Rapid Power Management

Project Leasing: Take Advantage of Low Interest Rates and Low Monthly Payments

In today’s economic environment, many private and public organizations are faced with tight operating and capital budgets. These restrictive budgets are hindering organizations from investing in necessary purchases to ultimately reduce operating expenses.

A common way to reduce operational costs is to address and adjust how efficiently facilities are consuming power. For example, up to 80% of a commercial building’s electricity charges can come from lighting alone. Replacing or retrofitting old, obsolete lighting with a more efficient system will save money but is a significant upfront purchase. Because of this, leasing can be an attractive and financially viable option.

Project leasing can allow you to increase your buying power by purchasing at today’s prices and low interest rates while stretching out tightly budgeted money over several fiscal years.

General Characteristics of a Lease

A lease is collateral-based finance product, utilizing the advantages of fixed term, fixed rate and fixed periodic payments.  It eliminates a significant equity investment by the customer and fixes the cash flows to simplify the budgeting process.

The lessor looks to use the leased equipment as the primary source of revenues and cash flows from which to repay lease obligation.

Financing can include “soft costs” such as installation, maintenance, freight, etc. as a part of the lease investment.

Why Consider Leasing?

1. 100% financing. Since leasing generally provides 100% financing, companies are attracted by the minimum upfront expenses and down payments required by other financing alternatives. Tangential out-of pocket expenses like shipping, freight, installation and engineering can be included in the financing.

2. Leasing is a fixed expense. With the uncertainty of interest rates and inflation, it is advantageous to lock-in long term expenses with today’s dollars. In addition, you have the opportunity to pay for the equipment from the savings realized (i.e. energy efficiency, utility rebates, and federal tax deductions).

3. Preserves existing lines of credit. Growing businesses generally have substantial credit needs to finance their development. By diversifying lending relationships, your business maximizes its access to credit and you never “put all of your eggs in one basket.”

4. Tax advantages. Leasing provides substantial tax advantages, in some cases providing a 100% write-off of the monthly lease payment. This is especially attractive to businesses subject to Alternative Minimum Tax.

5. Eliminates Cost of Waiting. With energy efficiency equipment time is literally money. With leasing, you can prevent the delays in equipment acquisition if you budget 6-12 months in advance and have not allowed for this particular purchase. With energy efficiency projects, one year of lost energy savings is usually greater than the entire cost of financing!

What Projects Can Be Leased?

Many energy efficiency measures can financed through a leased and multiple projects can be combined into a single lease. Examples include:

• Lighting – Lighting technologies are constantly improving. Today’s systems are not only energy efficient, they produce better illumination and have lower maintenance costs than older systems.
• Power Factor – Many industrial and manufacturing plants face a power factor penalty from their electric utility on every bill. Installing a capacitor bank to correct power factor can save thousands each month.
• Solar – Harvesting energy from the sun is another way to save on electricity costs by increasing energy efficiency and decreasing dependence on the utility grids.
• HVAC – Upgrades to HVAC systems improve energy costs with newer, more proficient technology. Aside from saving energy, you could reduce noise and lower maintenance costs.

 

Lease Example:

Leases can be structured on varying term lengths to accomplish a company’s goals, whether that is quicker ownership or higher positive cash flow. Below is an example of a lighting & power factor project:

Energy project leasing may not be a fit for all companies, but for many, it can provide an alternative finance mechanism. Let RPM help you explore the opportunity to capture energy cost savings today, without little to any upfront cash outlay through leasing.

 

CREZ: Competitive Renewable Energy Zone

In 2008, the Public Utility Commission (PUC) approved a transmission plan proposed by ERCOT to create more than 2,300 miles of transmission lines linking west Texas wind power generation with the densely populated areas in central and east Texas.  The plan identified areas in west Texas where wind generation had the greatest potential and determined the transmission infrastructure needed to move the power to market.  The CREZ project was initiated by the state legislature in 2005 to create a competitive market for wind power in Texas.

Thirteen transmission companies have contracted with the PUC to move the power east, which was the largest financial barrier for west Texas wind generators.  The total project was estimated at $4.93 billion, which was expected to be paid back by residential electricity consumers over the next decade.  However, cost overruns have increased the total project cost by about 40% to $6.8 billion – or $800 per residential consumer.  The project is expected to be completed by December 2013.

 

New Home Product: Nest Thermostat

Forget programmable thermostats — this ‘smart’ thermostat learns your behaviors and sets itself by mimicking your heating and air conditioning habits. Most programmable thermostats are complicated and time consuming to use, leaving no real benefit over a standard one.

People often leave their homes for work, vacation, a day out, etc. without adjusting the temperature. Nest learns your patterns and programs itself after a few times of use and can also be controlled from your smart phone.

Only 11% of programmable thermostats today are built to conserve energy. The Nest products ability to adapt to lifestyles allows an average user up to 20% savings on heating and cooling bills.

Installing Nest can be as simple as installing a new light fixture. Three out of four users installed the thermostat themselves in thirty minutes or less.

To see whether or not your home system is compatible with Nest please call 855-4MY-NEST. For more information, reviews and photos, visit www.nest.com.

 

 

GDP UPDATE

Gross Domestic Product (GDP) rose at a 2.5% annual pace in the first three months of 2013. This was driven primarily by a rise in consumer spending. Consumer spending rose at the fastest pace since the end of 2010. On the other hand, cuts in government spending dragged on the economy in the first quarter.

Though the GDP rose 2.1% from Q4 2012 economists were expecting a stronger rate of 2.8% growth.

Economic growth isn’t as likely to be as strong in the second quarter due to the public sector cutbacks and lack of job growth in March.

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