An Energy Services Agreement (ESA) is a contract that permits energy efficiency to be packaged as a service that building owners pay for through savings, and that generally requires no (or minimal) upfront cost to the owner. It is an alternative to using equity or a traditional loan to retrofit a building.
In addition to providing a way to retrofit a building without putting up capital, ESAs can solve specific problems that often make investing in energy efficiency difficult for various types of real estate owners.
• ESAs can be “off balance sheet” (subject to confirmation with your accountants) and can offer a work-around to restrictive mortgage covenants
• ESA providers generally assume the risk that savings will be sufficient to justify the upfront investment, and may offer savings performance guarantees
• ESA providers arrange for their own financing, a boon to owners who are concerned about using scarce borrowing capacity to energy efficiency and clean fuel conversions
• ESAs are often transferable to new owners, reducing the worry that an energy efficiency investment won’t pay back before a property might be sold
• Other benefits can include reduction in exposure to rising energy prices, and professional monitoring and performance oversight
An ESA is generally structured as a service to the building paid for as an expense rather than a retrofit loan. The ESA provider generally conducts an analysis of the building to determine potential efficiency measures that are cost effective. Based upon the projected cost savings, the ESA provider will propose various measures that will make the operations of the building cleaner and more efficient.
The ESA is repaid over time. Depending on the provider, an owner might continue to pay their (reduced) utility bill as usual with a separate payment under the ESA based on energy savings realized, or an owner might make one payment to the ESA provider who in turn uses the funds to pay utilities and debt service on the efficiency project.
The key point is that the capital is provided by the ESA provider, the building owner is not taking on debt, and the building is paying for efficiency as a service over time.
If you are interested in this option, NYCEEC can help you identify Energy Service Providers who can meet your needs.