The Best Way To Pay For A Nitrogen Generation System

Nitrogen gas users across the globe are rapidly integrating on-site nitrogen generation systems into their businesses, thanks to the confidence spread by early adopters who have been enjoying significant cost savings and trouble-free operations over the past few decades. The pillars of value used to anchor the purchase of a nitrogen generation system are most often cost reduction, increased operational efficiency, and decreased carbon footprint. This article aims to educate future nitrogen gas generation users on the three most common ways to fund a system and the considerations of each approach.

As the flood gates open for the early and late majority, there’s still a significant amount of knowledge to be shared. Some notable key topics have been, ‘how do I design a system?’, ‘what purity do I need?’, or ‘how do I buy a system?‘. Let’s assume you’ve decided that nitrogen generation is a good fit for your operational needs; the next logical question that comes to mind is ‘what is the best way to pay for a nitrogen generation system?’

Let’s find out…

 

The Capital Purchase Model

The capital purchase model implies that the business will pay for the system from its capital budget, which departments may manage independently, or share across the organization (and likely highly competitive).  When using capital to pay for a nitrogen generation system, the purchase is typically supported and justified by its return on investment.  Cross-functional differences in how the business should allocate the budget can squash a great project if stakeholders cannot align on capital distribution.  However, the rapid return on investment makes a nitrogen generation system a strong contender against its continuous improvement competitors.  Suppose the system payback period is less than the length of a traditional bulk gas contract (5 to 7 years) but still outside the company’s payback requirements. In that case, the project may still be viable because it will have paid for itself before the bulk liquid contract renews for another 5 to a 7-year term.  After the payback has been satisfied, it’s all profit moving forward.

 

Considerations when paying for a nitrogen generation system with capital:

  • Upfront capital is required to acquire the system
  • Quick ROI makes it a compelling case for competitive continuous improvement projects
  • Immediate and drastic monthly cash flow improvement (typically over 90%)
  • The equipment is valuable and is a depreciating asset on the balance sheet
  • Purchasing the system with capital provides the absolute lowest price for nitrogen

 

If a budget is available for capital projects that offer a homerun ROI with significant operational and environmental gains, nitrogen generation can be an excellent allocation. If the capital budget has been spent for the year or is non-existent, this option may be a non-starter, and the purchaser will want to consider the lease option or the recurring expense model.

 

The Lease-to-own Model

Leasing is a great way to ensure future ownership without parting with large sums of capital to acquire the equipment.  When leasing a nitrogen generation system, the ideal monthly lease payment is equal to or less than the recurring monthly expense for delivered nitrogen.  In addition, we typically structure the lease term to be similar to the term of a bulk gas contract, with the lessee having the first right of refusal to purchase the system for a negligible amount at the end of the term.  This structure guarantees future ownership of the system while enjoying a cash flow neutral or cash flow positive scenario through the lease term.

 

Considerations when leasing a nitrogen system:

  • No upfront capital is required to acquire the system
  • Flexible leasing terms can provide a payment structure to suit almost any scenario
  • Ability to select lease payments lower than the existing monthly nitrogen expense, increasing cashflow
  • Lessee’s first right of refusal allows for future ownership at the end of the term (ending monthly payments entirely)
  • Leasing the system provides the second-lowest price for nitrogen while the lease is active

 

Leasing and financing options are always subject to approval.  An unfavourable lease rate for an over-leveraged business will still typically result in monthly cost reduction.  Alternatively, some companies may never want the responsibility of future equipment ownership and will therefore want to stay the course with the recurring expense model.

 

The Recurring Expense Model

The recurring expense model is virtually no different from the expense mechanics of a bulk gas contract. The end-user will sign a term contract and pay monthly expenses for the nitrogen generation system, typically equal to or less than the monthly expense of a bulk liquid nitrogen contract.  The nitrogen supply remains an actual expense with this model, but you gain all of the benefits associated with nitrogen generation.  There are no more mid-contract price increases, missed deliveries, freezing evaporators, empty liquid tanks, switching out empty cylinders, placing orders, and waste associated with boil-off or an unusable cylinder balance.  Suppose a business expands production and uses more nitrogen every month.  Unlike a bulk gas contract, the monthly expense will remain consistent and not increase.

 

Considerations when renting a nitrogen generation system:

  • No upfront capital is required to acquire the system
  • Typically less expensive than the monthly costs of delivered nitrogen
  • Nitrogen supply is a fixed monthly expense without mid-term price increases
  • Monthly payments usually include all ancillary costs required to maintain the system
  • Renting the system provides the third lowest price for nitrogen

 

A perpetual rental is an excellent solution for those who want all the benefits that nitrogen gas generation offers but not the ownership.   For those who desire complete control and increased cash flow without the obligations of equipment ownership, the recurring expense model can be an excellent fit for your business.

 

So, what’s the best way to pay for a nitrogen system?

Like many things, it depends. Do you have the available budget?  Do you want to spend the budget?  Do you have available credit facilities?  Do you even want to own the system? The best way to pay for a nitrogen system is determined by each company’s unique circumstances and operational goals. The ideal starting point is a consultation with our technical support team to understand, first and foremost, the viability of nitrogen generation within your business through our free assessment or engineering studies.  If you determine that nitrogen generation can improve your operation, we have a payment model for your specific needs and requirements.

Multi-Bank Nitrogen Generation System Drawing

 

Contact us to learn more about how nitrogen gas generation can contribute to your financial, operational and sustainability initiatives.

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