Energy efficiency services -
The energy services agreement ESA is the most common type of arrangement, but other models such as lumens-as-a-service and energy subscription agreements are also in use. To compare efficiency-as-a-service to other financing options that might be a good fit, answer a few questions about your organization.
This section begins by describing a typical energy services agreement ESA because it is the most common efficiency-as-a-service structure. Note that efficiency-as-a-service space is rapidly evolving, so many different arrangements are in use, and more are in development. Under an ESA, the provider enters into the ESA directly with the customer for a contracted period typically years.
The ESA provider then pays and manages a contractor to install the high-efficiency equipment and help maintain the equipment through the contract period. The customer then enjoys lower utility bills throughout the contract term. The customer pays the ESA provider a charge per unit of energy saved that is set below its baseline utility price, resulting in immediate reduced operating expenses.
The ESA provider retains ownership of the equipment for the duration of the ESA term and pays for maintenance to ensure reliability and performance. New efficiency measures can be added during the duration of the contract. At the end of the contract, the customer can elect to purchase the equipment at fair market value, extend the contract, or less commonly return the equipment.
An ESA can be thought of as an energy efficiency version of the Power Purchase Agreement PPA , a structure commonly used to finance renewable energy systems.
Instead, the ESA provider bears this risk and gets paid less if the project savings are lower than expected. However, ESAs vary significantly in terms of contract structure, method used for measuring realized savings, and how the customer and provider split performance risk and upside.
Some ESA providers are exploring the possibility of combining ESAs with on-bill repayment. Typically, ESA projects are funded through a combination of equity from the ESA provider and outside debt from a lender.
The ESA provider typically forms a special purpose entity SPE that owns all project equipment and is repaid by customer payments under the ESA. The Managed Energy Services Agreement MESA is a variation on the ESA with a few important distinctions.
The MESA provider essentially acts as an intermediary between the customer and the utility. The MESA provider will charge the customer an agreed-upon fixed rate based on historical energy consumption, thus protecting the customer from utility rate changes. Some providers are offering alternative efficiency-as-a-service models that differ from the ESA and MESA.
Efficiency-as-a-service allows customers to redirect a portion of their current utility spending to pay for efficiency improvements; ESA payments are based on realized energy and operational savings and set below the current utility price.
Efficiency-as-a-service is designed to be an off-balance sheet financing solution, with regular payments that are treated as an operating expense similar to a standard energy utility bill or PPA. Efficiency-as-a-service providers pay for periodic maintenance services to ensure long-term reliability and performance of the project equipment.
Under a MESA, the customer has a single point of contact and a single payment for all utility expenses and the MESA provider actively manages energy consumption at the facility. Many providers can bundle together multiple sites that have smaller project opportunities into a single package e.
While efficiency-as-a-service can work in leased or owned space, its is typically only viable in leased space if the contract term does not exceed the lease term. Transaction costs can be high if each deal is heavily negotiated; for more complicated retrofits with no preliminary energy audits completed, deals can take months or more to close.
Efficiency-as-a-service is a relatively new but proven structure that has been used to implement multi-million dollar retrofit projects in Fortune companies and major facilities across the U.
Efficiency-as-a-service is a flexible financing mechanism that can incorporate a wide range of efficiency measures, including water. Efficiency-as-a-service is gaining popularity because it overcomes market barriers that other mechanisms do not, and it limits customer performance risk while still providing an avenue for short-term energy and cost savings.
With the upcoming Financial Accounting Standards Board changes to lease accounting that will bring operating leases onto the balance sheet, efficiency-as-a-service will likely be one of the few remaining efficiency financing options to be consistently considered off-balance sheet.
The efficiency-as-a-service market is thought to be growing quickly, but no thorough and up-to-date analysis of current market size has been conducted. These numbers have likely grown substantially since then.
Financing small and medium size projects has proven challenging due to high transaction costs, but through aggregation and streamlined business models, efficiency-as-a-service has the potential to help unlock this market which many traditional energy performance contract EPC models are unable to address.
Metrus Energy deployed multi-measure energy efficiency retrofits in BAE Systems facilities with no upfront costs using an Energy Services Agreement ESA.
Citi used an energy services agreement to deliver efficient electricity and cooling at its London data center. Citizen Energy completed projects at two separate multifamily properties with different ownership structures using an efficiency-as-a-service financing solution, resulting in cash-flow positive outcomes since day one.
The following table will give you an at-a-glance summary of a typical efficiency-as-a-service arrangement, including a basic description, contract structure, tax and balance sheet implications, contract terms, and market information. Financing Navigator FINANCING HOME FIND FINANCING TYPES OF FINANCING CONNECT WITH ALLIES.
What is Efficiency-As-A-Service? SEE CASE STUDIES CONNECT WITH PROVIDERS. Wants to pursue retrofits across your portfolio without spending your own capital Prefers off-balance sheet treatment for the delivery of efficiency services Wants a pay-for-performance solution where a third party takes on performance risk and provides project management and maintenance Is looking for a financing mechanism with a contract term ranging from 5 to 15 years, with periodic buy-out options Wants a new way to procure energy efficient technologies across your portfolio without the hassle of ownership To compare efficiency-as-a-service to other financing options that might be a good fit, answer a few questions about your organization.
Advantages and Downsides. ENERGY SAVINGS PAY FOR PROJECTS. OFF BALANCE SHEET. LONGER CLOSE TIMES. CONNECT WITH PROVIDERS. Building Decarbonization. Self-Generation Incentive SGIP Program Energy Storage Incentives. Solar On Multifamily Affordable Homes SOMAH Program Solar Incentives.
Disadvantaged Community Single Family Solar Homes DAC SASH Program Solar Incentives. Disadvantaged Community Green Tariff DAC-GT Bill Credits. CARE ESA Program Fact Sheet.
ESA Program Policy and Procedure Manual. Home Consumer Support Financial Assistance Energy Savings Assistance Energy Savings Assistance Providing no-cost weatherization services to consumers who meet the CARE income limits.
RELATED PROGRAMS. For income qualified households, statewide programs: CARE Energy Bill Discounts FERA Energy Bill Discounts Building Decarbonization Switch Is On Self-Generation Incentive SGIP Program Energy Storage Incentives Solar On Multifamily Affordable Homes SOMAH Program Solar Incentives For income qualified households in disadvantaged communities only: Disadvantaged Community Single Family Solar Homes DAC SASH Program Solar Incentives Disadvantaged Community Green Tariff DAC-GT Bill Credits.
CARE ESA Program Fact Sheet ESA Program Policy and Procedure Manual Low Income Oversight Board. West Coast Gas CARE only.
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