Delaying your clean technology projects only leads to growing costs.
Businesses need to view clean technology solutions as savings opportunities rather than costs.
Companies need to act quickly, as interest rates, inflation, and lost savings all add to the cost of waiting.
Flexible funding options can help firms remain cash flow positive and retain precious capital.
A stitch in time saves nine—sound advice, and one that applies to buying energy efficiency upgrades as well.
Companies looking to purchase clean technology solutions are facing rising global instability, interest rates, inflation, and energy prices. Because of this uncertainty, businesses are reluctant to part with capital—especially on projects that don’t serve core business priorities. But, those that wait pay much more in the end.
With a recession looming, some might consider waiting for more favorable conditions to start their energy efficiency projects. However, the cost of waiting makes this an even costlier decision. A savings-based payment solution will allow you to avoid this through a monthly payment schedule that is lower than your projected savings.
Counterintuitively, conserving capital actually increases your costs. In short, businesses need to view clean technology solutions as savings opportunities, instead of expenses.
Companies should implement their energy projects faster, not slower during difficult times. To show how the cost of waiting can impact your bottom line, let’s look how all these market forces can raise the cost of a typical energy efficiency project.
The cost of realizing a cleantech project only increases with time. Savvy companies already know that they can save with smart assets, but cashflow worries cause delays. Unfortunately, waiting actually costs companies more, not less.
Act now, save now
Any potential advantage from waiting for better economic conditions or cheaper capital is lost to rising interest rates and inflation. Waiting and not reducing fossil fuel use also exposes companies to rising carbon prices (not to mention record energy prices), which in Canada is jumping 30 percent to CAD $65 per tonne in 2023).
Lost savings are also an important (and overlooked) factor to consider; another reason why the cost of waiting is prohibitive. To demonstrate the impact of these costs, it’s best to use a concrete example.
To this end, let’s see how a building operator’s cleantech project is impacted by waiting. Building operators usually don’t get capital budgets; they have fixed budgets, and request them a year in advance. This makes them particularly vulnerable to the cost of waiting.
Consider an energy efficiency AI solution for a building management system that costs $48,729 (all costs in USD). We’ll determine the cost of waiting by adding interest rates, inflation, and lost savings to the bill.
Cost of rising interest rates
Central banks are planning successive interest rate hikes to tackle inflation. Rates are expected to rise incrementally by 0.5 to 0.75 percent, with markets forecasting rates of at least 3.5 percent by the end of the year.
Interest rates will more than double in both countries this year, which is why businesses need to act now to avoid mounting borrowing costs. Finding flexible funding options will be key. Returning to our example, waiting until the end of the year means higher interest payments of $2,054 (over 48 months at 3.5 percent vs. 1.5 percent) compared to acting now.
Cost of rising inflation
Everyone is feeling the impact of record inflation, and clean technology solutions are not exempt from rising prices. The OECD predicts annual inflation for 2022 to hit 6 percent in Canada and 7 percent in the U.S. Rates are expected to be 3.91 and 3.47 percent by the end of 2023, respectively.
If we take a look at our example project, the cost of waiting due to inflation is. $2,924 compared to acting at the start of 2022. Delaying until the end of 2023 brings our cost of waiting from inflation to $4,943.
Impact of lost savings
Concerned about cash flow, many businesses don’t factor lost savings when they delay their cleantech projects. In many cases, the savings a clean technology solution enables are greater than the cost of capital over the full term.
In the case of our building operator, their chosen solution provides annual savings of $17,754. In other words, if they wait, this is how much they lose each year from missed savings. The solution’s total cost of capital over 48 months is $10,655, far lower than just its first year of savings.
And that is the cost of waiting
If this building operator had decided to go ahead with their project at the beginning of the year, instead of at the end, they would have enjoyed ample savings, lower interest rates, and more valuable capital.
After figuring in each of these price stressors, the cost of waiting is now much higher:
Original cost of the project in 2022: $48,729
- $17,754 from lost savings
- $2,924 from inflation
- $2,054 from interest rates
- Total cost of waiting: $22,734
Total cost of the project after waiting one year: $71,463
Waiting leads to soaring project costs, but companies need help to move fast. Accessing flexible, tailored funding options will help you win the race against rising costs.
Energy projects are uniquely impacted by waiting because they don’t have to be an expense when paired with flexible funding. After all, you’re already paying for electricity. Doing nothing might create the illusion you’re retaining capital, but your lost savings have the impact of a capital expense.
How EnPowered helps firms avoid the cost of waiting
Now that you know the true cost of waiting, it’s important to act quickly. EnPowered Payments—our on-bill payments platform—helps you get started on your projects right now, with no upfront costs. This will allow you to purchase your assets, while remaining cash-flow positive and retaining capital.
Payments minimizes your risk—so you take ownership of your new assets right away, without the hefty cost of waiting.
Payments also empowers you to pay for your chosen solution on your electricity bill with a portion of your energy savings. Once the solution is paid in full, you will receive 100 percent of the solution’s savings, and an even lower energy bill.
Want to learn more? Reach out today to see how EnPowered can help your business avoid the cost of waiting and start saving today.