Beyond CapEx: 3 Assurances Executives Look For When Weighing Funding for Energy and Sustainability Projects
Credit to Author: Frederic Abbal| Date: Mon, 21 Oct 2019 07:12:24 +0000
Corporate leadership in sustainability is gaining momentum.
But for many companies, innovation in energy and sustainability remains an untapped source for improved financial and operational performance. Why?
Research demonstrates that executive approval to fund energy and sustainability projects has more to do with a solid business case than the immediate availability of capital. Where to find resources isn’t of primary concern; rather, how available funding should be deployed against numerous business priorities is.
A solid business case that garners executive buy-in and moves beyond organizational barriers requires an initiative that drives impactful outcomes. Whether company executives are motivated by financial goals, sustainability targets, or resilience concerns, understanding how a project aligns with an organization’s priorities is key.
Alternative models to traditional CapEx can lower risk and highlight value
Buy-in starts with a shared understanding of what energy and sustainability investments can do for the business. Due to the complexity and relative novelty of many of today’s most impactful energy investments, executives may have limited understanding of available solutions, making it difficult to evaluate the risks of innovation.
It’s not just executives that need to be convinced; it can be just as important to secure the resources and expertise to implement energy and sustainability projects, which will require buy-in across all levels of the organization.
Innovative funding models are emerging to help. Companies can now choose to fund energy and sustainability projects from a variety of non-CapEx dependent models. This can better align project proposals with organizational ambitions and the realities of day-to-day operations, while still moving projects forward. These funding models are more than financial mechanisms–which are not enough. Rather, they act as operational mechanisms that guarantee project performance and protect growing investments. The resulting business model provides greater financial security and operational flexibility, and ensures these investments translate into long-term value for the organization.
Executives look for 3 things when assessing energy projects
There are three top benefits executives look for when evaluating potential energy and sustainability investments. Finding funding models that elevate these benefits can improve executive support and increase the likelihood of gaining buy-in.
Accelerated Payback Schedules
Shared savings mechanisms and rebate incentives can improve the time-to-results for energy and sustainability investments by accelerating non-capital projects at a greater volume and velocity. When included in a diversified project portfolio, quick wins with simple paybacks can be used to bring longer payback projects within hurdle rate requirements. Improving payback schedules allows executives to evaluate energy and sustainability initiatives in the same time horizon as competing priorities, so they can be compared on a relative basis.
Reduced Financial Risk
Performance contracting, energy services agreements and power purchase agreements can protect cash flow by allowing businesses to recover capital faster. By providing clear ROI projections, these models reduce financial risk and improve alignment of projects with business priorities. For example, with performance contracting in place, energy savings or operational improvements from efficiency investments can be re-invested in core business activities.
Outsourced Operational Burden
Energy-as-a-service models and power purchase agreements can remove the balance sheet burden and operational responsibility from a project by outsourcing for both added expertise and bandwidth. Procurement, design, commissioning and maintenance of core operating equipment, systems, processes – even whole facilities, buildings or portfolios – can potentially be outsourced. Funding models that alleviate the operational burden centralize the accountability of the vendors and service providers involved in a project, providing holistic oversight for the program alongside outcome assurances.
The bottom line: There is no one-size-fits-all solution to matching corporate energy and sustainability objectives with an appropriate funding model; gaining executive buy-in will always require a carefully crafted business case. Selecting the right model will depend on the financial and operational requirements of the organization, as well as the goals of the project—but innovative models are available and ready to be explored!
To learn more about the new funding models that companies are using to gain buy in for innovative energy and sustainability initiatives, download our new toolkit.
The post Beyond CapEx: 3 Assurances Executives Look For When Weighing Funding for Energy and Sustainability Projects appeared first on Schneider Electric Blog.