Energy Service Agreement
An Energy Service Agreement (ESA) is a pay-for-performance, off-balance sheet financing solution that allows customers to implement energy efficiency projects with zero upfront capital expenditure. Through the ESA, the ESA provider pays for all project development and construction costs. Once a project is operational, the customer makes service charge payments for actual realized savings. The price per unit of savings is a fixed output-based charge that is set at or below a customer’s existing utility price, resulting in immediate reduced operating expenses. ESAs offer promise for retail energy retrofits because they limit risk while still providing an avenue for short-term energy and cost savings.
An ESA can be thought of as an energy efficiency version of a Power Purchase Agreement (PPA) commonly used to finance the installation of renewable energy systems.