Energy Project Financing : Resources and Strategies for Success

Financing Energy Management Projects 17

are entered into the table. Year by year, the taxable income = savings

• depreciation. The taxable income is then taxed at 34% to obtain the tax
  for each year. The after-tax cash flow = savings – tax for each year.
  At EOY 5, the equipment is sold before the entire value was de-
  preciated. EOY 5* shows how the equipment sale and book value are
  claimed. In summary, the NPV of all the ATCFs would be $320,675.

Loans
L oans have been the traditional financial arrangement for many
types of equipment purchases. A bank’s willingness to loan depends on
the borrower’s financial health, experience in energy management, and
number of years in business. Obtaining a bank loan can be difficult if the
loan officer is unfamiliar with EMPs. Loan officers and financiers may
not understand energy-related terminology (demand charges, kVAR,
etc.). In addition, facility managers may not be comfortable with the
financier’s language. Thus, to save time, a bank that can understand
EMPs should be chosen.
Most banks will require a down payment and collateral to secure
a loan. However, securing assets can be difficult with EMPs, because
the equipment often becomes part of the real estate of the plant. For
example, it would be very difficult for a bank to repossess lighting fixtures
from a retrofit. In these scenarios, lenders may be willing to secure other
assets as collateral.

Application to the Case Study
Figure 2-7 illustrates the resource flows between the parties. In this
arrangement, PizzaCo purchases the chilled water system with a loan
from a bank. PizzaCo makes equal payments (principal + interest) to

2-7. Resource Flow Diagram for a Loan.

Purchase

Amount

Equipment

Chilled Water

PizzaCo

Loan Principal

Bank

System Manufacturer