Guaranteed Energy Savings
In a performance-based, guaranteed energy savings contract, the Energy Services Company (ESCO) guarantees a specific reduction in energy use if required operations and maintenance procedures are followed and contractually specified operating schedules and control set points are adhered to, not necessarily tied to cost savings as utility rates and building operations may change over a defined length of time. If the guarantee is not met due to the failure of ESCO specified and installed equipment and software to reduce consumption, then the ESCO pays the owner the difference based upon agreed-upon contractual utility rates for the annual performance period. Normally the ESCO will investigate the reason for the performance failure and take steps to reduce or eliminate the consumption savings shortfall so that it does not re occur in future years.
Traditional model: The ESCO provides financing as well as project development and implementation costs. The ESCO and owner agree upon the estimated consumption savings which are guaranteed. They also agfree upon an estimated escalation of future utility costs over the term of the contract. The dollar value of measured consumption savings times actual utility rates using utility bill reconstruction may be divided between the Owner and the ESCO. A typical division of the value of future savings would be 85% for the ESCO and 15% for the Owner. The ESCO can define a payment structure where their sole compensation is a share of the utility cost savings, based on a percentage split. The ESCO would receive the largest share in the beginning due to its up-front investment; but, the ESCO share may decrease over time depending upon the term of the agreement and the escalation rates which actually occur during that term.
Managed Energy Savings Agreement (MESA): An Investment Fund pays the building owner’s on-going utility bill directly and charges the building owner a fixed monthly fee.
Title: Savings Models
Summary: Energy Savings Model