WHERE THE ESP INDUSTRY MEETS THE FUTURE

Risk Management for ESPs and ESCOs George Caraghiaur جورج كاراجيور Energy & Sustainability Services LLC, NAESCO Consultant

Risk Management for ESPs and ESCOs “ My engineers are competent, their cost/benefit analysis is solid and compelling, their designs are good, and my construction staff is experienced…my risks are under control.” - Naïve ESP CEO

Risks not to Overlook Sales & Marketing Contractual Process Financing M&V and Savings Guarantees Those are the risks that I would like to discuss with you today.

Sales & Marketing What customers should be targeted? Customer pre-qualification – early in the sales process Getting expression of interest by financiers – prior to the investment grade audit start When do you walk away?

Contractual Process What is the customer procurement process? When should a contractual relationship be executed, and what form should it take? Acceptance of business terms PRIOR the investment grade audit Who pays for the investment grade audit?

Contractual Process – the Master Agreement Defines in detail the terms of the relationship, including the project development process, the customer’s project economic criteria, service level, operational and other requirements, M&V and savings guarantees requirements, pricing approach, and all legal terms (warranty, limitation of liabilities, insurance, etc.) Establishes that the details of services to be provided will be defined in Supplemental Agreements for each service location

Financing Getting expression of interest by financiers – prior to the investment grade audit start, with preliminary terms Getting proposals including interest rate, fees, and terms and conditions – before the delivery of an investment grade audit report Getting formal notice of financing commitment – prior to construction start.

M&V and Savings Guarantees M&V plan Identify which IPMVP M&V methods to be used Establish a baseline Identify allowed baseline adjustments Methods for calculating an adjusted baseline Method for calculating the post-installation energy use Identify reports to be prepared and when There should be provisions regarding movement of equipment or circuits by customers if measuring equipment is used.

M&V and Savings Guarantees – cont’d Should be based on energy use savings (post installation energy use minus the adjusted baseline energy use) ESCO should not take the rate risk Guaranteed savings should be based on a percentage of anticipated savings, e.g., 80% Shared savings agreements should include a minimum level of energy use

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