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Managed Energy Services Agreement (MESA)

Overview of Managed Energy Service Agreements (MESA)

The Managed Energy Services Agreement (or, “MESA”) model in energy efficiency finance enables buildings to fund their energy conservation projects without fronting any initial capital for new equipment. With a MESA structure, the funding provider pays the utility bills on behalf of the building and the building pays the funding provider over time through agreed-upon historical energy costs, or slightly less. MESA funding appears as an operating expense (utility payments) on the building’s balance sheet and therefore, does not add any debt to the building’s capital structure.

 

MESA as a Solution for Problems in Energy Efficiency Finance

Energy efficiency projects face various legal, financial and timing mismatch challenges to funding that often deter building owners from pursuing and completing these necessary projects. The Managed Energy Services Agreement (MESA) model offers a solution to all these problems including:

 

  • First-Cost Problem:  Buildings using a MESA funding model avoid the first-cost hurdle since they are not required to front initial costs and the  MESA provider puts in 100% of the capital up-front.

 

  • Split Incentives Problem:  Since owners are responsible for funding energy-efficient improvements in the building and tenants benefit directly from reduced energy bills, the MESA structure is a solution for multi-tenant commercial properties by allowing cost-sharing of MESA payments with tenants through agreements on their leases.

 

  • Longer Payback Periods:  Since most retrofit projects require longer payback periods of 4 to 6 years to recover investments, the MESA structure offers the option of transferring agreements to new owners if the building is sold midway through the MESA term.

 

  • Existing Financing Restrictions:  Funding energy-efficient retrofits through the MESA model enables buildings to treat MESA payments as operating expenses that remain off-balance sheet. This avoids adding any additional debt, which is often a restriction under any existing mortgage.

 

Why MESAs Make Sense for Multi-tenant Properties

Managed Energy Services Agreements are particularly well suited for multi-tenant commercial building leases where the tenant pays its own energy bills and the owner can pass through a pre-determined portion of the MESA energy payments to the tenant, a feasible option both sides since the MESA model allows for reduction in tenant utility bills. Similarly, buildings that have centralized heating and/or cooling (not floor-by-floor) and not too high of a turnover can take advantage of the MESA structure. In the MESA model, the baseline used to calculate historical energy usage can be adjusted for weather, occupancy, as well as building type, making it a reliable model for determining payments made by the building to the MESA provider.

 

Our Process

Associated Renewable provides MESA funding for retrofit projects in large commercial and multi-family residential buildings, with the requirement that minimum 15% in annual energy savings are achieved during the term of the MESA. For more information on MESAs or to find out if your project can be funded using a Managed Energy Service Agreement, please contact finance@associatedrenewable.com or call (212) 444-8215.

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Tuesday, February 14, 2017 - 13:01

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