Financing Energy Management Projects 37
Table 2-12. Host’s Tax Benefits for each Arrangement.
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Depreciation Interest Payments Total Payments are
ARRANGEMENT Benefits are Tax-Deductible Tax-Deductible
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Retained Earnings X
Loan X X
Bond X X
Sell Stock X
Capital Lease X X
True Lease X
Performance Contract X
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- 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.