performance is verified using IPMVP (“International Performance Measurement and Verification Protocol”). The Green Deal does not.
2. Lock in period
Loans under the Green Deal are paid back over 25 years via the energy bill. This is generally way beyond the 2-5 year investment horizon for most businesses.
Energy Performance Contracts last on average 5-10 years and deliver payback benefits much sooner than the conclusion of the agreement. Arguably, opting for an energy performance contracting is a better short term solution. Deeper carbon and energy cuts are achievable with an EPC. A composite payback threshold can be derived by combining short and longer term pay back projects enabling you to consider a wider range of game changing projects.
3. Funding specific technology
The Green Deal will more than likely be highly prescriptive. The range of measures used will be limited and based on theoretical benchmarks. An EPC will be more appropriate to most commercial or industrial environments as a specific package that could include chiller and boiler optimisation control, voltage optimisation or intelligent building management systems.
In contract to the Green Deal, an Energy Performance Contract will deliver a specific package of tailored measures for your building based on how you do business, not on national building benchmarks.
4. The Green Deal Process Labyrinth
The DECC homepage offers a schematic below for the GD process. It seems relatively complex!
Energy performance Contracts delivered by Envido follow a straightforward process – feasibility, Baselining, Investment Grade Proposal, Implementation and the Guarantee period. As your single partner we’ll design, deliver and even finance your energy performance improvements.
Finally, be clear, the Green Deal is not an Energy Performance Contract
The Green Deal is based on long term benefits and theoretical paybacks. An Energy Performance Contract offers guaranteed savings based on accurate calculations tailored towards your business, often using IPMVP (“International Performance Measurement and Verification Protocol”) to verify the guaranteed savings.
When entering into a long term energy performance agreement make sure you fully understand both the downsides and upsides and choose the one that fits your commercial needs.
EPC WEBINAR: Join us for our introduction to Energy Performance Contracting
Date& Time: Wed July 4, 2012
Session: 12.30 – 1:30 am (with additional time for Q&A as required)
Location: Online or delegates attend in person Room 2, Saatchi & Saatchi, 80 Charlotte Street, London, W1A 1AQ