Innovative Funding Mechanisms Can Give Colocation Providers the Advantage to Pursue Clean Technology
Today’s data center and colocation providers recognize the edge provided through sustainable operations—including the procurement of clean energy sources. But for many, innovative choices, like power purchase agreements (PPAs) and microgrids, remain an untapped source for improved financial and operational performance and reliability. Why?
Many companies may still dismiss renewables and microgrids out of hand, not realizing that improvements in technology and drops in price now make these technologies more affordable than ever. However, research demonstrates that the executive approval to fund energy and sustainability projects has more to do with a solid business case than the immediate availability of capital.
A solid business case requires an initiative that drives impactful outcomes. Whether company executives are motivated by financial goals, sustainability targets, or resilience concerns, understanding how a project aligns with an organization’s priorities is key. Clean technologies are one solution that have the potential to save money in the short-term and future-proof business against expensive periods of resource instability over the long-term.
Alternative Models to Traditional CapEx Can Lower Risk and Highlight Project Value
Executive buy-in for an innovative energy project like a microgrid starts with a shared understanding of what such an investment can do for the business. Due to the complexity and relative novelty of many of today’s most impactful energy solutions, executives may have limited understanding of these tools, making it difficult to evaluate the risks of innovation.
Executives aren’t the only stakeholders that will need convincing. A large-scale project like an offsite renewable energy PPA will require the buy-in, resources, and expertise of multiple departments throughout the organization, ranging from operations to treasury to the C-level or even the Board.
Emerging funding models can help build a convincing business case. Whereas implementation of innovative energy or sustainability projects was once CapEx dependent, companies can now choose from a variety of non-CapEx models to fund these projects. This can better align project proposals with organizational ambitions and the realities of day-to-day operations, while still moving projects forward. The ability to move projects forward without CapEx is especially important for companies in the high-tech and data space, where funding is often routed to research and development activities.
Today’s innovative funding models are more than financial mechanisms–which are not enough. Rather, they act as operational mechanisms that guarantee project performance and protect growing investments. The resulting business model provides greater financial security and operational flexibility, and ensures these investments translate into long-term value for the organization.
Key Stakeholders Look for 3 Things When Assessing Energy Projects
There are three top benefits key stakeholders look for when evaluating potential energy and sustainability investments. Finding funding models that elevate these benefits can improve support for projects and increase the likelihood of gaining buy-in.
Accelerated Payback Schedules
Shared savings mechanisms and rebate incentives can improve the time-to-results for energy and sustainability investments by accelerating non-capital projects at a greater volume and velocity. When included in a diversified project portfolio, quick wins with simple paybacks can be used to bring longer payback projects within hurdle rate requirements. Improving payback schedules allows executives to evaluate energy and sustainability initiatives in the same time horizon as competing priorities, so they can be compared on a relative basis.
Reduced Financial Risk
Performance contracting, energy services agreements and PPAs can all protect cash flow by allowing businesses to recover capital faster. By providing clear ROI projections, these models reduce financial risk and improve alignment of projects with business priorities. For example, under a PPA for a utility-scale offsite renewable energy project, energy savings may be re-invested in core business activities, or used to drive additional investment in clean technology.
Outsourced Operational Burden
Energy-as-a-service models (which microgrids can be structured under) and PPAs can remove the balance sheet burden and operational responsibility from a project by outsourcing for both added expertise and bandwidth. Procurement, design, commissioning and maintenance of core operating equipment, systems, processes – even whole facilities, buildings or portfolios – can potentially be outsourced. Funding models that alleviate the operational burden centralize the accountability of the vendors and service providers involved in a project, providing holistic oversight for the program alongside outcome assurances.
The Right Fit of Tech and Funding for Your Cleantech Solution
There is no one-size-fits-all model to matching data center and colocation provider objectives with the right cleantech solution or the right funding model for that solution. Getting stakeholder buy-in will always require a carefully crafted business case. Selecting the right combination of technology and funding will depend on the financial and operational requirements of the organization, as well as the goals of the project—but innovative models are available and ready to be explored!
Looking for more? Learn more about the new funding models that companies are using to gain buy-in for innovative energy and sustainability initiatives. Also, listen in to the conversation with a recent webinar, Innovative Energy Solutions to Consider for Your Colocation Data Center Performance.