Considering an ESCO Outsourcing Your Energy Plant

Whether it's cash in hand or borrowed dollars, your properties are constantly faced with competing demands on scarce resources. These financial pressures can keep you from replacing an old, unreliable, repair-intensive, under-performing chiller or boiler plant.

But thanks to a recent shift in the energy marketplace, a solution may now be available. For the first time under a new program, your co-op can buy the output of a new plant under a long-term service agreement with an energy service company (ESCO). This type of outsourcing allows you to simply purchase the chilled water, hot water or steam - without incurring the up-front capital costs normally associated with the installation of a new plant.

Under a long-term service agreement, the ESCO provides for a co-op's heating or cooling needs over a multi-year period - typically 10 years. Charges are based on a fixed price per unit provided to the building, e.g., ton-hours of cooling, or MLbs of steam or MMBTUs of heating.

The agreement is similar to that of leasing a car - the co-op or condo can pay-as-they-go without incurring extensive up-front costs. Through the ESCO, the costs of the installation are amortized over the life of the 10-year agreement. The optimum installation would be in buildings with 50 or more units. In smaller, self-managed buildings, the volume might not be high enough to provide cost savings relative to the building plant's current operating costs.

The ESCO, which builds, owns, and maintains the new plant over the agreement term, will also guarantee performance of the plant. Typically, day-to-day operations of the plant continue to be performed by existing building personnel, although that responsibility can also be assumed by the ESCO.

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