Financing Energy Management Projects 45portant to use the financial arrangement that best meets the needs of
the organization. The examples on the adjacent page demonstrate that
any organization can be creative with its financial arrangement selec-
tion. All of these examples are for Performance Contracting projects;
however, similar financial arrangements can be structured without using
a performance contract.
CHAPTER SUMMARY
It is clear that knowing the strategic needs of the facility manager
is critical to selecting the best arrangement. There are practically an
infinite number of financial alternatives to consider. This chapter has
provided some information on the basic financial arrangements. Com-
bining these arrangements to construct the best contract for your facility
is only limited by your creativity.
GLOSSARY
Capitalize
To convert a schedule of cash flows into a principal amount, called
capitalized value, by dividing by a rate of interest. In other words, to
set aside an amount large enough to generate (via interest) the desired
cash flows forever.
Capital or Financial Lease
Lease that, under Statement 13 of the Financial Accounting Stan-
dards Board, must be reflected on a company’s balance sheet as an asset
and corresponding liability. Generally, this applies to leases where the
lessee acquires essentially all of the economic benefits and risks of the
leased property.
Depreciation
The amortization of fixed assets, such as plant and equipment, so
as to allocate the cost over their depreciable life. Depreciation reduces
taxable income but is not an actual cash flow.
Energy Service Company (ESCO)
Company that provides energy services (and possibly financial