The short answer to this question is “not exactly,” for a variety of factors. However, the good news is, there are some types of agreements, including Energy Service Agreement (ESA) and Managed Energy Service Agreement (MESA) that can be entered into to make businesses feel more secure with their investment in an energy project. If the business owner is risk averse and wants a third-party to take the underperforming risk, managers can consider signing one of these agreements. This blog is going to walk you through these two types of agreements and help you decide which one is a better fit for your business.
What is Energy Service Agreement (ESA)?
ESA is the most common efficiency-as-a-service structure, according to the U.S. Department of Energy. ESA providers will cover the cost of the project, manage the installation of the energy equipment, and maintain the equipment throughout the contract period.
The contract period is usually between 5 and 10 years. Within this period, the ESA consumer enjoys a lower utility bill. When the contract ends, the consumer can purchase the equipment with a fair market price, extend the contract, or return the equipment.
Importantly, customers don’t bear the risk for underperformance with an ESA. They only pay for the savings actually achieved, according to the U.S. Department of Energy. If the equipment performs worse than expected, then the ESA provider will earn less.
What are the benefits of Energy Service Agreements?
According to the Institute for Market Transformation, some of the benefits of signing an ESA include:
- Avoids capital outlays and allow investors to save money for their businesses
- ESA payments are regular payments similar to an energy utility bill
- Underperformance risks are paid by the ESA provider
- Reduces operational costs
- Ensures long-term reliability and performance of the energy project
What are the disadvantages of Energy Service Agreements?
According to the Institute for Market Transformation, some downsides of signing an ESA are:
- ESA providers are usually looking for large projects costing $1 million or above
- Transaction costs may be high if the deal has a long negotiation period (about 9 to 24 months)
What is Managed Energy Service Agreement (MESA)?
On the other hand, MESA is a variation of the ESA. According to the U.S. Department of Energy, in a MESA structure, “the provider assumes the broader energy management of a customer’s facility, including the responsibility for utility bills.” The MESA “essentially acts as an intermediary between the customer and the utility.” With a MESA, business owners will pay an agreed-upon fixed rate based on historical energy consumption and avoid utility rate changes, according to U.S. Department of Energy.
What to choose, ESA or MESA?
Many corporations have already taken advantage of the benefits of an ESA, including some Fortune 500 companies, according to the United States Building Energy Efficiency Retrofits. Compared to an ESA, a MESA is especially good for businesses with landlords and tenants, wherein they incentives between landlord and tenant are split. A MESA allows charges to be passed through to tenants, according to U.S. Department of Energy.
Essentially, both agreements aim to reduce the risk of underperformance of energy projects and provide customers with a more flexible energy plan to save the utility bills. If you have questions about these agreements, or would like to undergo an energy project with such an agreement, give EnergyLink a call at 866.218.0380.