- February 13, 2019
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In short, under an ESA, a service provider delivers energy-saving services using equipment it owns and operates. Recent projects include multimillion dollar investments by financial institutions (Citi and Generate Capital) and a large utility (National Grid). While most ESAs target large businesses and institutions such as hospitals and universities, at least one vendor now provides these services to homeowners.
With an ESA, the service provider incurs substantial upfront costs and takes both credit and performance risk; these costs are passed on to customers over the life of the contract.
Not all customers will want to commit to 10-year or even a 20-year contracts and not all will meet program requirements. And because of the risks involved, the cost of capital tends to be higher than municipal and other low-interest debt. As a result, ESAs are uncommon in the municipal market and other markets with a low cost of capital. Nevertheless, ESAs have gained significant momentum in the recent year.
Following ACEEE comments: "Time will tell whether they continue to grow and potentially become a big kid in town!"
What are your thoughts about the future of ESA in the biggest projects as well as in the smaller (i.e. residential) markets?