Equipment with Longer Useful Life Can Save You Money From Day One
Even with higher up-front costs, equipment with a longer useful life, when purchased with PACE financing, can yield positive cash flow from day one.
- Date: 22 July 2019
- Source: CounterpointeSRE
- Author: Kayleigh Abbot
When the contractor hands you their bid to replace equipment, many cross out the more expensive products. Yet energy efficient products reduce annual operating expenses and determining annual utility savings should be an important financial factor when selecting equipment. Astute owners are aware that equipment with a longer estimated useful life (EUL) can have an immediate impact upon annual operating expenses, especially when combined with C-PACE financing.
C-PACE financing provides low cost long term capital to commercial property owners for energy efficient and renewable energy improvements and installations. Its long terms (matching EUL) and fixed interest rates smooth out cash flow impact of capital intensive projects.
Let’s say you have a commercial property in Florida and you are contemplating using C-PACE financing to invest in energy efficient equipment that will save an estimated $48,000 on the property’s utility bills. There is a choice between two different pieces of equipment. One product costs $500,000 and has an estimated EUL of 20 years and the other costs $50,000 more, but has an estimated EUL of 30 yrs. The more expensive equipment may yield a net positive cash flow from the first day, while the cheaper equipment may not.
*Calculated assuming PACE financing at a fixed rate of 6.25% for term matching EUL of equipment
There are many improvements that have useful lives of 30 years or more such as green roofs, insulation, and solar panels. Even HVAC equipment can have an EUL of 30: Trane offers over half a dozen chillers with Estimated Useful Lives of 30 years.
Upgrading your property’s equipment saves money and reduces operating expenses through increased energy efficiency. Choosing equipment with a longer EUL not only saves money by increasing the length of time until replacement is needed, but may make an immediate difference in that year’s operating expenses.
If you are a manufacturer of an energy efficient product with a long EUL, please let us know to be added to our database of PACE eligible equipment.