What is environmental upgrade finance?
Environmental Upgrade Finance (EUF) is a commercial finance product that enables a financier to lend money to a building owner to purchase energy efficiency equipment. The financier secures the loan through the council’s charge on the land and repayment are made through your council rates. EUF supports projects that result in an environmental saving and can be passed on to tenants via council rates.
How can an EUF help your energy efficiency project?No upfront capital or security
EUF allows energy efficiency and renewable energy projects to be undertaken without a business requiring up-front capital or using existing business assets as security. The obligation to pay becomes a charge on the land repayable through council rates.
Realising savings now
Businesses that use EUF for their energy efficiency projects can realise immediate cash flow benefits. Energy Efficiency projects can result in higher energy savings than financing costs.
Tax and accounting
As the building owner owns the asset, you may be able to claim depreciation of the asset and the debt may be deductable at the company tax rate. For a tenant, EUF finance does not appear on your business’s balance sheet. Seek specific tax and accounting advice for your particular situation.
Things to consider
Where the tenant agrees to make payments, it bears economic risks and the building owner bears technical risk as the owner of the equipment. If a building is sold, the EUA can be transferred to the purchaser.
How do I get a EUF loan?
- Undertake an energy audit: This will help your business identify actions that will improve energy efficiency and reduce operating costs. Work with your energy assessor to determine the likely kilowatt per hour (kWh) savings per year for each recommended action.
- Seek quotes: Seek quotes from qualified contractors for actions recommended in the energy audit.
- Identify annual savings: Once the kWh savings have been identified, determine your cost per kWh. This allows you to determine the expected annual cost savings.
- Calculate finance terms: Understand the length, repayment frequency and expected interest rate of the EUF. This will help you forecast finance costs and determine if the savings of the project are equal to or exceed the finance costs.
- Determine tax treatment: Discuss how to treat this loan and assets with your accountant to determine your after-tax position for the project.
- Seek finance quotes: Seek finance quotes from financiers (a list is available on the Better Building Finance webpage below). Understand term of the loan interest rates, the minimum and maximum loans and repayment frequency.
- Apply to Better Building Finance for EUF: Request and lodge application forms to Better Building Finance, which administers EUF on behalf of councils. A list is available on the Better Building Finance webpage.
- Apply for EUF: Select a preferred financier. Secure the finance and arrange the contractor.
- Sign EUF: Better Building Finance will prepare relevant documentation to be signed.
As part of the process with your local council, they will provide relevant documentation, including a contract, to be signed.
Better Building Finance
Better Building Finance administer the EUF on behalf of councils – a list of councils is provided on the Better Building Finance website. Better Building Finance is owned and managed by the City of Melbourne’s Sustainable Melbourne Fund. Better Building Finance has developed a range of detailed information sheets, case studies, sample council documentation, list of financiers and contractors which understand the benefits and requirements of EUF.
Select financiers have developed EUF products which specifically targets the energy efficiency needs of manufacturers and commercial property owners. A list is available on the Better Building Finance webpage.
Visit betterbuildingfinance.com.au for more information on available councils and lenders.
Finance and government subsidies
Businesses can also receive a discount on energy efficient products that are installed by accredited Victorian Energy Upgrade (VEU) providers. A list of these products and providers can be found on the ESI website.
Visit victorianenergysaver.vic.gov.au/training-and-support-for-business for more information.