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Shared Savings

Shared Savings Contract

Shared Savings is a financing agreement in which a private company offers to implement an energy efficiency program, including capital improvements (like boiler upgrades, chiller upgrades, HVAC systems optimization, lighting upgrades and other energy-using equipment improvements), in exchange for a portion of the energy cost savings.

 

In negotiating a successful shared savings contract (SSC), a third-party financing entity will provide funding to cover the initial upfront costs of the high-efficiency equipment. The customer benefiting from the energy efficiency project will repay a negotiated percentage of the initial cost through the savings on their utility bills every month. Over the term of the shared savings agreement, after the balance is paid off entirely, the customer retains future energy savings and incurs lower energy expenditures for the lifetime of their buildings.

 

Additionally, there is an incentive for generating higher energy savings for the customer because the financing company receives a larger payment but more importantly, the customer retains a larger amount while paying off the principal earlier than expected. 

 

Our Process

Associated Renewable offers its clients the option to enter into a shared savings contract following an ASHRAE Level 3 energy audit and any other eligible energy efficiency projects determined to be eligible for financing through the shared savings program.

Once we have determined the level of attainable savings from your energy efficiency project, our Financing team will help you acquire funding from our network of partners under the terms negotiated in the shared savings contract.

 

Benefits of Shared Savings

Customers that engage in shared savings contracts will see the following benefits:

  • No upfront capital outlays for high-efficiency equipment
  • Risk-neutral financing (financing company insures its funds while the customer only pays from a portion of the predetermined savings on their utility bills)
  • Frees up capital to invest in other areas of business improvement (buying new equipment, expanding operations, redirecting resources to productive areas or, reinvesting back into the business)

 

An Example

Current energy expenses = $100,000
Estimated cost of energy-efficiency program = $90,000 = Amount financed by the financing entity
New energy expenditure = $75,000

Energy Savings = $25,000

In a shared savings contract that requires 15% of the principal to be repaid over 3 years, the customer will pay $15,000 semi-annually and retain $10,000 (i.e. $25,000 - $15,000: the remainder of savings). If the savings turn out to be higher, the contract will be settled earlier, ensuring higher payment to the financing entity and more savings to the customer.

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Tuesday, February 14, 2017 - 13:01

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