Can finance make or break an energy efficiency project?
This question was posed to Kevin Whelan, General Manager Asset Finance and Partners at Verdia. Kevin has more than 20 year’s leadership experience across the energy industry.
Q. What’s the role of finance in making energy efficiency projects viable?
A. Not so long ago, if you wanted a solar energy system, your only option was to buy it; it was going to be pretty expensive; and your options for financing the purchase were few.
But, as the market for solar and energy efficiency has matured, the cost of equipment has dropped and the range of finance options has grown. Meanwhile, the cost of purchasing energy from the grid continues to rise, seriously impacting on the bottom line for most businesses.
All of this makes solar and energy efficient projects stack up financially – much more so today than ever before. With the finance available now, you can get your solar or energy efficient solution installed with no upfront cost, and be cash flow positive from day one. In other words, the savings you make on your energy bill are more than enough to cover the finance repayments and still leave you with a significant saving against your old energy bill.
For most businesses, that’s a ‘no-brainer’.
Q. If I’m looking at financing a solar or energy efficient solution, what type of finance is going to be my best bet?
A. Some businesses assume that the best way to finance a solar or energy efficient asset is to use their overdraft, or attach it to their mortgage. My question is, ‘would you use those types of finance to pay your electricity bill?’ The answer is usually ‘no’!
So what’s the alternative?
For solar and energy efficient solutions, I’d always recommend using a finance product that’s specifically tailored to that type of asset. Look for one that’s backed by the Clean Energy Finance Corporation (CEFC), as you can typically access finance at a reduced rate through these schemes.
At Verdia, we evaluate the equipment required, and then come up with finance options that are best suited to the company’s circumstances. This includes considering the accounting treatment they’d prefer and what’s going to work best from a cash flow perspective.
A. Verdia was set up to solve three fundamental problems that organisations face when considering an energy efficiency project:
- Most organisations don’t have an in-house team with the resources or expertise to take on an energy project.
- In a fragmented market for energy efficiency and solar equipment, it’s hard to know the difference between vendors with quality products and services, and the not-so-good guys.
- Having to find capital for an energy efficient solution can kill a project before it gets started… even though the long term cost savings are typically greater than the upfront cost.
The last problem can be addressed with a good financing solution to deal with the capital cost. But that doesn’t help with the first two problems. In a nutshell, that’s why Westpac works with Verdia - to provide a complete solution to their customers.
Verdia operates the only due diligence program of its kind, where we vet the vendors, equipment, and proposed projects - the Verdia Accredited Partner Program. This gives the bank confidence to provide highly competitive finance where the terms and timeframe are tailored for renewable energy projects (subject to the usual approval processes).
Q. What are some of the problems your customers tell you they’ve experienced, when looking at a potential solar or energy efficient solution?
A. It can be hard to decide what’s the right solution for your needs. If you don’t know the difference between several similar-looking options, you’re going to make your decision based on price. And that can be a really big mistake.
Unfortunately, a quick internet search will turn up chat rooms, Facebook pages and news articles about companies in the solar and energy efficiency industry that are not doing the right thing.
The challenge for providers with quality products and services, is how to stand out from the crowd. Especially since doing the right thing sometimes means your product or service will come at a higher price point.
That’s why our Verdia Accredited Partners value being part of our program – it helps them stand out for the high-quality, high-integrity operators they are.
Q. Can you give an example of a common mistake businesses make when engaging a vendor?
A. One common misconception is around warranties. For example, many companies will say they provide 25 year warranties. But if the company itself is going to go bust in five years, what good is a 25 year warranty?
So that’s where our due diligence program delves deeply into how our partners operate as well as the equipment they provide – put simply, we evaluate their ability to keep their promises over the long term.
Q. Does that mean that a Verdia accredited solution is going to be more expensive?
A. Not necessarily. For us, it’s not about finding the cheapest solution, or the most expensive solution… it’s about helping our clients implement an energy solution that’s going to deliver the optimum results over the long term. That looks different for every business.
When it comes to our Verdia Accredited Partners, we’ve done our homework to know that they deliver excellent quality and service at a fair price. We also carefully vet the technologies our partners use, from solar panels to LED lighting; we even go to China to see for ourselves the factories that produce and ship them. We also check that proposed projects are capable of delivering on the long-term savings they promise.
Bringing this all together, our clients can have confidence they’re going to get an energy efficient solution that will go the distance.
Q. What does the future hold for energy efficient and solar finance?
A. I believe the way energy is consumed and generated is going to be turned on its head in the next few years. With that, the way it’s funded and structured is going to evolve. I’m excited to be at the forefront of that evolution.
Learn more about Verdia’s Accredited Partner Program
Learn more about Westpac’s Energy Efficient Financing Program
The articles represent the views of the authors and not necessarily that of the Bank. You should seek independent professional advice before acting on any matters set out in the articles.