Step Capitalize Lower Operating Costs

Capitalizing lower operating costs enables developers to fund up-front investments in energy efficiency and durable materials with the increased debt-carrying capacity generated by projected operating savings. The various options for accomplishing this goal should be explored in initial conversations with project lenders and other financial partners.

An energy-efficient, on-site generation, or project-based utility allowance allows the developer to capture a portion of the operating cost savings generated by energy-efficient design and building systems. This approach can be pursued on either a project-based level with the local public housing authority or at a policy level, by encouraging the


Typically offered by energy service companies (ESCOs), energy performance contracting is a funding mechanism for installing energy conservation measures that are paid for by the resulting energy savings. The first costs of the energy improvements are borne by the performance contractor and paid for out of the energy savings. Other advantages include the ability to use a single contractor for the necessary energy audits and retrofits, and the ability to guarantee the energy savings from a selected series of conservation measures.

Energy performance contracts are used in retrofit projects where the payment for new heating equipment, utility services, or energy-related building improvements depends on the energy savings performance of such improvements. Performance is defined by utility consumption, and is guaranteed by an ESCO or contractor to be sufficiently better than the existing equipment or building conditions. Thus the total cost to the owner will be no higher than if no improvements had been made, while, ultimately, total costs will decrease. Energy cost savings achieved by the retrofit project over the contract term must therefore be sufficient to cover all project costs, including debt service and contractor fees for design, maintenance, monitoring, and profit.

housing authority to adopt alternative utility allowance schedules for projects that incorporate energy efficiency and/or on-site power generation. Another approach is to reduce the amount assumed for common-area utility costs to the developer due to energy-efficient systems and lighting, or a common-area photovoltaic system. A third approach is to reduce replacement reserve requirements, based on the specification of more durable flooring, roofing, and other materials.

In home ownership projects, the most commonly used approach for capturing energy savings in project financing is the energy-efficient mortgage (EEM). Check with the commercial bank that will be providing the mortgages to ensure that the lending officer is familiar with EEMs and has the necessary applications.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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