While there are many different variations in the specific approaches to energy service performance contracts, these can generally be characterized into two basic types of agreements - “Shared Savings” and “Guaranteed Saving”. In both models, the Energy Service Company (ESCO) provides the complete range of implementation services and generates energy and cost savings. The differences are in the manner in which the project is financed, payments are made from the host facility to the ESCO, and energy and cost savings are allocated between the ESCO and the host facility.
In the Shared Savings model, the ESCO generally provides or arranges for most or all of the financing needed for the implementation of the project. The Energy Savings Performance Contract specifies the sharing of the cost savings between the Energy Savings Provider and the host facility over a period of time. The sharing of the payments is structured such that the Energy Savings Provider will recover its implementation costs and obtain the desired return on its investment within that period. In a Guaranteed Savings agreement, the customer generally takes the loan on its own balance sheet. The ESCO guarantees certain performance parameters (such as efficiency, energy savings, cost savings, and/or other performance parameters) in the Energy Savings Performance Contract, which specifies the methods for M&V, and payments are made once the project performance parameters have been confirmed. EESL will undertake projects in the following areas through the ESCO route.
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