Shared vs. Guaranteed Savings for Your Energy Retrofit | Taka Solutions

Energy Performance Contracting is a commercial agreement structure that allows for capital improvement which permits energy upgrades to be paid from cost reductions generated. Under a performance contract arrangement, an external organisation (ESCO), such as Taka Solutions, completes a project to produce energy efficiency or renewable energy project. 

Additionally, the ESCO uses the stream of income from the cost savings, or the renewable energy produced, to repay the costs of the project, including the capital costs. According to the agreement, the ESCO will not receive its payment until the project delivers energy savings as expected.

There are two main types of EPC, a Shared Savings Model and a Guaranteed Savings Model. Today we will take a look at the differences between the two, and how to decide which EPC is best for your business.

 

Shared Savings Model

With a shared savings EPC, the ESCO provides all engineering, equipment, and capital expenses for an energy efficiency project. All project costs are subsequently paid for from the savings generated by the project and shared with the owner from day one. 

Once the project fees are paid in full, the facility owner will continue to benefit financially from their energy savings. The percentage distribution of the savings between the ESCO and the customer is determined before the energy retrofit and documented in the performance contract.

Shared Savings Model Quick Facts –

  • Performance risk falls upon the ESCO
  • Credit risk falls upon the ESCO
  • Facility improvements provided at no initial cost to the building owner
  • No upfront costs or lines of credit 
  • If there are no immediate financial savings, the ESCO is still responsible for meeting the financial obligations associated with the up front equipment purchases
  • Once the EPC is paid in full, the facility owner continues to benefit from the energy savings (sharing a portion of the energy profits with the ESCO)

 

Guaranteed Savings Model

With a guaranteed savings EPC, the ESOC provides a turn-key solution which includes engineering, design, implementation, and commissioning for the proposed energy project.  Unlike the shared savings model, in which the ESCO pays all of the initial costs of the energy project, with a guaranteed savings model all of the energy project costs are paid for by the customer (with project savings guaranteed by the ESCO).

Guaranteed Savings Model Quick Facts –

  • Performance risk falls upon the ESCO
  • Credit risk falls upon the client
  • Requires the facility owner to front the project costs or secure financing from a bank
  • The facility owner pays the ESCO for all of the engineering, equipment, and capital expenses for the energy efficiency project
  • Facility owner keeps all financial savings produced by energy upgrades

 

Which is Best for Your Energy Project?

Lack of approved funding from traditional lenders is the number one roadblock to financing your commercial energy efficiency upgrades. In fact, a staggering 2/3rds of proposed energy efficiency projects are denied financing to move forward. While both shared and guaranteed savings models provide many benefits for facility owners, it’s important that you choose the right option for your business.

A guaranteed savings model is more attractive for larger organisations with a great deal of capital to fund the cost of the initial project. Whereas a shared savings model is ideal for an organisation that lacks the funds or means to secure capital funding from a traditional lender (such as a bank).

If you are interested in learning more about how you can upgrade your building for immediate energy savings, Taka Solutions is here to help. Contact a member of our team to schedule your free energy consultation today.