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Energy Services Agreement (ESA)

What are Energy Services Agreements (ESAs)?

Energy Services Agreements (ESAs) are performance-based contracts through which a service provider agrees to finance, develop and deploy energy efficiency/renewable energy projects for clients without any upfront capital expenditures. Through this financing model, the client agrees to pay back the project costs through energy savings realized on utility bills over the ESA term. Savings occur immediately after the energy efficiency project is online and are usually measured in kilowatt-hours (kWh) of electricity and therms of natural gas. At the end of the ESA term, after the full costs of the project have been paid off through energy cost savings, the customer retains all of the savings and continues to pay lowered utility bills.

 

How Does an ESA Work?

The building owner enters into an agreement with the ESA provider. The ESA provider may also contract third-party entities such as ESCOs (energy services companies), construction companies & engineering firms for project management expertise. In this way, the ESA provider may also agree to be responsible for providing ongoing maintenance, upgrades and improvements to ensure the project’s continued success. Generally, ESA providers assume the risk that savings will occur to justify the investment by providing performance guarantees (insurance). 

 

Associated Renewable's Energy Services Agreement (ESA) Structure

Associated Renewable provides funding to building owners that want to conduct energy retrofits or improvements in their buildings with no up-front capital outlays. Through an energy services agreement (ESA), a building owner pays Associated Renewable slightly less than or equivalent of their historical energy baseline. The baseline represents what energy costs would have been without the retrofit. During the term of the ESA, energy savings realized from the retrofit project are used to pay for the new equipment. After the term of the ESA, the building owner benefits from full utility cost reduction and retains all of the savings on their energy bills. 

 

 

The main benefit of ESAs for building owners is the elimination of up-front costs for capital-intensive retrofit projects that bring significant energy & cost savings over the life of their buildings. The payments come directly out of energy units saved. No additional capital or up-front costs are incurred on the part of the building owner.

 

Benefits of Energy Services Agreements (ESAs) for Building Owners

  • Zero (minimal) up-front cost for developing & implementing energy efficiency projects
  • No or limited responsibility to maintain and upgrade equipment
  • Payments are only made from energy savings realized 
  • Funding is structured as an operating expense, not as debt
  • Keep debt-to-equity ratios low & large capital expenditures off the balance sheets of building owners
  • Transferable to new owners, ensuring that payback occurs even if building is sold mid-way through the ESA term
  • Alignment of incentives between client & ESA provider since return on investment is directly linked to actual energy savings realized
  • Flexibility in deciding the length of the ESA contract term (for early termination or transferability)
  • Full project turnaround capabilities provided by best-in-class companies acting as ESA Partners
  • Proactive management & oversight of equipment purchase, installation and performance by ESA Partners ensures lower building staff requirements
  • Quick funding of key retrofit projects & renewable energy projects that usually require significant capital outlay

 

Our Process

Associated Renewable offers custom energy services agreements (ESAs) to clients for all retrofit projects. Buildings that show potential to reach the minimum savings threshold on their projects can qualify for funding through our private retrofit fund of over $300 million. Using an extensive network of financing partners and funding entities, we are able to help building owners reduce costs, improve tenant comfort and increase property values with no up-front capital expenditure. Call our Finance team at (212) 444-8215 to learn more. We can get your energy efficiency projects funded with zero up-front costs.

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Tuesday, February 14, 2017 - 13:01

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