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Energy Services Agreement (ESA)

Implement energy-conservation measures and save money

The Energy Services Agreement (ESA), generally known as Energy Performance Contract, is intended to address IFRS 16 Leases announced and published by the International Accounting Standards Board (IASB). The new standard which comes into effect on 1 January 2019, requires lessees to account for their leases under a single accounting treatment, bringing almost all leases ‘on balance sheet’ and recognising a right of use asset and a lease liability. 

ESA is an outsourced agreement where the Energy Services Company (ESCo) provides the customer with access to Energy Conservation Measures (ECM's), without the need to purchase the specified energy-efficiency equipment and associated services. Examples of ECM’s include Combined Heat & Power, Thermal Servers (Heat Pumps) etc.

The customer is bound by a contractual, service-level agreement that states the performance and quality metrics of the relationship with the ESCo. A monthly payment is payable by the customer over an operational period of typically five years.

Under these regulations, ESA customers can treat monthly repayments as an operating expense and the facility structure is off-balance sheet.

Features

  • Minimal up-front cost for developing & implementing energy-efficiency projects
  • Zero or limited responsibility to maintain and upgrade equipment
  • Payments are only made from energy savings realised 
  • Funding is structured as an operating expense, not as debt
  • Flexibility in deciding the length of the ESA contract term (for early termination or transferability)
  • Quick funding of key retrofit projects & renewable energy projects that usually require significant capital outlay

Energy Services Agreement (ESA)

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