Commercial buildings represent one of the highest consumption rates of energy today. Traditionally, commercial buildings would fund energy efficiency projects through self-funding or bank loans. Third-party financing companies like Solaris Energy break down the financial barriers of upfront costs for equipment, installation and maintenance through Energy Service Agreements (ESAs)
With an ESA, customers own the equipment and improvements from the beginning, with the energy services outsourced. The ESA length (10-20 years) covers the payments of the upgrades, minus the energy savings. When the contract is completed, the customer owns the equipment and continues reaping the benefits of the energy savings.
ESAs allow for more flexibility in accounting for companies too. Traditional loans cause companies to review their long-term debt-to-equity ratio, and many times companies are unable to take on more debt. Capital leases are fixed-term and like loans, will appear on a company’s balance sheet. An operating lease, like an ESA, which transfers on the right to use the property during the lease but returns it to the lessor at the conclusion of the lease, is listed as an operating expense on the cash flow statement.