2013-07-26

Financing LED Retrofits

A financial infrastructure has sprung up to ease, and profit from, LED retrofits in business, government, and education.

I first became aware of a tip of this iceberg earlier this month when an employee of a direct lender posted on a LinkedIn group. (I won't give the link because membership in that group is required to read it.)

He gave an example of a retrofit of over 400 metal halide fixtures with LED panels in a 100,000 sq. ft. (9,290 sq. m.) manufacturing facility. The total cost was $160,000. Expected savings on the company's energy bill and maintenance: $4,800 per month. Monthly payment on a 5-year loan: $3,500. The company realizes $1,300 monthly cashflow from day 1 with no money out of pocket.

The current easy access to financing for LED retrofit projects seems to have developed in the last year. In May 2012, a report on the options for financing energy improvements for commercial real estate bemoaned the dearth of outside funds available for this purpose.

With a bit of judicious searching, it is not hard today to find lenders eager to structure deals like the one sketched above. Here is the Commercial Funding Network's pitch. WB Financial claims that 95 percent of all LED lighting projects can be structured to be cashflow positive.

Hooking them up
Lighting manufacturers and those offering retrofit services are helping potential customers to hook up with financing for their proposed projects. Here is RedBird LED, out of Atlanta, linking to financial resources -- the company is not associated with any of the lenders, they state. They urge customers to do their own research to find the most suitable financing deal.

Some lighting suppliers opt for closer ties with lending institutions. Aleddra Lighting in Washington partners with Key Bank and Balboa Capital to offer customers "no initial installation cost" financing.

Revolution Lighting Technologies, in Connecticut, took another tack. It worked with private equity firm Aston Capital, which is creating the LightCap I Fund with $50 million from both internal and external sources. Revolution's customers in the commercial, industrial, municipal, and university arenas can craft "flexible, customized, and turnkey financing solutions," according to the companies' press release.

Virtuous cycle
The LED push into sectors outside the residential has gained enough momentum that there now seems to be little dispute that the promised savings will materialize for organizations that invest in replacing legacy lighting with LED-based technology. Banks and other lenders, including private equity, have assessed the risks and judged LED retrofits eminently loan-worthy. This development is healthy for all concerned. The LED supplier (and the supply chain behind it) gets business and growth. The customer gets cashflow in addition to improved lighting. The lender makes a profit. The utility (and ultimately the nation) benefits from reduced demand for energy and lower greenhouse gas emissions.

I didn't see any indication that the easy access to capital applies to homeowners. What if your bank would lend you $1,000 to replace every legacy bulb on your property with 20-year LEDs? My guess is that the energy savings in the home are insufficient to cover the payments on such a loan.

— Keith Dawson , Editor-in-Chief, All LED Lighting