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Cascades’s innovative financing formula for energy efficiency

Cascades Energy Action Group (EAG) - The team

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Before getting into the heart of the matter, let’s travel back to 1997, when Cascades created its Energy Action Group (EAG). What is EAG, exactly? It’s our business unit that specializes in energy efficiency. It helps all of Cascades’s divisions cut down on energy consumption.

From 1997 to 2003, EAG’s mission was to complete studies for Cascades’s units and suggest changes to increase their energy efficiency. The divisions would then present the suggestions to senior management to receive approval to finance the projects. But there was a major problem: the initiatives competed against the divisions’ development projects. So we followed through on very few energy-saving projects. Then in 2004, with support from senior management, EAG launched an energy investment fund (the FONDS), a completely innovative process that bolsters EAG’s work and delivers concrete results. How? By allowing EAG to finance energy-saving projects directly, without submitting a financing request.

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How does the FONDS work?

When an energy-reduction project is identified, by a plant and by EAG, as having a good reduction potential with a return on investment within three years (this time frame may be increased to up to five years for new technologies), it is presented to senior management within a month. After the project is approved, a contract is signed. Even if the contract is between two of Cascades’s divisions, the project must be well defined and include a costs and savings calculation, a list of applicable subsidies and a means of measuring savings. The analysis is used to establish the project’s monthly repayment totals. Of the total monthly energy savings garnered by the project, 20% goes to the plant and 80% goes back to the FONDS, to pay back the invested capital. This is a major incentive for plants: they keep 20% of the savings without spending a dime.

Once a contract is signed, the regular project implementation process is followed. This takes several weeks to several months, depending on the magnitude of the project. By comparison, before we launched the FONDS in 2004, it could take up to two years to complete projects using the conventional financing request process.

In addition, to shield our plants from the volatility of energy prices, project repayments are based on actual prices. Thus, when prices go down, the FONDS is repaid more slowly; conversely, when prices go up, the FONDS is repaid more quickly. So if a plant wants to get the most out of the savings from a project, it can buy back the project after a minimum of one year of deployment, at a reduced cost of 10% per year.

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How much is the FONDS worth in the end?

Since 2004, the FONDS has enabled us to finance over 200 projects, from which total energy savings derived by Cascades will reach $61 million in 2014, after 10 years of operation.

How many of the 200 projects would have been possible without the FONDS? Based on the prevailing trend prior to 2004, we probably would have completed only about 20 projects. And out of the $61 million saved, about $55 million would have gone to our energy providers. This success leads us to think about what else we can do, both for the environment and to ensure Cascades’s long-term viability!

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