Follow the Money Trail

One of the biggest obstacles facing electrical contractors wanting to enter or expand their presence in the alternative-energy market is their customers’ ability to finance an alternative-energy project, which usually requires large, upfront investments in order to take advantage of energy savings in future years.

Getting customers to invest funds today to reduce tomorrow’s energy expenses has always been difficult, even when the return on investment was almost ensured with energy efficiency and conservation upgrades. Getting customers to invest in alternative-energy projects is even more difficult where technologies, the energy market, and government and utility incentives are changing almost daily, not to mention the tight economic climate.

As a result, customers may be reluctant to use internal funds or may not be able to get a loan for an alternative--energy project even though it will result in a favorable return on the investment over its useful life. The electrical contracting firm must recognize this obstacle to customer investment in alternative-energy projects and address it if it wants to enter or expand into this emerging market.

Overcoming the obstacle of the upfront capital investment in order to reap the benefits of an alternative-energy project requires that the electrical contractor recognize and address its customers’ concerns about the initial investment and uncertain future returns. Electrical contractors must expand services to address customers’ financial needs and risk concerns. Utilities and energy service companies (ESCOs), operating mainly in the large public and private institutional market, have used this full-service approach. However, with rising energy costs and concern about the environment and natural resources that has spurred government legislation and incentives at all levels for alternative-energy projects, owners are now more interested in distributed generation and open to proposals from electrical contractors that address both technical and financial concerns.

Encouraging the development
Helping the customer overcome its need for financing and concerns about risk does not require the electrical contractor to add staff or become a lender or leaser; however, the electrical contractor must recognize the customer’s needs in these areas and help the customer obtain information and resources. Usually, this means the electrical contractor must team with an accounting professional or financial analyst that can help the customer choose the best solution. The electrical contracting firm can then help the customer obtain the necessary financial resources through equipment manufacturers, lending institutions, leasing firms, private lenders or other appropriate sources of funds.

Of course, the customer does not have to own the alternative-energy project to benefit from it. In some cases, it will make financial sense for the customer to own and operate the alternative-energy project based on its financial situation and ability to take advantage of tax incentives and rebates, willingness to take on any risk associated with the project, and ability to operate and maintain the system. In many instances though, it might be more advantageous for the customer to host the alternative-energy project and let another company actually own it. This is especially true if the customer is not able to take full advantage of tax incentives and rebates or is unable to finance the project itself. Recognizing the fact that the customer does not have to own the alternative-energy project to benefit from it opens up new marketing opportunities for the electrical contractor and ways customers can benefit.

Hosting the project
Hosting the alternative-energy project simply means that the customer locates the project on its property but does not own it. There are a number of ways the customer can host the project and benefit from it, either through lower energy costs with reduced financial risk or new revenue streams that don’t affect the customer’s energy costs. Options to outright ownership of the alternative-energy project might include a sale lease-back arrangement, power purchase agreements (PPA) or some other similar arrangement. Alternatively, hosting the project may mean leasing the building’s roof, exterior walls, parking lot or grounds for the installation of the project and receiving a long-term revenue stream from this lease.

Know the customer
In the alternative-energy market, knowing your customer means understanding his or her financial situation as well as his or her interest in alternative energy and the technology. Marketing alternative-energy projects means understanding the customer’s concern and creatively finding a solution for that customer. The concern may be the initial capital outlay required for the project, the need to take on additional debt to finance the project, the uncertainty associated with future savings associated with an alternative-energy project, or something else that needs to be addressed for the project to move forward.

This article is the result of a research project investigating the electrical contractor’s role in the emerging green economy that is being sponsored by ELECTRI International Inc. The author would like to thank the ELECTRI International for its support.

GLAVINICH is an associate professor in the Department of Civil, Environmental and Architectural Engineering at the University of Kansas. He can be reached at 785.864.3435 and

About the Author

Thomas E. Glavinich

Freelance Writer
Thomas E. Glavinich was an associate professor in the Department of Civil, Environmental and Architectural Engineering at the University of Kansas. His tenure as one of Electrical Contractor's most trusted and reliable source of industry research end...

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