60 E.wııııp/e 2. Eııergy savings performaııce coıııracıiııg - Phoenix Federal Correctioııa! lııstilulioıı sigııed an ESPC wiı!ı Iııdııstrial Solar Teclıııology ine. (/ ST )for a 1600 ın' solar waler heating sysıeııı. Tlıe insıalled cosı was US$650,000. The sysıeııı delivered 1, 162,000 kWh aııd saved $77,800 in /999. Payıııenıs to 1ST. at 90% of elecıric raıe, were $70,000 iıı 1999; ıhe ıerııı is 20 years. price inflation) or 6.1 % nominal (including inflation). Far small businesses struggling to make payroll, the minimum attractive rate of return may be much higher. in a survey of chief financial officers, 90% expected rates of return greater than 10%, and the median expected rate of return was 18%. When considering appropriations versus financing by a second party, this minimum attractive rate of return could be compared to the offered interest rate. DEBT (COMMERCIAL BANK LOAN) Availability of a commercial loan from your bank depends on your credit history and financial statements. You must be able to demonstrate the required cash flow to pay the loan back. Even then, you must provide collateral that the bank will receive if you don't pay the loan back. Debi is characterized by fixed payments over the loan term (principal plus interest) regardless of the actual projeci performance. Establishing a 'line of credit' with your bank avoids re-application fees if you expect numerous transactions. A 'Catch 22' with debt is that if you qualify far a bank loan, you don't need one. Far example, a company with $1,000,000 net worth and good income might qualify far a $200,000 loan. However, a bank loan would allow you to keep your cash far emergencies. The Small Business Administration can guarantee loans up to US$750,000 far solar thermal, photovoltaics, energy efficiency, biofuels, industrial cogeneration, hydroelectric power and wind energy (see The Borrower's Guide to Financing Solar Energy Systems: A Federal Overview, 2nd edition DOE/GO-10099-742, March 1999). While this guarantee might not reduce your interest rate, it might affect your ability to secure financing. HOME MORTGAGE OR HOME EQUITY LOAN Home mortgages have several advantages as a way of financing small-scale solar energy: interest rates are kept low by the operation of Federal Loan Associations, which implement Federal policy; interest rates on home mortgages are tax deductible, resulting in a lower effective projeci cost; and terms of 15 to 30 years are much longer than available through other types of financing. Most financers prefer a term of less !han 1 O years. A disadvantage is !hat the cost of the solar energy system may add to appraised value of the house, increasing property taxes. ENERJi & KOJENERASYON DÜNYASI AII of the Federal Home Loan Associations (FDMC, FNMA, VA and HUD) have similar programs that promote solar energy. AII the programs allow a homebuyer to borrow more than they would otherwise qualify far, to cover the first cost of a solar energy system, but do not generally reduce the interest rate. GENERAL AMD LiMiTED PARTNERSHIP in a partnership, a general partner is a partner whose liability is not limited. AII partners in an ordinary partnership are general partners. A limited partner is passive, and liability of the limited partner is limited to the amount invested. A limited partnership must have at least one general partner whose liability extends beyond monetary investment in the projeci. Members of a partnership would pool their money in order to invest in a projeci. There would be no guaranteed rate of return, since the rate of return would depend on the economic performance of the actual projeci. Often called 'friends and family' financing, partnerships are a mechanism to raise funds far small projects. Partnerships lend themselves to strategic alliances. Far example, a natural gas local distribution company might partner with a supplier of fuel cells. Joint ventures are like partnerships that dissolve when the project is complete. VENDOR FINANCING Singer Co. might be the first example ofa manufacturer offering financing as marketing, enabling poor but industrious seamstresses to buy sewing machines 'in installments'. A third party, such as a bank, often is the actual source of financing. Vendor financing is very common among energy technologies, and offering easy, low-cost financing is a very effective way far suppliers to stimulate markets. Credit can even be applied far on some vendor's websites. Vendor financing may be most suitable far small projects ($25,000-$400,000), but large companies alsa finance large projects. Vendors advertise low interest rates if the vendor profits from the sale. Avoid vendor financing involving credit-card-type interest rates. it is often effective far large facilities to establish lines of credit with one or more vendors. BONDS A solar energy construction project would have payment bonds to guarantee that suppliers get paid and completion bonds to mitigate the risk of project delays. But this discussion is about investment bonds: interest-bearing certificates
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