Vendor Viewpoint: Unlocking Constrained Projects for a Greener Future

Decarbonisation must be the end goal for industry but getting there can sometimes be a source of frustration without capital investment. Could the zero capex model be the answer?

PRESSURE on the process industries to decarbonise is hotting up and it’s starting to look like a mammoth amount of capital investment will be required in the coming years, as rising costs, regulatory hurdles, and customer pressure increase.

Many businesses have numerous green initiatives planned yet can’t implement them due to a lack of available capital combined with too lengthy a return on investment (ROI). The problem is widespread and is impacting all manner of energy intensive industries, including the water sector, nuclear power, oil and gas, and food manufacture.

Since customer-facing projects with shorter paybacks tend to win capital more easily, raising the funds needed for sustainability initiatives can be notoriously difficult. With the outlay for large-scale sustainability projects often starting in the millions and ROI often taking around four to five years, businesses need to find alternative ways to achieve net zero with smaller risks attached.

The zero capex model

Partnering with a supplier of green energy solutions that uses a zero capex model can be one way to get the ball rolling on sustainability projects without the bureaucracy and constraints of bank or institutional funding. Zero capex, or zero capital expenditure, works on the basis of funding being provided by an external energy organisation, with a portion of the cost savings generated by the project being used to repay the financing entity over time. Using this model places the liability of the investment on the third party, allowing your projects to effectively be funded off the balance sheet.

Working with green energy specialist On-Site Energy, one chemical manufacturer had a concept project that would total £47m (US$60m) of capex to deliver. It was estimated that £10m in annual savings could be achieved alongside 10,500 tonnes of CO2 mitigation. The project included technologies such as combined heat and power (CHP) units, a more efficient boiler, and heat pumps. Under On-Site Energy’s zero capex model, the company was able to save £5.5m in energy costs without having to invest a penny of their own capital.

In another example, a large petrochemical manufacturer had six sustainability projects shelved, with each one having an ROI of four to five years. These projects involved replacing or upgrading inefficient compressors and feed pumps.

As the capital could not be sourced for these projects, £10m in cost and emissions savings were lost. Working with a company like On-Site Energy could have unlocked the constrained projects as using the zero capex model would have saved the company £5m, with the applied green solutions putting them on track to reach net zero by 2050.

Because there is little to no upfront cost using this model, energy intensive industries can start realising the benefits of sustainable engineering more or less straight away, including reduced energy consumption, lower operational costs, and improved environmental performance.

However, while it can prove extremely beneficial in several situations, this method might not be the right solution for everyone. While the zero capex model offers businesses the opportunity to scale their operations up or down with greater flexibility, it does involve dependency on external service providers. Zero capex models typically involve third-party ownership of assets, and some businesses may prefer to own and control their sustainability assets themselves for strategic reasons, such as retaining their resale value.

Likewise, businesses planning significant expansion over time may find it challenging to rely solely on zero capex models, as they may not provide the flexibility needed to accommodate future increases in energy demand. So, businesses must carefully evaluate the trade-offs before adopting this model to make sure it is right for them.

Zero capex, or zero capital expenditure, works on the basis of funding being provided by an external energy organisation, with a portion of the cost savings generated by the project being used to repay the financing entity over time