There are many ways of financing a lighting replacement project depending on sector:
• Utility funding (over energy bill)
• Private financing (cash settlement, leasing)
• Energy Service Companies (ESCO models)
• Public Financing Initiatives
• Investors (building certification, cash settlement, leasing)
• Public Private Partnerships
• Carbon trading
• Revolving renovation funds
Third party financing
An Energy Service Company (ESCO) contracts with the municipality to plan, finance and install energy efficiency technologies at the ESCO’s expense. The contract provides that the ESCO is repaid through a share in the value of the energy savings that result from the technology installed. The ESCO offers a total service package, runs and maintains the
installation, which results in further savings for the municipality. The ESCO guarantees the municipality energy savings at a specific amount. Duration of the contracting is usually 10 to 15 years. For the municipality, there is no or little investment (depending on measures) necessary. It is suitable for projects with highly energy efficient measures, since the savings in energy costs have to pay for the investment of the installation and the ESCO as well. Energy agencies advise municipalities on the way of financing that is suitable for a street lighting project. They develop a financial model, which is part of the analysis preparing the project and do the tendering of the ESCO-project, which ensures a successful realization.
Lease financing is based upon the fact that a municipality uses a property instead of buying it. A properly constructed lease is not considered a public debt. “Lease-purchase” agreements (in which the municipality leases a facility while purchasing it) and “sale-leaseback” agreements (in which the municipality sells a facility to a lessor and then immediately leases it back) offer several advantages over other financing methods. A municipality can obtain a facility without a large initial investment. The municipality can obtain quick cash for a facility (although the cost of repaying the lease will exceed the sale price). A lease can be used to spread the cost of a facility over a long period of time. There is also a combination of leasing and third party financing. Using lease financing is not without its drawbacks. The agreements necessary are complicated and expensive and therefore are suited for bigger investments. The municipality is still responsible for design, implementation and maintenance of the street lighting.