According to our transaction model, we enter into agreement with ESCOs and not directly with buildings. The ESCOs are responsible for finding opportunities for energy efficiency retrofits, while we select the projects to include in a portfolio according to the expected energy savings and the details of the available compensation sources. A critical function for us is to structure the agreements with the ESCOs in a way that protects the projects’ funders from poorly executed projects, and strikes a balance between the inherent uncertainty about the energy savings that are expected by a retrofit project and the goal of achieving consistent savings.
Our transaction model is designed to deal with under-performance risk and establishes the right incentives for the persistence of the expected consumption changes. This is especially relevant when the energy retrofit includes measures that upgrade HVAC, lighting or hot water systems. These measures have a highly varied record for persistence of savings over time, since their performance depends a lot on their settings and the way they are used by the building occupants. The model is based on the pay-for-performance (P4P) concept. The agreements with the ESCOs include metrics that reflect the expectations about the savings and a mutually acceptable way of identifying over- or under performance. Then, all financial flows are linked to the real-time estimation of the changes in the energy consumption profile at building level and triggered by self-enforcing contracts.
Linking financial exchanges to energy efficiency metering and triggering them in a transparent and automated way provides the right incentives for identifying and reverting measure degradation trends, and enables this process to become part of the automated energy management strategies that our client buildings choose to follow.