Free up capital and reduce risk with on-bill financing
Free up capital and reduce risk with on-bill financing
Supply chain issues. Inflation. COVID-19. The economy is flooded with uncertainty right now and it feels especially risky to spend money on new investments. At the same time, operational costs are becoming increasingly burdensome for businesses as electricity rates continue to rise. Since 2013, California investor-owned utility Pacific Gas & Electric (PG&E) rates have increased by a painful 37% - and they’re only going to keep going up.
Energy efficiency measures and onsite energy generation can significantly reduce operational costs while protecting facilities from high utility rates, but though these projects typically offer a two- to five-year payback, they come with a high upfront price tag. So how can businesses implement projects that reduce operational costs without taking on undue risk?
The answer is in “on-bill financing,” a unique financing structure that enables businesses to fund onsite energy projects that reduce long-term operational costs, off-balance sheet with zero capital outlay.
What is on-bill financing?
Typically, energy projects are funded like any other new equipment investment: with a cash purchase or a lease-to-own contract. But while energy efficiency and renewable projects can provide significant long-term savings, the standard purchasing methods require upfront capital that can be burdensome for companies that want to hold onto their cash and avoid adding liabilities to their balance sheet.
On-bill financing frees businesses from the burden of providing the upfront capital needed to invest in energy projects, and as we'll explain below, can even free up capital. Through this financing structure, your local utility provides the capital needed to pay for your energy project. Your project costs are simply added as an operational expense line item in your monthly utility bill - but these costs are offset by the utility savings generated by your project, meaning your bill doesn’t increase. What’s more, your utility works with pre-approved contractors to ensure quality work and timely project completion, so there’s truly no heavy lifting - financial or otherwise - needed from your business.
It’s important to note that on-bill financing is not a type of loan or a lease. Even though your utility funds the project upfront, your business owns all purchased systems and equipment - without adding a cent to your balance sheet.
What are the benefits of on-bill financing?
With on-bill financing, your business not only enjoys increased energy savings, but also unlocks system ownership tax benefits that further improve your return on investment. Even better, you address operational needs while freeing up valuable capital that can be used for other necessary business investments.
Free up capital for other business needs
Projects that deliver long-term value can often be delayed or deprioritized due to budget constraints, especially if they have a high price tag. By removing the upfront cost barrier, on-bill financing enables you to secure energy projects that pay for themselves through lasting operational savings. This frees up your capital to manage other priorities, which is especially helpful in uncertain times. Plus, any surplus savings from your energy project can also be allocated to address deferred maintenance projects or other unfunded capital improvements.
Access tax incentives without spending money
Because you own all project equipment, your business qualifies for all available tax incentives without any cash outlay. For example, the federal solar Investment Tax Credit (ITC) provides a 26% tax credit for the cost of a solar system installed in 2022, which essentially translates to a 26% discount. Solar and other technologies can also qualify for Modified Accelerated Cost Recovery System (MACRS) accelerated five-year depreciation, which reduces your tax liability and increases your project’s return on investment.
For example, for an integrated energy project that costs $1 million dollars, you could benefit from a $260,000 solar ITC and roughly $270,000 in state and federal depreciation, depending on your tax rate and placed-in-service date. For many cases, your tax benefits could amount to a total of more than 50% of your gross costs.
Secure long-term energy savings from day one
Because the project’s upfront cost is paid for by your utility, your business essentially receives off-balance sheet funding to invest in necessary energy upgrades. And energy projects don’t just improve operations; they generate savings from day one through improved energy efficiency measures or onsite energy generation. These savings cover your project costs, so you stay cash flow positive throughout the life of the system.
Unlock capital with on-bill financing
For most aspects of business, the old adage “You’ve got to spend money to make money” rings true. To reach new customers, boost your sales and marketing budget. And if you want to reduce energy costs, you typically need to invest upfront capital for new energy projects. With on-bill financing, however, you can immediately access energy savings and free up capital with no financial outlay, completely off-balance sheet.
Want to learn more about how on-bill financing can free up capital for your business? Reach out to Promise Energy at https://promiseenergy.com/contact for your complimentary energy consultation.
At Promise Energy, we don’t believe that one size fits all. We pride ourselves in designing and installing customized energy solutions that provide the greatest long-term value and energy control for our customers.