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How businesses shift risk to achieve decarbonization
In the New York Times bestselling book, Drawdown, Paul Hawken and a team of 70 fellows from 22 countries—the world’s leading scientists and policymakers—reviewed 100 solutions to draw down the dangerously high levels of carbon from the earth’s atmosphere. The list detailed actions encompassing planting tropical forests to a transition to energy-efficient solutions such as solar, wind, and LED lighting.
Drawdown quickly became the gold standard of antidotes, free from political discourse. It was a rallying call that gave a clear roadmap on how individuals and businesses could help bring about planetary change.
Here we will look at commercial LED lighting as one of Drawdown’s impactful energy solutions. We’ll use the lens of a relatively novel business model—using dollar savings as a revenue source—to illustrate how to finance sustainable solutions for businesses of all sizes.
Climate creativity with a trillion-dollar punch
Since LED lighting uses 90% less energy than regular incandescent bulbs, the cost and carbon savings of a transition to this form of lighting are significant. Through their research, the Project Drawdown team estimated that a critical 5.04 gigatons of carbon could be removed from the atmosphere for $205.1 billion while $1.09 trillion in net savings could be achieved over the next 30 years. With this return on investment, the Drawdown team saw LED lighting as the standard fixture in lighting going forward and innovative companies recognize these outsized cost savings as a reason to finance the LED market.
How does a business with a strapped budget transition to an energy-efficient solution without an increased cash outlay?
The LED sponsoring company takes on the entire cost of installing and maintaining state-of-the-art lighting fixtures in exchange for a share in the savings.
For example, if a small business pays an electricity bill of $350 with their energy-inefficient technology, the LED sponsor looks to see if there is room for savings through LED technology. If there are substantial savings, say the new bill is $100 a month, then the LED sponsor and the recipient company split the remaining $250 in savings. In exchange, the recipient company gets an entirely new system and a free maintenance plan.
What was once a liability for the recipient business now becomes a revenue stream for the LED provider company that takes the risk and invests in lighting on behalf of this business, and it translates into a freed-up balance sheet for the business that receives the new lighting.
The cost savings can be, by way of example, $3000 a year off of an electricity bill for a small business, $60,000 a year for a car dealership, and $100,000 plus a year for a larger business. The LED investment company and the business then share in these savings keeping $1,500, $30,000, and $50,000 each.
How it works
To start the process, each potential business gets a complimentary audit of light fixtures and their contribution to the overall energy budget of the company. If the energy savings make sense, then the LED company invests in the company by entering into a contract to replace and maintain fixtures at a locked-in kWh rate. If their utility company’s prices increase in the future, the recipient company is protected because the rate is negotiated upfront. Furthermore, if the recipient company sells the location the equipment can be transferable to the buyer.
Who qualifies
Businesses can be as small as mom-and-pop shops that own office space, gas stations, auto dealerships, retail shops, hospitals, parking lots, schools, and other venues. No liens are placed on the property. No credit check is necessary.
Additional financial benefits beyond decarbonization
Although this finance mechanism highlights the benefits of using creative financing through free energy-efficient technology with no out-of-pocket costs, the benefits include broader realms that are not factored into the actual savings.
For example, LED lighting provides a pleasing aesthetic that can give customers a better, more modernized experience. They can boost employee morale, provide a safer environment from theft and vandalism, reduce premise liability from slip and fall accidents, and they mitigate the risk of fire hazards associated with electrical distribution and lighting equipment which is a leading cause of fires at businesses.
Partnerships to reach energy goals.
Through creative partnerships to share in energy savings, businesses can reduce their carbon footprint and the overall cost of doing business.
