Ecosave now delivers fully funded, cash flow positive energy and water savings through their flagship new offering; the Ecosave Services Agreement.
Energy Services Company (ESCO), Ecosave has recently launched its flagship stationary energy service – the Ecosave Services Agreement (ESA). The ESA is a fully funded, off-balance sheet service agreement with monthly payments that can be funded from the client’s operational budgets, and pricing that incentivises Ecosave to over-deliver on savings. The ESA generates savings through energy conservation measures and services, and is cash flow positive from day one with a zero capital outlay from the client.
When it comes to traditional energy efficiency projects, there are a number of hurdles to overcome. Capital budgets are tight and building owners are often unwilling to tie up capital in non-core business ventures. Not only are there several financial considerations and funding options available, most Landlords and Real Estate Investment Trusts are currently unable to pass on the costs of capital upgrades to their tenants, even though tenants benefit directly through reduced utility bills. As a result these building owners wear the cost of energy efficiency projects at no immediate advantage to themselves, causing reluctance to invest these commercial building upgrades. This hurdle is known as the split incentive problem.
These issues are not new to the energy efficiency business – players have been attempting to overcome them for years. Some have even come close. Recent government action to address the split incentive issue was the introduction of Environmental Upgrade Agreements (EUAs) in Australia. In NSW the Local Government Amendment (Environmental Upgrade Agreements) Act 2010 enables building owners to share the cost of capital upgrades with their tenants if the upgrade results in reduced energy consumption for that tenant. In essence the costs are passed on to tenants as an operating expense, who can account for the charge as an off-balance sheet overhead. The building owner however, is caught by IFRIS, the International Financial Reporting Standards and its accounting rules; they must take the whole EUA onto their balance-sheet as Capital expenditure (CAPEX). Suffice to say that CAPEX cannot be treated as Operational expenditure (OPEX) just because it resembles it.
Many markets, Australia and the USA included, share common accounting standards and ESCOs are frequently asked by clients for a solution to the split incentive and capital challenges. Ecosave has been tackling this challenge. After many months of development and consultation with their lawyers and one of Australia’s ‘Big Four’ accounting firms, Ecosave has launched a new service to the market – the fully OPEX, Ecosave Services Agreement.
Ecosave has turned the traditional model for delivering energy savings projects on its head. They have bundled building retrofits with a suite of energy services designed to drive further energy savings, providing a complete energy savings package. Rather than requiring an upfront payment of the total project bill, the client pays an annual service fee, and only for actual savings delivered. The annual service fee (paid monthly) is performance based, meaning if Ecosave doesn’t deliver the savings, the client is refunded the shortfall, and if they over-deliver on savings, the client keeps 80% of the additional savings. It is also always cash flow positive.
The model is not wholly new to Ecosave; they have been guaranteeing savings for their clients for the past 11 years and in more recent years participating heavily in the Energy Performance Contracting market. Ecosave’s CEO, Marcelo Rouco, feels that this has given the company the right foundation and a competitive advantage.
“We have seen a need in the market for an OPEX method of funding energy savings for a long time. Providing fully funded projects in a way that fills that gap was for us the next big challenge, but we knew it could be done.”- Marcelo Rouco
The ESA is a long term partnership between client and Ecosave, sometimes up to 15 years. The savings are measured and verified under the IPMVP (International Performance Measurement and Verification Protocol) and the fees reconciled annually. Ecosave delivers a maintenance service for the Ecosave owned assets installed during the contract, alongside Energy Management services that give them and the client visibility and control over wasteful consumption. In essence the energy savings more than pay for the monthly service fee.
The ESA really is a full service contract, and an achievement that establishes Ecosave as an innovation powerhouse in stationary energy services.
To find out how Ecosave can help you save money, energy and water, phone 1300 55 77 64 or send us a message.