From solar panels and wind turbines to LED lights, clean energy technologies have gained popularity with businesses across the U.S. and the world. Here, we provide an overview of what clean energy is, how it might benefit your company and what you should consider before implementing a change.
Defining Clean Energy
The term clean energy describes energy derived from sources that are more efficient and have a lower impact on the environment than traditionally generated energy. Many technologies are based on renewable resources, such as solar, biomass, geothermal and wind. Others are not — such as micro-turbines and fuel cells, which rely on natural gas, and combined heat and power (CHP), also known as cogeneration.
The rising interest in clean energy is tied to growing availability of technologies and dropping costs. For instance, a 1 megawatt solar installation that might once have cost $5 million might today cost $2 million. But the number-one driver is saving money — primarily achieved through the following three avenues:
- Energy efficiency. By definition, clean energy technologies use less energy. In the past, reduced usage was often offset by the much higher per-watt cost. But today, that cost can be less than or just slightly more than conventionally produced energy, making it more viable to net a neutral or even positive cash flow based on energy savings. Rabobank has seen many clients reach payback in five to seven years.
- Fixed cost. Electricity costs, in general, have been increasing. In some regions, rates have jumped by double digits. Clean energy can offer the opportunity to turn this rising variable cost into a fixed cost. For example, if a company installs a solar energy system based on net metering, it can sell any excess power back to the utility company. This turns energy costs into a known, reliable quantity.
- Tax advantages. You can typically enjoy a tax credit worth 30 percent of your original investment in clean energy, as well as depreciation benefits. Additional incentives or rebates may also be available at the state level. Learn more from the U.S. Department of Energy.
Of course, converting to clean energy also reduces your company’s environmental footprint, contributing less pollution and little to no greenhouse gas emissions. (This can improve your corporate image, too.)
In addition, having an on-site power source could help keep your company running in the event that traditional fuel supplies are disrupted. And you’ll also be upgrading to newer equipment that may have fewer repair and maintenance needs than your current system.
While clean energy is intriguing, it isn’t for every company. In general, it makes the most sense for businesses that are heavy energy users, such as those with large distribution processing centers or cold storage facilities.
If you fit that bill, you’ll still want to consider several factors when determining whether to move forward and with what technology. These include initial investment costs, operation and maintenance requirements, availability of technologies and qualified developers/installers in your area, and your site size. For instance, companies without sufficient space for a solar installation may get what they need from a micro-turbine.
Once you’ve decided that clean energy is for you, request proposals from at least two developers. Complete due diligence: Review their experience, reputation, product quality and warranties/assurance policies. Remember, a 25-year warranty is meaningless if the company goes under in 10 years.
Rabobank can help you evaluate developers and provide an objective opinion of their bids. And when you’re ready to hit go, we can also help with financing solutions uniquely tailored to clean energy purchase and installation.
- “Green Power and Renewable Energy,” U.S. Small Business Administration, http://www.sba.gov/content/green-power-and-renewable-energy, accessed Oct. 16, 2014
- “Financing Energy Efficiency Projects,” U.S. Small Business Administration, http://www.sba.gov/content/financing-energy-efficiency-projects, accessed Oct. 16, 2014
- “Energy Efficiency and Clean Energy: How We Work Together,” U.S. Environmental Protection Agency, updated Oct. 17, 2012, http://www.epa.gov/cleanenergy/energy-and-you/small-business/index.html, accessed Oct. 16, 2014
- “Guide to Purchasing Green Power,” U.S. Department of Energy, March 2010, http://epa.gov/greenpower/documents/purchasing_guide_for_web.pdf, accessed Oct. 16, 2014
The information contained in this article is intended for general educational purposes only and is not to be construed as legal, tax, or financial advice. Please consult with your own legal, tax or financial advisor for guidance with your own particular circumstances.