Decarbonization, digitization and decentralization are three terms with which most power industry experts are extremely familiar.
Commonly referred to as “the three D’s”—they are disrupting the power industry, bringing with them their own set of benefits and challenges. In response, industry leaders have been forced to rethink their business models.
Business as usual is no longer feasible. Decarbonization, digitization and decentralization are here for the long haul. According to GreenBiz, renewable systems will represent 40 percent of the total power generated by 2040, and GE Power predicts that as sensors and connectivity innovations become more accessible, the digital economy will account for 25 percent of the world’s economy by 2020.
Even how power is consumed has evolved. Companies aren’t just consuming power. To combat peak charges and manage business margins, they’re creating their own on-site energy and selling their surplus power to local markets as “pro-sumers.”
While there are a series of traditional solutions to help address the industry’s three “D’s”, I have a creative and simple way that could help. What about equipment upgrades? It may not be the first tactic you think of but as the industry faces tighter and tighter margins, it could be crucial to helping a company’s bottom line.
Here are my top three reasons why you should consider equipment upgrades:
1. Digital features complement equipment and your bottom line: Upgrades don’t necessarily mean just the physical asset. Many third-party or captive financing providers can work with a manufacturer to include digital programs and resources into the equipment’s financing structure; helping businesses optimize operations and save precious operation dollars. For example, according to GE Power less than two percent of data is currently captured – mainly in spreadsheets. By adding digital services to your assets, businesses can avoid operator errors, mitigate plant issues and consistently deliver energy to consumers. Failing to do so, GE Power found, results in $10 billion in annual losses for the entire industry.
2. Lease and debt structures that could help you: Don’t get caught up on the initial sticker price when considering equipment upgrades. Work with a captive or third-party financing team on a lease or debt structure. You may reap the benefits of the upgrade almost immediately and the cost of the asset will be spread out over a contracted period of time. By dispersing the cost the benefits of upgrading could outweigh the initial price much sooner.
3. Use your cash to focus on other business-critical needs: In the U.S. fixed interest rates are low. Companies who finance equipment upgrades benefit from a new asset while locking in a low interest rate. Also, leaders can shift funds that would have been used to buy an asset towards other working capital needs such as payroll, facility maintenance, expansion, and/or mergers and acquisitions.
Decarbonization, digitization and decentralization represent a new reality for the power industry and the world will only increase its demand for reliable and sustainable power sources. Equipment upgrades may help companies do just that—all while meeting the business’ bottom line.
About the author: Paul Gentile is the managing director for GE Capital Industrial Finance (IF), supporting equipment finance efforts for GE Power. Since joining GE in 1998, Paul has held numerous sales and leadership positions within GE, and is based in Atlanta. Paul holds a Bachelor of Arts degree in Economics from The University of Michigan.