Over the last decade, the United States has made a concerted effort to be more energy-efficient and less dependent on foreign sources of energy. Federal tax incentives have enabled small and large businesses alike to switch to renewable power or retrofit their facilities to use less energy. These efforts are good for our planet and they’re also good for our economy.
With the debt ceiling crisis looming, we are at risk of losing the momentum America has gained toward energy independence and achieving a cleaner, greener future.
Failing to get the United States’ fiscal house in order will inevitably lead to cuts in government energy programs, a weaker dollar, and higher interest rates. Each has a negative impact on business, whether it’s the energy sector or the neighborhood deli.
The debt ceiling crisis will impact many aspects of the energy business including energy sales, energy efficiency services, and renewable energy development. Three significant ways are:
#1 - Higher interest rates translate to less business —Higher interest rates will limit the impact for energy savings performance contracting (ESPC). ESPC is a tool that finances capital improvements required to save energy, utilizing the cash flow from the guaranteed reduction in utility bills to pay the financing. If more money goes to pay interest on financing, that leaves less dollars for additional energy efficiency measures. Facilities will save less money on energy upgrades simply because they will be investing in fewer upgrades. Higher financing costs for institutional and government customers translate into longer payback periods, making it more difficult to construct projects with acceptable returns. Additionally, another part of our business is helping customers save on their electricity bills by offering them electricity supply at prices below those of the local utility. The transactions we perform to hedge that supply for customers require well-functioning, liquid credit markets. Anything that jeopardizes those credit markets could limit our ability to offer those products or raise their cost to the customer.
#2 – A weak dollar has a significant impact on trade —As the value of the dollar falls, the cost of doing business goes up. Supplies used for energy efficiency projects like solar panels, lighting and other installation equipment, which are often sourced from Europe and Asia, will cost more to import. The higher cost of available financing and materials will thus make renewable projects less economically feasible.
#3 – Longer payment terms inflict pain on vendors —Like many businesses in this country, energy service companies often work for the federal government. If government contracts cannot be paid on time, vendor cash flows would be disrupted. This would trigger a harmful trickle-down effect with an array of damaging economic consequences.
The crisis with our national debt and overall economy weaves itself into all business, and the energy sector is no exception. If an energy company is building a solar farm, for example, there is an environmental benefit because a renewable energy source is being created. There is also an economic benefit because jobs are being created. Workers on the job will need supplies, morning coffee and maybe lunch from the neighborhood deli. If the costs are too high to build that solar farm, that means less renewables, fewer coffees, fewer sandwiches, fewer jobs.
Another potential impact of higher financing costs is illustrated by the link between school summer programs and efficiency projects. Some of our own school clients have told us they were able to financially sustain their summer programs because of the savings they reaped through energy efficiency upgrades. Students enjoy enriching experiences through participation in academic and social programs during the summer months. Summer programs reduce childcare pressures on working parents and create additional jobs for teachers. If energy efficiency projects cannot play their part in easing school budget burdens, consequences pop up in unexpected places.
This is not about politics. It's about practicality. America has made a commitment to consume less energy by becoming more energy-efficient and using renewables where possible. By living up to these important commitments, both the private sector and the public sector will save money. The economy will generate more jobs. Our energy future needs to be clean, more efficient, and environmentally conscious.
The debt crisis may set in motion a wide spectrum of negative impacts. If we can take prompt and effective steps to resolve this crisis, America will again be in a position to fulfill our critical energy goals and build the green future we all desire.
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