How to upgrade your energy assets without capital investment
Fresh Start embraced renewable energy technology and asset finance to almost eliminate its power bills. Soon the organisation will benefit from a $2,000 per month clear cost saving.
Since 1997, the Fresh Start Recovery Programme has been helping drug users and their families to recover from drug dependence and develop a drug-free lifestyle. Among its facilities, the not-for-profit (NFP) operates a Treatment Clinic in Subiaco and a residential Recovery Centre in Northam, about 100km east of Perth. With 11,000 clients on its books, Fresh Start gets its funding from a mix of donations, in-kind service, government grants and other income streams. It also has 100 volunteers.
When Jeff Claughton became Fresh Start CEO in 2008, he began a process of change around sustainability, safety, quality and governance. A qualified accountant with a strong business background, Claughton had already been a Fresh Start volunteer and board member for the previous two years. It was a difficult decision to leave a successful firm. But having been asked three times, he agreed to bring his business acumen to bear on the organisation.
His tenure has seen Fresh Start triple its revenue, double its team, improve strategy and tighten its operating procedures. One of the many operational areas Claughton addressed was the large power bill generated by Fresh Start’s clinic and recovery centre. Operating in long, hot, dry summers, both facilities have high air conditioning (A/C) needs. Being older buildings, some have individual A/C units in every room. In addition, the residential centre uses a lot of hot water. After doing considerable research, the new CEO decided to invest in solar power and a solar hot water system, with a view to both supporting the environment and generating significant long-term savings in energy costs.
Fulfilling a duty of care to the environment
“It was about saving money, but it was also an environmentally conscious decision – the right thing to do. Fresh Start operates in a highly regulated environment and we receive some of our funding from government, so we have to report to various agencies. Our investment in renewables is a clear demonstration to these stakeholders that we are serious about our duty of care to the environment.”
Wanting “a quality system, not a cheap system” that would offer longevity, Fresh Start chose Solargain, one of Australia's largest integrated solar energy and solar hot water businesses for its highly experienced team and expert advice. Solargain installed a 30kW solar energy system in each facility and a solar hot water system in the recovery centre at Northam.
Claughton acknowledges that the upfront cost of the solar systems was steep. “It was very expensive. We paid top dollar for quality installations on two difficult sites with older buildings.”
We’re looking to get at least 15 years of free electricity and free hot water from an investment that effectively costs us nothing.
Using finance to keep the expense off the balance sheet
Rather than put the capital expense on Fresh Start’s balance sheet, Claughton elected to finance the equipment with Macquarie Finance. “As a rule, I prefer to have things off balance sheet as much as possible. Fresh Start was already leasing its motor vehicles, so this was just business as usual for us.”
He says the immediate power cost savings largely covered the rental repayments.
“Even with the higher interest rates in 2013, we were close to cash-flow neutral from the outset. And, of course, when we pay off the systems in 2018, the repayment cost will disappear and the benefit will fall to our bottom line. We expect to gain $2,000 a month, which we can put straight into client services.
“We’re looking to get at least 15 years of free electricity and free hot water from an investment that effectively costs us nothing – and certainly doesn’t affect our balance sheet. Because we chose high-quality equipment and reputable installers, we don’t anticipate any major maintenance issues.”
Fresh Start ahead of the renewables curve in the NFP sector
Keith Lynch, a Renewable Energy Consultant with Solargain based in Perth, says that although Fresh Start and a few other NFPs have been quick off the mark with renewables, corporates are still leading the way in this area.
“We have an excellent sun resource in WA and high power bills, so a lot of corporates are going down this route – while NFPs seem to be holding back.
“However, we do have a few NFP clients, like Fresh Start and Oxfam, who are very interested in the renewables proposition. Cash-flow is a big-ticket item for these clients. If you can reduce costs without it impacting cash-flow, then that’s very attractive.
“Typically, solar panels come with a 25-year performance warranty. So, if you finance the equipment over five years, that gives you a potential 20 years of benefit for no cash flow impact. With a good finance deal at today’s low interest rates, an installation could likely be cash-flow positive from day one.”
Lynch says that any NFP waiting for next-generation technology is missing out on important cost benefits today.
“The technology is evolving all the time, but each iteration only delivers slight efficiency increases year by year. By the time you’ve waited for an incremental efficiency gain, you’ll have paid for another year of power bills. NFPs should look at the payback and financials. If the system is going to pay for itself, there’s no upside to delaying.”
Good NFP governance should focus on energy efficiency
Jeff Claughton is surprised that other NFPs aren’t focusing on renewables and energy efficiency. “If you can use renewable power, you should. It’s a highly visible sign of environmental responsibility, with easy to explain environmental and cost saving benefits. As long as you can get a realistic finance deal, it’s a good option. I’d definitely do it again.”
In fact, Fresh Start is planning additional solar power and hot water installations at a third, newly acquired rehabilitation site, which will eventually house more than 100 residents.
How to find the right solar system
Claughton advises NFP executives and directors to shop around for solar systems.
“Make sure you’re comparing apples with apples – and look for a robust, well-made system and reputable installer with an ISO 9001 quality certification. The big issue is getting longevity of payback. Essentially, the upfront cost doesn’t matter as long as the loan repayments are covered by energy savings and you don’t run into maintenance issues. As long as you’ve got quality equipment installed by a certified company, you should be far better off overall once the loan is repaid.”
He cautions NFP boards to check the engineering is done carefully. “You need a really good experienced installer to prevent systems from causing unexpected problems with your building – especially if it’s an older construction. Someone who can factor in the size and weight of the solar installation and will ensure structural engineering signoff where needed.”
Keith Lynch reiterates the importance of using a reputable installer. “In a recent study by Choice on solar power installations, 25% of people said they had to report faults with their system and needed support. But less than 20% of these were due to faulty inverters and panels. Low quality equipment like breakers, cables and isolators are often to blame, as is poor quality workmanship.
“When solar power systems are not installed properly, your risk of roof leaks and poor system performance increases. You should also ensure system components are installed according to manufacturer guidelines to maintain warranties.”
Time to upgrade your energy assets
NFP boards have an important opportunity to dramatically cut energy costs by investing in solar power, renewable batteries, energy-efficient LED lighting and energy-efficient equipment upgrades.
By using finance to fund such investments, NFPs can be cash-flow neutral or positive from day one when upgrading energy assets – enabling the savings to go towards meeting the NFP’s strategic goals.
We can help your organisation reach full potential and make a difference. Learn about our smart business solutions for not-for-profits, or reach out to a specialist today by contacting firstname.lastname@example.org. All of our financial recommendations are tailored to your organisation’s specific needs and aspirations.