Energy Efficiency and Infrastructure Upgrades: A New Financing Approach
Written By: Jonathan Pickering, Managing Director, K2 Clean Energy Capital, LLC
One of the main barriers for businesses to implement CHP energy efficiency projects is the scarcity of capital. Often projects with all but the shortest of returns are delayed. This blog post introduces an exciting new financing approach which eliminates the need for capex budget and can immediately improve net operating income (NOI). The Property Assessed Clean Energy (PACE) program is now fully operational in California and available for cogeneration projects. PACE leverages the property equity and provides up to 20-year financing for the upgrades through an assessment on the property taxes.
Cogeneration microturbines can be financed with PACE, enabling an immediate NOI improvement for the building owner.
Image: Courtesy of Capstone
Highlights of PACE Financing
- Financing is secured against the property valuation and not the business.
- Zero cash down, Terms up to 20 years. No corporate guarantees.
- Off-balance sheet. Immediate benefit to Net Operating Income (profitability)
The long term of the PACE financing lowers the semi-annual payments such that the energy cost savings and incentives realized from the upgrade projects can often turn the projects cash flow positive. In addition, the PACE bonds are off-balance sheet and are transferable when a property is sold.
Using PACE for Cogeneration
For cogeneration applications, we size the system to the consumption of gas per year. We recently reviewed a case in which the customer was using a gas boiler to heat a large swimming pool year round. The energy costs savings using a 65kWp cogeneration system were:
- Savings
- Electrical Savings: $36,400/year
- Heat Savings: $45,700/year
- Costs
- Cogen system running costs: $53,500/year
- Annual PACE payment: $25,800/year.
After the SGIP rebates and various tax deductions, the project is cash flow positive every year and saves over $60,000 in year one for a total of $450,000 of savings in ten years.
The PACE program has been in development across the nation for several years and is now established in California. Approximately $100 million of commercial PACE deals have been financed in the US in 2014 and we expect over $300 million of commercial PACE deals in 2015. K2 Capital is developing a number of cogeneration projects and actively working with Regatta Solutions, Capstone Turbine’s West Coast Distributor. With 20 year PACE financing, the projects are cash flow positive every year – immediately improving net operating income.
PACE is available for a large range of improvements in addition to cogeneration, including LED lighting, HVAC and controls, cool roofs, elevators and windows, as well as solar PV and solar thermal technologies, EV charging stations and building control systems.
Case Study Resources
The dusitD2 Constance Pasadena qualified for
$6.85M in PACE financing. The project was completed in September, 2014.
About K2 Clean Energy Capital
K2 Clean Energy Capital, LLC, is a California-based engineering company with expertise in renewable energy generation, storage, and energy efficiency. K2 works with contractors and manufacturers on project development and provides turnkey PACE financing. We are accredited by the LA Better Building Challenge and executed the largest PACE project in the US in 2014.
We can be reached at jp@k2cleanenergycapital.com or by calling:
- Jonathan Pickering, Managing Director (408) 893-8321
- Steve Tsu, Managing Director (408) 348-0980
- Susan Wise, VP Business Development 512 773 5098