The landlord/tenant relationship often stymies any justification in energy efficiency. Afterall, why should the landlord make any investment when it’s the tenant that pays the utility bill? And why should the tenant invest in energy efficiency when the equipment becomes a permanent part of a building they don’t own? Furthermore, the term on a tenant’s lease is usually much shorter than the useful life of the new equipment. However, there are win-win solutions for this kind of situation. Here are three of them:
1. On-bill financing. This is where an energy company finances 100% of the equipment upgrade and the customer pays the energy company back through a line item on their monthly utility bill. The beauty of this approach is that the energy efficient equipment should normally lower the monthly bill more than the line item adder for the new equipment, netting the customer positive cash flow from the first month. Constellation Energy is one such energy company offering on-bill financing to its customers.
2. PACE financing. PACE or Property Assessed Clean Energy is a financing solution for energy efficiency projects. It’s similar to the on-bill financing except that the customer’s payment is through the property taxes. An adder is applied to the property tax assessment. As in the above example, this adder should be less than the savings resulting from the equipment upgrade so that the customer enjoys net savings in the first month. The tax assessment obligation stays with the property owner and not the utility bill payer.
3. The third way is adding a clause in the lease agreement that provides a benefit to both tenant and landlord based on the type of equipment installed and its useful life.