Energy-efficient equipment investment now mainstream, but affordability remains an issue

Investment in energy-efficient equipment is now mainstream in Britain, with 44% of firms declaring that over half of their equipment meets this definition.  However, the momentum of investment has hit an affordability obstacle as the economy slowly recovers.  To overcome the affordability issue, forward thinking organisations are using asset financing techniques to align monthly costs with monthly energy cost savings, achieving payback periods in some instances of as little as two years.  These are the findings of the latest research study from the financial services division of Siemens (SFS).

David Martin, General Manager for Siemens Financial Services Ltd in the UK, says: "The fact that energy efficient equipment has clearly been the subject of mainstream investment for a sustained period is good news. But there is also evidently, and more importantly, a major need for further stimulus to keep up the momentum of investment.  The issue is not simply a matter of ethicality and being 'green'; the economic efficiency of British industry is also at stake.  Financing options are readily available to make such investments affordable, aligning outgoings with cost-savings.  However, there is also no doubt that further government stimuli would also be of great value."

While 44% of companies in the UK (40% Germany, 54% France) say that over half their equipment is now energy-efficient, 65% (57% Germany, 66% France) state that they are delaying further investment because of affordability issues.  In the experience of SFS, which finances energy-efficient equipment from many different manufacturers, dynamic organisations are using asset finance arrangements to overcome the affordability obstacle.  In an asset finance arrangement, large amounts of capital are not tied-up or 'frozen' through up-front purchase.  Instead, regular monthly payments align with the actual monthly payback from lower energy expenditure.  Such arrangements can accommodate technology upgrades and avoid technology 'lock-in'.

In the industrial context, the most significant energy savings come from replacing drives and motors with the energy-efficient alternative.  Drive technology alone is responsible for 60 percent of industrial energy consumption.  The technology for saving exists - but high acquisition costs for energy-efficient industrial drives can put off many managers.  However, given that these drives have a service life of ten years, in an example where there are 2,000 hours of operation annually, the purchase price accounts for less than 3% of total costs. Energy costs, by contrast, account for over 95%.  Factor in a financing option that allows the new drives to be paid for on a form of pay-to-use basis, and the energy cost savings are effectively paying for the acquisition cost, at an affordable rate, and without tying up scarce capital.

SFS interviewed more than 7,000 company executives in Germany, France, United Kingdom, USA, China, Poland and Turkey during the period May until September 2010.