24 HќќѠіђџȱ юћјђџ юџѐѕȱ2014 LENDING / CREDIT Buildings consume more than 40 percent of the world’s energy output and emit an equivalent amount of the carbon emissions into the atmosphere. Federal and state governments are responding to the calls to reduce global warming with subsidies and changes in the tax code, ȱ¢ȱĴȱ- es to create new products, jobs, and revenue to sustain the industry. 3HUIRUPDQFH &RQWUDFWLQJ One of the primary tools to reduce energy consumption and carbon emissions is performance contracting. In performance contracting, the customer hires an energy service company (ESCO) to perform an energy audit to identify and recommend a package of equipment upgrades to its existing facilities. The energy conservation measures (ECMs) are designed to reduce energy consumption and maintenance cost, while improving op- ȱĜ¢ǯ Upgrades include installing high- Ĝ¢ȱȱ ę¡ǰȱ ǰȱ boilers, chillers and controls. The customer and ESCO enter into an energy service agreement that outlines the project scope, equipment upgrades and subsequent energy savings. Many ESCOs ěȱȱȱȱ energy savings to the customer. The guarantee is facilitated by the ESCO measuring and verifying the project’s performance. ȱ ȱȱȱęȱ (M&V) is provided annually for a fee. Should the project not yield the specięȱȱȱȱ ǭ ȱǰȱ the ESCO is required to pay restitution. The ESCO can provide compensation in the form of additional work at no cost or a cash payment at year-end. The chart above highlights the customer’s utility expense before and after the installation of the ECMs. Prior to installing the ECMs, the customer is paying the full utility bill. Postproject completion, the customer has reduced its energy consumption by 30 percent. The facilities are operat- ȱ ȱ ȱ¢ȬĜȱ- ment, and the customer’s obligation is 70 percent of its original utility bill. The customer has freed up the 30 percent savings, which can be allocated to pay the debt service on the ęȱȱȱȱȱ¢ȱ on the project. Upon repayment of ȱęȱǰȱȱ- tomer pays 70 percent of the original utility bill and retains the 30 percent ȱȱȱĴȱǯ ȱ ȱ Ĝ¢ȱ Projects яќѢѡȱѡѕђȱ Ѣѡѕќџ Lance S. Holman is president and chief executive ĜȱȱHolman Capital Corporation, Santa Margarita, Calif. He founded the company to meet the diverse borrowing needs of federal, state and local governments, universities, and hospitals nationwide and the equally diverse investment needs of institutional investors globally. Previously Holman worked for SunTrust Equipment Finance & Leasing Corp. and for Chase Equipment Finance, prior to which he held management positions with Ford Motor Credit in and with US Bank. He has more than 20 years of experience in product development, capital deployment and institutional investments. Holman holds an undergraduate degree from Indiana University and earned MBA and master’s degrees from the University of Colorado. The author can be reached at 949-981-0237, email: Lance.Holman@HolmanCapital.com. Holman Capital Corporation is an associate member of the Indiana Bankers Association. 120% 100% 80% 60% 40% 20% 0% Pre-ECM’s 0% Lease Payment Utility Bill 30% 0% 100% 70% 70% Financing Period Lease Paid Off
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