Funding Models

Capital Purchase

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Capital Purchase

The customer bears the up-front cost of installing the turnkey project. Usually the purchase of the equipment is linked to service contracts and maintenance. Installations done in this way are entitled to Enhanced Capital Allowances whereby businesses can write off the whole cost of their investment against taxable profits from the period the investment was made. Read case study

Discount Energy Purchase / Energy Supply Contracts

Measures are installed, operated and financed by the provider at no up-front cost to the customer. Energy costs are capped for the duration of the contract and the provider recoups the capital outlay by signing a contract to provide energy from the system to the customer at a lower cost than their previous bills. This model is commonly used in the public sector for CHP / cogeneration projects.Read case study

Energy Services Contract (ESCo)

Energy services is a broad term with many applications. At its most general, an energy services approach is one which:

Commits a customer and a provider to each other over a period of time
Reduces the up-front costs of energy performance improvements for the customer
Offers a commitment to or guarantee of benefits from improved energy performance and shares these benefits between customer and provider

The key to energy services contracts is that the customer can transfer risk and responsibility to the service provider (Energy Services Company - ESCo). Measures are installed, operated and financed by the provider at no up-front cost to the customer and with a guarantee of savings. Capital costs are recouped by the provider from the fuel bill savings achieved by the customer. The introduction of Feed In Tariffs for electricity generation from renewable sources mean that revenue income can also be used to pay the provider’s initial capital outlay.

Some energy services approaches are geared towards certain types of technologies – eg, energy supply contracts related to combined heat and power (CHP), common in the NHS and university sectors. Other approaches look at building energy in total and offer the customer a guarantee of savings which can be achieved through any technology or combination of technologies (see energy performance contracting below).

Guaranteeing savings means that this approach will, find the most cost-effective way to deliver savings (whether financial or environmental) and it is therefore technology agnostic.

Third Party Finance

Where financial institutions provide loans to either the energy services provider or the customer to address up-front capital costs, guaranteed by the energy cost savings that the project will achieve. Contractual structures are likely to be similar to an energy performance contract, with an additional layer for the finance agreement.

Private Finance Initiative (PFI)

Many large hospital and schools' energy projects are funded through a PFI approach and can be included as part of large scale redevelopment works.

Projects are effectively self funding/cash releasing, from savings produced by the various energy efficient technologies provided through the contract. Savings are achieved in a number of ways including by reducing energy use and improving the efficiency of the building or the system. It can also come through other means such as economies in purchasing fuel, efficient plant management and maintenance, efficient design of controls and reduced overhead requirements from a ‘shared services’ approach. Read case study