GTAA - Building Blocks - Dec 2011 by Superior Pool, Spa & Leisure Ltd.

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ENERGY SAVINGS PURCHASE AGREEMENTS A NEW FINANCING APPROACH FOR ENERGY EFFICIENCY UPGRADES nergy efficiency upgrades will pay for themselves — it’s a refrain we’ve all heard before. In fact it is well documented that the average multi-unit building can shave 25% or more off its energy costs by investing in proven energy efficiency measures which will pay for themselves in 3 to 8 years (see www.towerwise.ca/case_studies for examples). More than just money in your pocket, reduced utility bills increase net operating income which increases building value. Other things being equal, every dollar you can save off your annual utility bills will increase the estimated value of your building by over $10.

Yet building owners and operators face a number of challenges in implementing energy efficiency upgrades. One of the biggest barriers, not surprisingly, is financing the projects. A multi-measure energy retrofit can cost anywhere from $100K to over $1M, depending on the size of the building and the scale of the project. One option is to use the equity in your building by refinancing or taking out a new loan. This can be cash flow positive from day one if the value of the energy savings exceeds the cost of the loan payments. However, conventional loan financing may not be an attractive option for every building. The equity in the building may be fully leveraged already, or you may want to keep that equity available for other purposes down the line. The other concern with a standard loan is what happens if the energy savings from the project don’t meet expectations. There is a risk that the building will be stuck with debt for a project that didn’t create a sufficient increase in cash-flow to cover the loan payments. Recognizing these issues, Toronto Atmospheric Fund (an arms length agency of the City of Toronto) set out to create an alternative financing option for energy projects, which we call an Energy Savings Purchase Agreement (ESPA). The ESPA model turns a conventional loan on its head. TAF will pre-purchase a share of the projected energy savings from the project, providing up to 100% of the funds needed to purchase and install the equipment. Our security is that we retain ownership of the energy efficient equipment through the term of the agreement. Actual energy savings are measured and verified. Every quarter for the term of the agreement, the building transfers 75% of the verified energy savings to TAF. If actual energy savings are less than projected, payments are reduced accordingly – without extending the term of the agreement. The arrangement is designed to be cash flow positive for the building from day one. Once TAF is repaid (including a return on our investment), ownership of the energy efficient equipment is transferred and the building can keep 100% of the energy savings from that day forward.

This financing model provides buildings with a chance to replace aging equipment, improve building comfort and value, and reduce exposure to rising energy costs, all at no financial risk. We are so confident that the energy performance of your building can be improved that we will buy a share of those savings in advance and leave you to reap all the additional benefits. In order to make this financing approach possible, we have worked with the insurance industry to launch an Energy Savings Warranty Insurance program in Canada. Essentially, this product guarantees that the insurer will make up any difference between projected and actual energy savings (up to 95% of projected). The policy is purchased by the engineering firm and/or contractors involved in designing and implementing the energy retrofit for your building. This allows them to guarantee the promised energy savings. The product is being offered in Canada by select insurance brokers including Jones Brown Insurance Brokers and HUB International and is underwritten by Energi of Canada Ltd, and is available to qualified engineering firms. In order to qualify for ESPA financing, the engineering firm(s) working on your project must provide an energy savings guarantee backstopped by the insurance product. We can work with you to help you find a qualified firm interested in working within this structure. Most reputable engineering firms want to be able to guarantee results. “TAF’s financing program, and the energy savings insurance product, are exciting new developments for our industry. We look forward to offering this to our clients.” – Ed Porasz, President, M&E Engineering. The other important aspect of this financing approach is that it requires ongoing measurement and verification of the energy savings, along with a comprehensive maintenance program. While there is some additional cost associated with this, it is a worthwhile investment. Our research indicates that when energy efficient equipment is installed and ignored, the savings tend to evaporate over time. When system performance is rigorously monitored, savings are maintained or even enhanced, ensuring you capture the full savings potential of your retrofit while extending the equipment life. So what are you waiting for? Roll in rebates from various utility energy conservation programs and you are virtually guaranteed to be in the black on an energy retrofit. In fact, in these tumultuous economic times, there aren’t many better investments available.

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