Selling to the
CFO: Beyond
the 2-Year
Payback
2012 Trade Ally Workshops
Overview
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 Challenges of the CFO
 Perceived barriers
 The “big picture”
 The biggest myths — debunked!
 Let’s do the math…
 Financing mechanisms
2012 Energy Efficiency Trade Ally Workshops
Challenges for the CFO
 Availability of capital for energy efficiency
• Internally perceived cost of capital
• Budget constraints
• Credit or collateral issues
 Payback/ROI requirements
• Payback period of less than three years typical
• Other “internal hurdles” or unrealistic paybacks
 Corporate sustainability mandates
• “Company will be 20% more efficient by 2020…”
• Reduction of carbon footprint
2012 Energy Efficiency Trade Ally Workshops
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Challenges for the CFO
 Transaction costs — fees, contractors, time.
 Lack of technological knowledge — complex
projects can result in more savings, but CFO is
not aware of how energy savings are achieved.
 Lack of confidence — will the savings really
materialize?
 Potential objections to tying financing to the utility
bill (capital vs. operating).
 Financial institution objections to tying financing to
property.
2012 Energy Efficiency Trade Ally Workshops
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Myths of Financing Energy-Efficient Projects
 Lack of money: “If it is not in this year's budget, it
simply has to wait …”
 Equipment improvements must be paid from
capital budget.
 Taxes, fees, or product price will have to be
increased to help pay for improvements.
 We don’t have the time or personnel to design
and plan the projects because of other “higher
priorities.”
2012 Energy Efficiency Trade Ally Workshops
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A Few More Myths . . .
 We don’t have the internal expertise to implement
the projects.
 Performance contracting with an energy service
provider (ESP) is expensive and unreliable.
 Tax-exempt lease-purchase agreements don't
lend themselves to energy projects and are
expensive alternative funding solutions.
2012 Energy Efficiency Trade Ally Workshops
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Additional Challenges
“Energy efficient solutions often cost more than
their inefficient equivalents. Although the people
who purchase them will benefit over the life cycle
from the energy savings, the incremental, up-front
costs of energy efficiency can make the efficient
purchase unattractive to many business
customers.”
Source: Eight Approaches to Enable Greater Energy
Efficiency: The National Council on Electricity Policy
2012 Energy Efficiency Trade Ally Workshops
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Numbers the CFO Might Not Know
 On average, energy costs represent 28% of total
operating expenses for commercial office
buildings.
 30% of energy consumed in commercial buildings
is used unnecessarily or inefficiently.
 Based upon these figures, almost 10% of
operating expenses are wasted.
 These inefficiencies provide an opportunity for
building owners to improve property
fundamentals, build asset value, and increase
their ROI via the energy retrofit process.
Don Fournier- Sedac
2012 Energy Efficiency Trade Ally Workshops
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Help the CFO Take a Long-Term View
 Long term financials, such as cost of ownership or
life cycle costing, are usually a better guide than
payback or first year ROI.
 Soft savings, such as improved worker
satisfaction and productivity and improved retail
sales from improved lighting quality, can dwarf
hard savings like reduced kWh.
2012 Energy Efficiency Trade Ally Workshops
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Three Big Questions
 Help the CFO answer three critical questions
about energy efficiency investments at their
facility:
• How much new energy efficiency equipment can be
purchased from the anticipated savings?
• Should this equipment purchase be financed now, or
should we wait and use cash from a future budget?
• In today’s dollars, what is the true cost of delay?
 Understanding these basic considerations will
help you provide context for your customer when
offering a financing option for their project.
2012 Energy Efficiency Trade Ally Workshops
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Understand Your Customer’s Position on Financing…
 Does the company typically consider financing options
when making decisions about project opportunities?
 What size of capital project would be considered for
financing?
 Can you provide customers with examples where
financing was used successfully to fund an energy
efficiency project?
 Is there buy-in from the C-suite for financing energy
efficiency projects?
 Who needs to be involved in this customer’s fact-finding
and decision-making process?
2012 Energy Efficiency Trade Ally Workshops
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So, Why Financing?
 Any well-designed energy efficiency project
should be fundable.
 Depending on the customer’s tolerance for risk,
in-house expertise and debt capacity, there are
viable financing solutions available.
 Project financing can provide very low ROI
percentages, and in some cases, even instant
payback.
 Your success with the customer depends on how
well you understand and/or assist with their
financing needs and challenges.
2012 Energy Efficiency Trade Ally Workshops
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Benefits to the CFO
 Positive cash flow
 Life cycle cost
 Lifetime savings
 Maintenance and business impact
 Taxes and depreciation
 Progress towards company sustainability goals
and/or LEED certification
2012 Energy Efficiency Trade Ally Workshops
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More Benefits for the CFO
 Lower operating expenses (and improved
comfort) help attract and retain tenants.
 Personnel productivity is higher with better
lighting, more control, and better space
conditioning.
 Efficient buildings allow equipment to run less and
at lower loads, requiring less maintenance and
extending equipment life.
2012 Energy Efficiency Trade Ally Workshops
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Additional Benefits…
 Funding sources that cover up-front costs and
allow people to pay back principal and interest
from energy savings, incentives that cover
incremental costs, and tax incentives that do the
same, can help overcome first-cost hurdles.
 Since energy bills are lower for energy efficient
buildings, net operating costs for efficient
buildings (mortgage plus utility bills) are usually
lower, making energy efficiency a smart economic
decision if financing is available.
2012 Energy Efficiency Trade Ally Workshops
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Let’s Look at the Numbers…
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Energy Efficient projects:
Amount financed:
Upfront /net investment:
$
$
$
75,000
(75,000)
0
Current monthly electric bill:
Savings achieved by upgrade
Net electricity bill with upgrade
+ Monthly project payment
$
$
$
$
12,000
(3,000)
9,000
1,500
$
10,500
($75,000 x 5% x 5 yrs)
New monthly “electric bill:”
“Cost” to finance energy efficient upgrade:
+$ 1,500/ month (positive cash flow)
This project, with payments of $1,500/ month
• pays for itself in five years
• yields $75,000 positive cash flow over the life of the loan
• and provides additional savings from reduced maintenance
costs.
2012 Energy Efficiency Trade Ally Workshops
Cash Flow
1.
2.
3.
17
Investment in equipment (negative cash flow)
Several years of steady cash flows from energy savings (reduced
kWh = positive cash flow)
Reduced maintenance benefits
• Supplies/ replacement cost
• Labor savings from fewer repairs/ replacements
$ Savings!
• Less facility/ production down time
Additional monthly energy (dollar) savings
• Measure life of installed equipment lasting beyond financing
period (VSDs, chillers, etc.)
• Positive cash flow may allow additional energy saving projects
}
4.
Think in terms of lifecycle costs, not just ROI!
2012 Energy Efficiency Trade Ally Workshops
Multiplier Effect
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 Each widget produced or service provided has an
associated cost, known as “cost of goods sold,”
“manufacturing cost,” etc.
 The price the widget sells for minus the cost of goods sold
equals profit.
 Energy savings go directly to the bottom line.
 A dollar saved on energy can represent up to $20 in sales.
Widget sales: $20
Energy Savings $1
Widget material cost: $2
Marketing cost per widget $2
Overhead: $15
Expense reduced $1
Profit per widget: $1
Profit increased $1
2012 Energy Efficiency Trade Ally Workshops
The Cost of Delay
 We generally think of upgrade projects in terms of
simple payback – how fast do I get my return on
investment?
 We don’t usually recognize the other side of this
equation – for each month or year that you delay
your upgrade projects, you completely lose that
potential savings forever.
2012 Energy Efficiency Trade Ally Workshops
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How Do You Calculate Cost of Delay?
Existing Energy Use (kW) x Hours of Operation (Yr.)
– Proposed Energy Use (kW) x Hours of Operation (Yr.)
= Energy Savings in kWh/ Annually.
Annual Energy Savings in kWh
x Customer Rate in $/kWh
= Annual Savings in $
 365 = Daily Cost of Waiting
2012 Energy Efficiency Trade Ally Workshops
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So, What Might You Suggest?
 Some common funding paths for EE
improvements:
 Internal funding
• Capital budget funds
• Operating budget funds
• Cash reserves
 Best for most efficiency projects with fast ROI
 Understand your customers’ project requirements
or total dollar thresholds for cash or budgeted
project opportunities.
2012 Energy Efficiency Trade Ally Workshops
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Debt Financing
 Credit worthiness is key: cash flow, credit history and
debt.
 Often best for “hard purchase” needs: capital equipment
and systems.
 “Soft purchase” components (consulting fees, etc) may
be difficult to package into the financing.
 May require initial investment of varying percentage.
 May require lien on equipment.
 The quality of terms (finance rate, length of term, down
payment, etc.) depend on the lender’s perception of risk.
 Ideal when payments are less than the savings
achieved.
2012 Energy Efficiency Trade Ally Workshops
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Leasing Options: Capital Lease
 Ownership of the goods is transferred at the end of the
term.
 Purchase option at end of term, usually $1.
 Lease terms covers 75% or more of the economic life of
the goods.
 The present value of the future lease payments equals or
exceed 90% of the fair market value of the goods at the
beginning of the lease.
 Creditworthiness may allow financing up to 140% of the
value of the equipment purchased.
 Little or no initial investment, faster approvals, less
paperwork, may include “soft purchase” costs.
2012 Energy Efficiency Trade Ally Workshops
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Leasing Options: Operating Lease
 Funded out of operating budget.
 Payments may be lower than capital lease
options.
 Often 100% tax deductible.
 Title to goods remains with the “lessor” or vendor
 May be suitable for certain measures where
technology changes quickly.
 May be a purchase option for fair market value at
end of term.
2012 Energy Efficiency Trade Ally Workshops
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Energy Performance Contracting
 Best suited for large and complex projects.
 Involve expertise in engineering, law and finance.
 The dollar savings generated by the project are allocated
between the customer and the contractor.
 Savings generated go first to debt service, then can be
distributed as:
• Guaranteed savings: Customer gets guaranteed
amount; ESCO gets the rest.
• Shared savings: With M&V, the savings are split
between the parties.
• Paid-from savings: ESCO gets a guaranteed amount;
customer gets the rest.
2012 Energy Efficiency Trade Ally Workshops
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Don’t Forget Utility Incentives!
 Standard “dollars-for-units” incentives for popular
measures
 Custom “for-everything-not-standard” dollars for
kWh saved annually
 Small Business program
 Gas company incentives
2012 Energy Efficiency Trade Ally Workshops
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Key Takeaways
 By understanding the internal challenges and barriers (real
or perceived) facing the CFO today, you can better
present the benefits your product/service provides to
overcome those barriers.
 Understanding CFO challenges also helps you go beyond
being a contractor and becoming more of a “Trusted
Advisor” to your customer, thereby increasing your project
fruition rate.
 Truly know and understand the mechanics and benefits of
energy efficiency, so that you can explain it to the CFO.
The more you help them understand, the more projects
you will likely be awarded.
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Key Takeaways
 Speak the CFO’s language: the ability to mathematically
show energy savings, financing payments and costs of
delay in real numbers, can bring the CFO to your side and
help champion the project internally.
 Help the CFO understand the various financing vehicles
available, and assist them with creative ways to leverage
these funds for energy efficient upgrades.
 Encourage leveraging Smart Ideas incentives to fund
additional capital projects by educating your customer on
their project incentive options.
 Make it as easy as possible for them to make qualified
decisions.
2012 Energy Efficiency Trade Ally Workshops
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2012 Energy Efficiency Trade Ally Workshops
Thank You!
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Bill Lewis
Relationship Account Manager
Smart Ideas for Your Business
William.Lewis@DNVKEMA.com
630-480-3434 ext. 74203
2012 Energy Efficiency Trade Ally Workshops
Thank you
for joining us today!
You will receive a survey and link to all presentations.
We look forward to receiving your valued feedback.
2012 Trade Ally Workshop