September 21, 2018

Vendor Financing 2.0 For Energy Efficiency

Simple is better—Best Practices from the Software Industry

 

“Simplicity is the ultimate sophistication.”  Leonardo da Vinci

“Making the complex simple” is a promise built into the ethos of companies in just about every industry and business imaginable.   What are these companies trying to tell us?

Oracle taught me the benefit of making the complex simple some 20 years ago through their successful vendor financing program.  Oracle Financing had many Fortune 500 clients, who absolutely did not need “financing” from Oracle, however, these clients routinely used Oracle payment plans to enable their transactions. Why?  Because they were simple.

Oracle, IBM, HP, Dell, SAP and many other technology companies have highly productive vendor financing programs.  They have long mastered making the complex simple for payment solutions, largely because they are captive vendor financing programs—they are vendor owned and controlled.  Captives integrate financing into vendor sales cycles and operational processes.  Captive payment solutions are simple and consumable, by both vendor sales teams and their end-user clients. They generate billions in annual revenue, sales penetration rates at significant double-digit levels and development of strategic partnerships with end-user clients.

We see many similarities between the energy efficiency and technology industries.  The same forces which led technology vendors to create captive vendor financing programs, we believe are presently at play in the energy efficiency industry.  There will be demand by vendor sales and their end-user clients for simple, easy-to-execute payment solutions.  Simplicity leads to quicker project decisioning, documentation, implementation and realization of energy savings benefits.  Simple payment solutions fit well with assets of high in-place value, quick ROI payback, low technological obsolescence and with ongoing services—like software technology and certain energy efficiency assets, especially those with IoT (software) solutions.

Manufacturers (OEMs) and energy services companies (ESCOs) have already created referral financing programs, to coordinate and manage their array of complex project financing vehicles.  We see referral vendor financing programs as the first step in aligning financing to project sales enablement.  Vendor Financing 1.0 for Energy Efficiency is here.

We believe captive programs will be the second step to vendor financing for energy efficiency OEMs and ESCOs – a gap solution where referral financing programs may not be as effective in generating sales or project commitments.  Best practices developed in the technology industry can be translated into captive vendor financing programs for energy efficiency.   Vendor Financing 2.0 for Energy Efficiency will soon be here.

For more on this topic, please see Technology Finance Partners’ white paper on captive vendor financing solutions for energy efficiency.