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Considerations for financing low carbon projects in your organization

We explore the steps you take to fund carbon reduction projects, ensuring your organization can meet both its financial and environmental obligations.

Many businesses make small investments in energy efficiency as part of their yearly budget, to make their energy estate more cost efficient, resilient and sustainable. However, simple efficiency projects often won’t make a big enough impact on reducing carbon emissions. To achieve ambitious net zero targets, organizations need to deploy a broader range of long-term carbon reduction projects. When it comes to financing low carbon projects - what can you do if you don’t have the capital to pay for them?

The good news is that access to funding is growing by the day. And now the real challenge for energy managers is working out what pool of money to access.

Let’s take a closer look at the steps you can take when financing low carbon initiatives in your organization.

1. Align your financial goals with sustainability

COVID-19 hasn’t had a uniform impact on businesses. Some are doing well, but others are continuing to struggle. With most organizations focused on their bottom line, organizations need to balance their sustainability ambitions with their financial goals.

Our research revealed that 89% of businesses agree that demonstrating a low carbon footprint will be essential for their brand by 2025. As such, businesses that want to accelerate their net zero plans need to ensure that their financial goals tie in with sustainability.

Over the last 2-3 years, there has been a huge shift in businesses focusing on the environment. An increasing number of employees, consumers, investors and governments are placing greater emphasis on environmental responsibility when making decisions.

However, 70% of businesses say they need commercial and technical expertise to help them realize the growth opportunities that energy can unlock. Historically, organizations have been primarily concerned with energy spend and resilience, and although these continue to be important, a focus on sustainability should be their goal for the future.

With the cost of environmentally-friendly energy sources such as solar power starting to decrease, now more than ever, the right financial choice is also the right environmental choice.

2. Ensure your strategy will scale

Many companies face a battle between a ‘go-for-broke’ and ‘pilot’ strategy. Whereas many energy infrastructures are commercially successful in the pilot phase, some don’t work when they’re scaled up. Therefore, you need to be prepared to commit to a long-term decarbonization strategy and approach early stage planning with a long-term view.

Achieving net zero targets won’t happen overnight – it’s a long-term commitment that will probably involve several separate projects. One of the biggest challenges businesses face is handling internal misalignment. In some organizations, the finance team is removed from the company’s strategic goals around decarbonization. Achieving early alignment between your energy manager and finance team is key to a successful decarbonization journey.

Our research found that 63% of sustainable businesses have a detailed efficiency and distributed energy investment strategy. So, it’s important that you invest time in working out what your financial and commercial objectives are. This requires up-front thinking around the complexity of the financial strategy, the potential length of the contract and possible hesitancy of being locked-in with a partner.

Through a suite of energy systems upgrades, Queens University of Charlotte have cut annual energy costs by $190k and CO2 by 1,444 tons.

3. Assess your appetite for risk

Your approach to risk will determine the financing timeframe around your strategy. For example, organizations that are willing to take on more risk will likely have longer timeframes. With a longer financing term, you and can access technology that will potentially prove to be an asset in the future. It’s important to have a clear view on your approach to risk and decide how much financial capital you’re willing to spend yourself, if any at all. If you do choose longer-term financing, you also need to be clear on your objectives, as it can restrict monthly cashflow.  

In addition, companies should also look for any national or local funding pots that they could benefit from, which would include funds like Green Stimulus packages. You should also ensure that your credit is up to scratch when entering into discussions, as sourcing money with bad credit is much more difficult.

It’s important to consider the bigger picture of where your organization is heading. Financing low carbon strategies needs to be approached from a portfolio perspective, rather than as a single investment. You should consider whether accessing more financing will provide enough value and help you reach your net zero target sooner.

4. Explore your financing options

New energy technologies can deliver significant cost savings and importantly, reduce carbon. Our Distributed Energy Future Trends report finds that 73% of businesses agree that technology and better operational practices produce the biggest efficiency gains.

However, implementing technologies can be an expensive up-front cost and organizations often don’t have the financial means, or the appetite, to invest directly in capital expenditures. Companies need to look for more innovative ways to spread the cost.

According to our report, 66% of sustainable businesses are joining energy technologies and assets together to maximise ROI. Centrica Business Solutions can help you spread the cost of implementing an energy infrastructure through our flexible financing options. We’re currently supporting thousands of businesses globally, helping them to overcome barriers to investment. 

There are a range of different financing options available, each with their own benefits:

  • Energy-as-a-Service (EaaS) financing uses a pay-for-performance model that allows private organizations to implement multi-measure infrastructure projects with zero upfront capital expenditure. Cost and carbon saving benefits are procured without risk as there is no ongoing responsibility for assets. With no capital expense, your organization can preserve cash for core business investments, or other non-energy decarbonization projects.
  • Energy Savings Performance Contracting (ESPC) is a budget-neutral financing approach that requires no upfront capital. This option allows government entities to make building improvements that reduce energy and water use, while increasing operational efficiency.
  • A Power Purchase Agreement (PPA) finances on-site renewable generation over a period up to 25 years. This option uses a single agreement inclusive of the asset, financing and operation.

Alternatively, you could enroll in a Demand Response (DR) program, where you can generate revenue from your energy estate and reinvest it into furthering your decarbonization journey. Your organization will benefit from reduced energy bills by adjusting consumption in peak periods. This can improve your site resilience and enable you to better manage risk through real-time energy asset monitoring. Organizations also benefit from gaining insights into operational activity and asset performance while accessing more energy markets and new sources of revenue.

Financing low carbon projects: how we can help

Navigating your financial options can seem like a daunting task. That’s why at Centrica Business Solutions, we offer a range of zero-CAPEX options that enable you to implement advanced energy infrastructures without capital.

Discover how Centrica Business Solutions’ Energy Pathway can help you define your approach to energy implementation, establish your goals and identify opportunities.