There is a range of different loan financing options available. This includes traditional loans but also include a range of innovative financing arrangements which enable companies to avoid upfront costs and enable loan repayments with the savings generated from the energy efficiency project.
In this section
Different financing arrangements
Financing arrangements can be designed to suit your specific requirements. They include:
- Leasing – Leasing equipment enables companies to avoid upfront costs and manage energy efficiency projects within operational budgets.
- On-bill financing – Allows businesses to install and upgrade energy efficiency equipment which is financed by the energy utility. Repayments are made by the business through their monthly power bill and ownership is transferred on final payment of the finance. Up-front capital is not required and repayments can be equal to or less than the energy cost savings achieved.
- Energy Performance Contracts (EPCs) – Are commonly used as a financing method in the commercial building sector. Energy service companies (ESCOs) guarantee reduced energy bills for commercial tenants, by identifying potential savings in a building’s operations, commissioning and funding a retrofit of the building and using the energy saved to fund the upfront costs. This financing model overcomes the inherent barrier of split incentives where building tenants benefit from retrofits through reduced energy bills, but building owners are responsible for the upfront infrastructure costs.
- Environmental Upgrade Agreements – Similar to EPCs, Environmental Upgrade Agreements involve external financers covering the upfront cost of a retrofit, which is then recovered from the building owner through a council levy over a fixed period. Building owners can also pass part of the environmental upgrade charge to the building tenants. The council forwards these levy payments to the finance provider. These structured payments remain with the property if ownership changes.
Talk to your bank or ESCO to explore loan financing options. There are also some government funded programs available which are outlined below.
For more information
- A Best Practice Guide to Energy Performance Contracts 2000 (Opens in a new window)
This best practice guide from the Energy Efficiency Council provides an overview of energy performance contracting and guidance on whether EPCs are the most appropriate financing tool for your business, how to source an energy service company and put relevant contracts in place.
- Guidelines for Environmental Upgrade Agreements 2011 (Opens in a new window)
These guidelines produced by the NSW Government, outline the legal framework and rules for developing Environmental Upgrade Agreements in New South Wales.
Low Carbon Australia (LCA)
Low Carbon Australia (formerly the Australian Carbon Trust) is a government-funded, independent company created in 2010 to assist Australian companies in funding energy efficiency and carbon reduction projects.
LCA has more than $100 million available through a range of different programs including:
- Energy efficiency loans – LCA offers loans of up to 10 years across all industries, for all energy efficiency technologies. Loans can be made to building owners, local councils and other businesses at market rates and may be secured or unsecured.
- Energy efficient equipment leasing – LCA’s leasing program enables companies to lease and install HVAC (heating, ventilation, air-conditioning), LED and other lighting systems, building management systems, computer equipment, fans, compressors, motors and other equipment.
- Environmental Upgrade Agreements (EUA’s) – LCA has developed the Australian Environmental Upgrade Fund which is partnering with councils in NSW and the Melbourne CBD, to finance commercial building retrofits.
- Energy Performance Contracts – LCA in conjunction with Origin Energy is trialling an offer to customers of guaranteed energy savings, giving cash rebates or further energy savings measures, until the guaranteed savings are achieved.
For more information see the Low Carbon Australia website.
Clean Energy Finance Corporation
A new $10 billion Clean Energy Finance Corporation (CEFC) was announced as part of the Australian Government’s Clean Energy Future package.
The CEFC will invest in businesses seeking funds for the commercialisation and deployment of energy efficiency, renewable energy and low‑pollution technologies. The objective of the CEFC is to overcome capital market barriers that hinder the financing, commercialisation and deployment of these technologies.
Establishment of the corporation is at an early stage. The CEFC is consulting with industry and has released an initial report outlining broad principles to guide its focus on investments in the clean energy sector.
Legislation to establish the corporation will be put in place in 2012. The CEFC is due to commence operations in 2013-14.
For more information visit the CEFC website.
1200 Buildings Program
Through the 1200 Buildings Program, the City of Melbourne is seeking to catalyse the environmental retrofit of 1200 non-residential buildings, which represent 70% of the commercial building stock within the municipality.
The program is managed through a strategic partnership between the City of Melbourne and the Sustainable Melbourne Fund (SMF) which offers environmental upgrade agreements to eligible building owners.
For more information visit the 1200 Buildings Program website.