Municipal Leasing Trends — Focus on Energy
By: Renee M. Piché, President, MLC
Updated August 20, 2008

What is an Efficient System?

Lately it seems that power consumption and its cost have dominated the news — and your budget. From efficiency upgrades and enhancements to new installations, there's an everincreasing variety of possibilities to provide the power you need, in the most efficient and cost-effective way possible.

For example, with "distributed generation", electricity is produced on-site using a variety of generation equipment, such as solar cells, fuel cells, mini-turbines and internal combustion engines, rather than at large, centralized power plants or utility substations. You may be adding a solar array to an already existing gas-fired power plant. Why not consider leasing that new equipment?

If your system is more than a decade old, chances are you have an inefficient and costly current set-up. A cogeneration system with state-of-the are technolgy could double your enegy efficiency — saving you money. Cogeneration means using the electricity of an on-site generator as well as using the heat that the generator makes as a byproduct. Washington State University just implemented a cogeneration plant that uses high-pressure steam to run a turbine generator to make electricity, and then uses low-pressure steam exiting the generator to heat the campus and run the central chillers.

You can use that ‘excess’ thermal heat in four ways - air conditioning (via an absorption chiller), compressing (to run large refrigerators), producing local hot water, and space heating. The equipment will depend on your needs, and leasing will often be the way to make it all come together. In fact the utility companies themselves believe in co-generation. United Illuminating in Connecticut is planning a $20 million cogeneration project to help create more reliable local/regional energy generation.

Increasing Competition in the Marketplace

The market for power generation is undergoing a tremendous transformation to competition. At the same time, new cost-effective distributed generation technologies are becoming commercialized. In addition to the cost savings, distributed deneration and cogeneration should provide all your crucial energy needs in a blackout! Who doesn’t want to keep essential services running in a time of need?

Consider the new announcement from the Octillion Corp. that it has entered into a Sponsored Research Agreement with scientists at the University of Illinois in Urbana-Champaign. Octillion will develop a new patent-pending technology using nanosilicon photovoltaic solar cells that could convert normal home and office glass windows into ones capable of converting solar energy into electricity. Limited loss of transparency and minimal changes in manufacturing infrastructure are among the advantages envisioned for this new technology. When thin films of silicon nanoparticles are deposited (sprayed) onto silicon substrates, UV light is absorbed and converted into electrical current.

Financing Your Energy Efficiency Project

In today’s economic environment, most public sector organizations are faced with increasingly tight operating and capital budgets. The utility budget can be viewed as a source of funds for making improvements. With uncertain and often increasing energy prices, the installation of energy-efficient equipment can be a way to upgrade your facility using dollars saved from future utility bills.

Performance contracts are agreements in which an energy company guarantees the performance of the equipment being installed. They can be used for energy efficiency projects, water conservation and lighting upgrades, cogeneration projects, geothermal projects and any type of biomass projects for energy efficiency. Typically, the cost of the needed equipment or project is paid from the savings from the project.

Tax-exempt lease/purchase agreements are the most common public sector financing alternative to traditional debt financing (bonds, loans etc.).  An energy performance project allows a public entity to pay for energy upgrades with money already set aside in its utility budget.  When properly structured, this financing mechanism draws on the dollars to be saved for future utility bills to pay for new, energy-efficient equipment today.

A tax-exempt lease/purchase agreement, also known as a municipal lease, or an installment purchase agreement is used to acquire personal and real property. Payments are generally level and are tied to the useful life of the equipment or to match the cashflow of an energy project.  Interest rates are lower than those on a taxable commercial lease purchase agreement because the interest paid is exempt from federal income tax. In addition, a tax-exempt lease/purchase agreement does not constitute a long-term debt obligation because of the non-appropriation language included in the agreement. This language limits the payment obligation to the current operating budget period. If future funds are not appropriated, the equipment is returned to the leasing company. All manufacturer or vendor warranties are passed to the Lessee under the agreement.

Lease/purchase agreements are used to finance everything from computers and telecommunications systems, highway equipment, fire, rescue and emergency equipment, to jail cells, HVAC systems and other energy-efficient upgrades, street lamps, parking meters, as well as buses.  They are ideal for financing energy and water projects.  The approval process for a lease is generally much easier, faster and ultimately less expensive than issuing a bond, especially when voter referendums can be avoided. 

Municipal Leasing Consultants — An Industry Leader Since 1986.

By now you know that leasing is a very attractive financial option for literally thousands of American counties, cities, and towns as they face revenue shortfalls, yet need to continue to provide quality public services for the residents and business of their communities.

And MLC is there to help them get the equipment and technology essential to their everyday operations, as well as future improvements projects. From day one, our goal has always been to provide innovative financing solutions — and today, MLC continues to be a leader in the ever-changing energy sector.

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