Financing Energy Efficiency & Guaranteeing Savings in Hotels – the ESCO model

Financing Energy Efficiency & Guaranteeing Savings in Hotels – the ESCO model
Financing Energy Efficiency & Guaranteeing Savings in Hotels – the ESCO model

By Marios Tsakiris, Business Analyst – Energy Modelling Expert at ZEB

A large share of operational expenses in hotels relates to their energy consumption. However, energy efficiency in the hospitality sector is only examined within the frame of general building refurbishment or other sustainability concerns such as the reduction of carbon footprint or achieving certifications (such as EMAS, Green Key, etc.).

Many people don’t know that an energy saving of 10-20% can be achieved without large scale interventions through a ‘pay as you save’ model also known as the ESCO model or an Energy Performance Contract (EPC).

By applying this model an ESCO (Energy service company) manages/supervises a multifaceted energy upgrade of building while it guarantees final savings through a measurement and verification plan. This process brings transparency to the project and therefore the actual investment needs as well as assessing the related savings so that financing of the project can be delivered by a third party. It is important to note that the energy savings in this case are not a figure depicted in a study, but a guaranteed and verified amount, which if not achieved the ESCO not only loses its own payment but will also reimburse the investor.

So how does the ESCO model work? The main idea is the equal share of project revenues and risks between the involved parties. This share is reflected in the Energy Performance contract which clearly defines the savings objective, the duration of the contract, and the share of revenues between the parties as well as their obligations. The ESCO has strong incentives for the project’s success, by participating in the investment and by receiving its share of payments only for the measured and verified actual savings. On the other hand, the hotel owner or manager can be certain that the project will succeed while they release funds for other purposes instead of financing energy investments.

Usually, an EPC has a duration of five to twelve years. Nevertheless, this can be extended to over fifteen years depending on the hotel’s bankability and the actual energy conservation measures. Two typical contracts are usually met:

  1. The Guaranteed Savings whereby funding is given by the owner and the ESCO guarantees all savings.
  2. The Shared Revenue contract whereby the ESCO is financing the project. In the first period of this contract a larger share of the savings is drawn to the ESCO, representing its larger participation in the project while in the second period, the larger share of the savings is drawn to the owner. Other arrangements are possible depending on the share of revenue and risk agreed.

Zero Energy Buildings SA is the manager of the largest Energy Performance Contract in Greece involving energy efficiency measures in a portfolio of over 30 buildings and annual savings of €700,000.

Get in touch for further information.

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