In our previous blog, we addressed the false funding barrier to implementing energy and sustainability projects. As the research shows, executive approval to fund energy and sustainability projects has more to do with building a solid business case than the immediate availability of capital.
The question is not where to find capital, but rather: how will capital be deployed against the numerous investment priorities to achieve the best end-result for the organization? This question can, in part, be answered by looking at the shifts occurring in today’s economic and energy landscapes:
- Companies are weary of debt, but when disruption is the new business-as-usual, there’s constant pressure to innovate and take risks. In response, many companies are using joint ventures or public-private partnerships to continue investing in R&D as an example. While most companies have adopted innovative funding models for core business demands, this trend is just beginning to enter the energy space.
- From investments in LED lighting, HVAC, to more advanced solutions such as renewables, EV charging, microgrids and combined heat and power plants – investments in energy and sustainability can pay dividends for many years to come. But a growing list of business priorities competing for attention makes it difficult to get executive approval and buy-in to implement these projects.
- Energy projects are growing in complexity, and often go outside an energy manager’s traditional set of job responsibilities. Further, factors such as workforce turnover and constant business change contribute to the growing gap in in-house expertise and championship of innovative energy and sustainability projects. This lack of internal momentum and resources prolongs the payback of investments, making them appear less attractive compared to other investment opportunities.
Gaining executive buy in and moving beyond organizational barriers requires an initiative that drives impactful outcomes for the business. Whether company executives are motivated by financial goals, sustainability targets, or resilience concerns – understanding how a project aligns with your organization’s priorities is key to gaining buy in.
Alternative funding models can lower risk and highlight value of energy and sustainability projects
Securing buy in starts with education and shared understanding of what energy and sustainability investments can do for the business. Due to the complexity and relative newness of many of today’s most impactful energy investments, executives may have limited understanding of the solution, making it difficult to evaluate the risks of innovation. And it’s not just executives that need to be convinced. It is just as important to secure the resources and expertise to implement these projects, which will require buy in across all levels of the organization from business leaders to finance to legal.
Along with the need for education, innovative funding models are emerging to help align project proposals with organizational ambitions – and the realities of day-to-day business, which seem to be constantly changing. These funding models are more than financial mechanisms (these alone are not enough) – they also act as operational mechanisms that guarantee project performance and protect growing investments. The resulting business model provides greater financial security, operational flexibility and ensure these investments translate into long-term value for the organization.
Top 3 benefits executives look for in energy projects
There are three top benefits executives look for when evaluating potential energy and sustainability investments. Finding funding models that address these issues can improve executive support and increase the likelihood of gaining buy in:
Accelerate Payback Schedules
Shared savings mechanisms and rebate incentives can improve the time to results for energy and sustainability investments by allowing non-capital projects with simple payback to move forward at greater volume and velocity. When included in a diversified energy project portfolio, these quick wins 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.
Reduce Financial Risk
Performance contracting and energy services 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 energy 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.
Outsource 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 to procure, design, commission and maintain core operating equipment, systems, processes – even whole facilities, buildings or portfolios. Funding models that outsource the operational burden centralize accountability of vendors and service providers involved in a project, providing holistic oversight for the program and outcome assurances.
There is no one-size-fits-all solution to matching your business’ energy and sustainability objectives with an appropriate funding model, and gaining executive buy in will always require an intentionally crafted business case. Companies can now choose from a variety of innovative funding models, besides the traditional Capex model, to move energy and sustainability projects forward. A single project can often be achieved using more than one of these alternative models. By outsourcing, companies can pursue any number of complex energy and sustainability projects while providing internal flexibility to pursue core business demands. Each model drives a unique set of benefits, as outlined above. Selecting the right model for your company therefore depends on the unique financial and operational requirements of the organization, as well as the goals of the project.
To learn more about the new funding models that companies are using to gain buy in for innovative energy and sustainability initiatives, download our interactive toolkit.