29 March 2012 – ASX listed diversified company FlexiGroup, chaired by former Qantas chairman Margaret Jackson, has partnered with Low Carbon Australia in a new financial model to entice small and medium size businesses to join the low carbon economy.
The Energy Smart Finance lending program, announced on Wednesday, will appeal to tenants and owners alike, the partnership said.
It will provide leasing finance for everything from a $3000 lighting retrofit targeted to tenants to a new building management system, heating and airconditioning system of up to $100,000 for the landlord.
The move has been hailed by both parties as a breakthrough program in an energy efficiency retrofit industry that industry forecasts say could be worth $13 billion in the next seven years.
Low Carbon Australia’s chief executive officer Meg McDonald said the initiative was “excellent news” for businesses seeking finance for energy efficiency projects in order to remain competitive in the face of rising energy costs.
FlexiGroup managing director and CEO John DeLano said the company was already leasing energy equipment and technology to small and medium businesses.
“Our accredited vendor partners supply a range of green technology assets, from LED lighting to heating and cooling, which will allow businesses to introduce efficiency measures without capital outlay or putting a strain on cash flow,” Mr DeLano said.
The savings could be immediate, he said.
“For example, by upgrading your traditional office overhead fluorescent T8 tubes to energy saving T5 tubes, you can reduce your lighting energy consumption by 50 per cent, and, through leasing, you can start reducing your costs right away.”
In addition, leasing could convert capital expenditure into a monthly “cost of doing business,” allowing businesses to preserve cash flow for other operating purposes, Mr DeLano said.
In an interview on Wednesday FlexiGroup chief financial officer Garry McLennan and manager Energy Smart Finance Jay Howard elaborated on the strategy.
The company was also heavily embedded in the consumer renewable energy market as the biggest supplier of finance for solar energy systems, through Australia’s 200 industry suppliers, Mr McLennan said.
“We are strong at transacting a large amount of small transactions.” Mr McLennan said
The company has also entered the big end of town, with finance for a major solar installation above a shopping centre, owned by a leading real estate investment trust.
But it’s the smaller market that the program will focus on.
Typical will be heating ventilation and airconditioning (HVAC) and lighting.
“There are a lot of vendors in lighting for instance who are looking to add finance to their bag of tricks; to not use cash out of their own pockets.”
The benefit, he says, is that the business will have savings available immediately.
“They will be able to pay for the upgrades they need through the savings on a monthly basis.”
The company, which has been growing by about 10 per cent a year, has 500 staff overall, five dedicated employees dealing with the energy space and it expects to keep growing at about 10 per cent annually.
According to Mr McLennan the drivers to the business are clear – rising energy prices.
“No-one doubts that electricity prices are going up,” he said.
In the consumer market the company has a range of supplier and partners for its financing, with the interest on the “interest free finance” paid by the vendors, Mr McLennan said.
“The expectation in the next year is to partner with a large amount of vendors to provide overall solutions. We think we will bring on 10-20 vendors in the next three to six months.
“The likelihood is that these targets will be reached because generally consumers and business people like to save energy.
“Consciousness is rising; you see it in consumers and you see it in businesses.
“I think the increasing cost of energy will drive the businesses and consumer to continue to invest in energy savings.”
Great idea, but still slow take up
The mechanism adds another string to the bow of packages under development to entice property owners and tenants to jump aboard the low carbon bandwagon. The other big mechanism slowly gaining ground is the Environmental Upgrade Agreements program, so far operable in Melbourne and in NSW, but with WA said to be closely eyeing potential. The mechanism relies on repayments for upgrade work to be placed as a levy on council rates.
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But despite the upside of significant potential energy savings service providers are struggling to entice the critical early movers into the new mechanisms.
Alleasing, another company that has partnered with LCAL with a leasing offer over energy technology and equipment is strongly positioned to break into the sector but cautions that the market needs to develop and mature.
Chief executive officer Daniel Blizzard said the industry was at an “embryonic stage at this point” and so far he had yet to see substantial take up of the offer.
Alleasing was focused on proving a strong value proposition and offered 100 per cent leasing option, he said.
“There are substantial opportunities for buildings and environmental requirements around buildings but we’re still to see it flowing strong to a funding need. We are ready with a product and the ability to fund these products.”
Owners were still working through what kind of funding – debt, equity or leasing – that they wanted to use.
“We are ready to engage but the building owners themselves are still coming to terms with the issue in terms of funding,” Mr Blizzard said.
He’s still confident. “But we do believe there will be that take up as the market matures.”
FlexiGroup said in a media statement that it operates in Australia, New Zealand and Ireland in fields such as home improvement, solar energy, fitness, IT, electrical appliance, navigation systems, trade equipment and point of sale systems. Services are offered through four business units: Certegy, Flexirent (lease), Flexi Commercial (vendor leasing programs) and Blink mobile broadband.
Chief executive officer John DeLano, originally from the US, was previously managing director of Avis. Chair Margaret Jackson is a former chairman of Qantas and a former director of Australian and New Zealand Banking Corporation. Andrew Abercrombie is founding director and major shareholder in the company.