Ian Tyrer, head of sales - energy finance at Siemens Financial Services, explains how innovative finance solutions are helping companies to boost their energy efficiency.
The global movement to reduce carbon emissions has encouraged an increasing number of companies to incorporate energy efficient targets into their business objectives.
Improvements to energy efficient technologies such as heat pumps, LED lighting and biomass heating has already made technology and equipment more affordable and efficient.
At the same time, the emerging Internet of Things (IoT) means these technologies can now be remotely monitored, analysed, improved, predictively maintained and made more efficient. This has enabled finance providers to increase transparency relating to how the technology is being used and the precise energy savings it achieves.
This development has contributed to a significant growth in the availability of, and interest in, the concept of paying for the ‘expected business outcomes’ resulting from the technology, rather than paying to use the technology itself.
‘Business outcomes’ may take many forms, depending on the priority of the end-user. In the buildings and infrastructure and service sectors, for example, valued business outcomes include reduced energy usage and a better environmental footprint.
Being able to pay for business outcomes can transform the reliability of financial planning. Not only are certain costs more transparent; the risk of technology obsolescence, capital commitment and so on are avoided.
In order to confidently offer outcomes-based solutions, considerable knowledge of the technologies involved, along with their likely impact on the end-user, is required.
Specialist financiers such as Siemens Financial Services’ (SFS) Energy Finance team can provide financing arrangements tailored to customers’ individual requirements and make a practical connection between the expected savings in energy costs to the financing arrangement’s regular payments. This contrasts with the standard financing terms usually available from generalist financiers, who often lack a thorough understanding of the sector as well as technical expertise.
Alongside the emergence of this ‘pay-for-outcomes’ approach, it is likely that traditional ‘pay-to-use’ methods will continue to play an important role in providing access to the latest advances in energy efficient technology and equipment.
Pay-to-use arrangements, enabled by financing techniques such as leasing, rental and asset finance, have steadily gained ground over the last 20 years as businesses have sought to acquire key operating technology and equipment while broadly spreading payments across the period during which they are gaining advantage from it.
These arrangements have gained popularity as they support a company’s need to access required technology without requiring upfront capital, and allow the benefits of the equipment’s use to be broadly matched to payments over time while providing a means of avoiding technology obsolescence.
These specialist finance models are expected to grow and develop further, providing organisations with the benefit of meeting their energy efficiency ambitions now and in the future.