Energy Service Agreements (ESAs) are a pay-for-performance, off-balance sheet, financing solution that allows customers to implement energy efficiency projects with zero upfront capital expenditure. The ESA is a proven structure that has been utilized to implement numerous multi-million dollar retrofit projects at Fortune 100 and major institutional facilities. Through the ESA, the financing entity pays for all project development and construction costs. Once a project is operational, the customer makes a periodic service charge payment for the actual savings realized by the project.

ESA service payments are calculated using the energy or water units saved (e.g., “negawatts” or avoided kWh of electricity, avoided cubic feet of water, avoided therms of natural gas, etc.), enabling customers to treat energy efficiency as a service that improves their bottom line. The price per unit of savings is a fixed output-based charge that is set at, or below, a customer’s existing utility price, resulting in immediate reduced operating expenses. Under the ESA, customers benefit both from reduced overall energy and water consumption (volume) and a lower unit cost of energy and water (price). The customer does not take any project performance risk since the customer only pays for savings actually achieved. Instead, the financing party takes the project performance risk and gets paid less if the project savings are less than expected. An investment grade energy audit (IGA) is required as a financing prerequisite.

The ESA structure provides customers with a variety of financial and operational benefits:

  • Avoided Capital Outlay – Financier pays for all project design and implementation costs, enabling customers to conserve scarce capital funds for investment in their core business.
  • ESA Payments Treated as an Operating Expense – The ESA is designed to be an off-balance sheet financing solution with regular payments similar to a standard energy utility bill or PPA.
  • Energy Savings Pay for Projects – The ESA enables customers to redirect a portion of their current utility spending to pay for efficiency improvements; ESA payments are based only on realized energy and operational savings.
  • Reduced Operating Costs – ESA payments are set below the current utility price.
  • Leverage Incentives – By monetizing available incentives, the Financier is able to offer Customers a lower ESA service charge. Financier typically keeps all available project incentives and benefits which may include utility incentives, environmental attributes or credits, or tax benefits.
  • Enhanced Reliability of Operations – Financier pays for periodic maintenance services to ensure long-term reliability and performance of the project equipment.
  • Reduced Exposure to Utility Price Volatility – ESA payments escalate at a pre-negotiated, fixed annual rate that is set below historical annual utility price increases.
  • Flexible & Scalable Financing – Under an ESA, as new opportunities for savings are identified they can be funded as they emerge and rolled out to additional buildings across facilities or campuses.

Projects typically include:

ENVELOPE

  • New roof with added insulation
  • Windows and doors
  • EIFS application
  • Green roof

LIGHTING

  • LED fixtures
  • Automated controls
  • Parking lot lights

MECHANICAL

  • Air conditioner, Chiller, Furnace and boiler upgrades
  • New furnaces, boilers, chillers and air conditioners
  • Energy Recovery Systems
  • Combined Heat and Power (CHP) systems
  • Pumps and fans, drives, and motors
  • Industrial processes
  • Elevators and escalators
  • Conveying systems

RENEWABLE ENERGY

  • Solar panels
  • Geothermal heating/cooling
  • Wind turbines

WATER

  • Water conserving fixtures
  • Recovery, capture and storage systems
  • Lawn sprinkler systems