Energy Project Financing : Resources and Strategies for Success

Financing Energy Management Projects 37

Table 2-12. Host’s Tax Benefits for each Arrangement.
————————————————————————————————
Depreciation Interest Payments Total Payments are
ARRANGEMENT Benefits are Tax-Deductible Tax-Deductible
————————————————————————————————
Retained Earnings X
Loan X X
Bond X X
Sell Stock X
Capital Lease X X
True Lease X
Performance Contract X
————————————————————————————————

• Utility rebates and government programs may provide additional
  benefits for particular projects.


• Tax-exempt leases are available to government facilities.


• Insurance can be purchased to protect against risks relating to
  equipment performance, energy savings, etc.


• Some financial arrangements can be structured as non-recourse
  to the host. Thus, the ESCO or lessor would assume the risks of
  payment default. However, as mentioned before, profit sharing
  increases with risk sharing.

Attempting to identify the absolute best financial arrangement
is a rewarding goal, unless it takes too long. As every minute passes,
potential dollar savings are lost forever. When considering special grant
funds, rebate programs, or other unique opportunities, it is important
to consider the lost savings due to delay.

“PROS” & “CONS” OF EACH
FINANCIAL ARRANGEMENT

This section presents a brief summary of the “Pros” and “Cons”
of each financial arrangement from the host’s perspective.

Loan
“Pros”:

• Host keeps all savings.