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Energy service agreements: Potential big kid in town?
By Steven Nadel, Executive Director wrote this post. This is the first of a four-part series of blog posts. All on recent developments and trends in energy efficiency finance. Subsequent posts will discuss PACE financing and on-bill financing. Finally wrapping up with financing deep retrofits.
Furthermore, Energy service agreements (ESAs), a type of financing, are growing in popularity. So under an ESA, a service provider delivers energy-saving services. It does this by using equipment it owns and operates. Recent projects include multimillion dollar investments by financial institutions (Citi and Generate Capital) and a large utility (National Grid). While most ESAs target large businesses and institutions such as hospitals and universities, at least one vendor now provides these services to homeowners.
ESAs, available for many years, have gained notable support in the past year because they offer services guaranteed to save energy in a way that is designed to be off company balance sheets at a cost that is less than or equal to existing utility charges. Many companies want to decrease the liabilities shown on their balance sheets and therefore often prefer off-balance-sheet financing. In contrast, some other financing strategies, such as, power purchase agreements and operating leases (including many energy savings performance contracts and shared savings agreements). All that before were off the balance sheet. More noteworthy they now need to be disclosed on company financial statements. This is under new guidance from the Financial Accounting Standards Board (FASB).
In conclusion, and under a typical agreement, the ESA provider develops, finances, and operates projects. That’s with the customer paying for these services. Therefore through a services charge based on realized savings. The ESA provider often subcontracts engineering and installation. That’s to an energy service company that can carry out complex projects. Most importantly, guarantee savings. In some cases, the ESA provider pays a facility’s energy bill. Then in turn bills the customer for combining energy and energy efficiency services. So this variation is sometimes called a “managed energy services agreement” or MESA
About ACEEE: The American Council for an Energy-Efficient Economy acts is a catalyst to advance energy efficiency. All in policies, programs, technologies, investments, and behaviors. For information about ACEEE and its programs, publications, and conferences, visitaceee.org