For organizations interested in decarbonization initiatives and cutting energy waste, finding funding is often one of the biggest challenges. These are four common energy financing solutions to help your company finance its carbon reduction projects and further its green initiatives.
Power Purchase Agreement (PPA)
A power purchase agreement is an agreement between two parties in which one party installs, owns, and operates an energy production system while the other party utilizes that energy. These long-term arrangements allow companies to power their facilities using the energy generated by a contracted third-party’s system. For organizations that value decarbonization but lack the capital to install or maintain a renewable energy source, power purchase agreements can be a good option. The affordability and lack of responsibility that come with a PPA make it an appealing energy financing method. However, for companies that require greater control over their energy, PPA can be a poor fit.
Sustainability Linked Loans
Another energy financing option for decarbonization projects is taking out a sustainability linked loan. A sustainability linked loan is administered by a financial institution to a qualifying organization. These loans can be used to pay for decarbonization initiatives and are often floated as an energy financing option.
However, to qualify for a sustainability linked loan, a company must meet certain criteria such as the ESG metrics, a set of standards that quantify an agency’s environmental, social, and governmental performance. These loans are often offered at discounted rates and are highly flexible, but must be repaid with interest like any loan, and have notable barriers to entry.
Green Revolving Fund (GRF)
If your company has the capital necessary to fund its own carbon reduction projects, you have a few different choices for how you manage and allocate the funds. A green revolving fund is one such option. A GRF is an internal savings fund designated for the sole purpose of funding decarbonization and renewable energy initiatives. These initiatives typically generate cost savings; the money that’s saved can then be rerouted back into the GRF to fund future decarbonization projects.
While a green revolving fund is a great option for companies with ongoing energy initiatives and excess capital, it’s not viable for every organization. It can also be difficult to start a GRF; the principle behind a GRF is that it replenishes itself, but of course, the initial funds must come from somewhere.
Energy-as-a-Service, often referred to as EaaS, is perhaps the most adaptable energy financing method, as it can be suitable for a wide variety of energy projects and corresponding technologies. One of the major benefits of EaaS is that it’s turnkey and doesn’t require customers to pay any upfront costs. Each customer can have their services tailored to their unique energy needs. This can include asset management, energy use insights, program management, performance monitoring, and more. Additionally, customers pay for this service through their energy savings which can be variable based on usage and performance.
With EaaS, companies can prioritize decarbonization without diverting capital to costly projects like installing solar panels and without making financial commitments such as taking out a loan. EaaS allows organizations to reduce energy waste and lower operating costs with ease.
Interested in learning more about how Energy-as-a-Service works? Visit our solutions page.