There are many ways to accomplish an energy-efficient project, many of which require no upfront capital expenditure. WESCO Energy Solutions can help you identify the best financing method for your organization to achieve your financial goals. Whether those goals are to shift the expense from your capital budget to your operating budget, immediately increase cash flow, qualify for lucrative tax deductions, or any number of other objectives, we are able to offer a wide variety of options to make your energy efficient-retrofit sustainable both from an environmental perspective as well as a financial one.
A capital lease allows the property holder to own the equipment for most legal and accounting purposes during the term. The customer may depreciate the equipment as an asset to provide a tax benefit. At the end of the lease term, the property holder can purchase the equipment for a discounted bargain price, typically a $1 payment. A capital lease functions much like a loan with some additional benefits such as little to no upfront cost, less paperwork, and quicker approvals.
Unlike employee wages or utility bills, taxpayers do not get an immediate tax deduction for the purchase of a building. Commercial real estate is depreciated over 39 years. However, IRS rules allow non-building components such as personal property and land improvements to be segregated from the building and depreciated more rapidly, generally over 5, 7, and 15 years. This drastically improves cash flow by accelerating tax depreciation deductions.
Deferred lease payments allow for all energy-saving equipment to be installed prior to making your first payment. When the combined savings is greater than monthly lease payments, clients will be cash flow positive from their very first payment.
Energy Savings Performance Contracting (ESPC) is a budget-neutral approach to make building improvements that reduce energy and water use and increase operational efficiency. A facility owner can use an ESPC to pay for today's facility upgrades with tomorrow's energy savings—without tapping into capital budgets.
With this type of lease to a public entity, the lessor may claim a federal income tax exemption, allowing them to offer a lower rate. Although the financing terms for tax-exempt leases may extend as long as 15 to 20 years, they are usually shorter than 12 years and are limited by the useful life of the equipment. The terms of the lease and retains ownership once the lease is paid off.
For clients with multiple facilities such as college campuses or national accounts, this program places the estimated total turnkey retrofit cost, interest-free, in escrow. Only the funds subtracted from escrow are charged interest. This master contract eliminates the per facility paperwork requirements.
Private lenders may integrate performance-based retrofit finance within their refinance lending program and underwrite the post-retrofit energy savings into projections of operating costs. In this model, the value created by energy-efficient retrofits causes the property value to increase and makes the refinancing cost-effective.
A third-party capital provider makes the investment in the energy-efficient upgrades on behalf of the property owner, so there is zero out-of-pocket or up-front expenditure required. The capital provider’s investment does not impact the property owner’s debt ratios, lines of credit, or conflict with any of their core purchases, because it’s not a loan or financing; it’s “as-a-service.”
The 179D commercial buildings energy efficiency tax deduction enables building owners to claim a tax deduction for installing qualifying energy-efficient systems in their buildings. Tenants may be eligible if they make construction expenditures. A tax deduction between $0.60 to $1.80 per square foot is available to owners of new or existing buildings who install (1) interior lighting; (2) building envelope, or (3) heating, cooling, ventilation, or hot water systems that reduce the building’s total energy and power cost by targeted percentages.