What happens when savings are higher or lower than expected?

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Answer by Alejandro Morell (Creara)

The consequences for over or under estimating the savings depend on the contract model selected for the EPC project.

1. CASE 1. Under Guaranteed savings model

• When savings are higher than agreed, the client gets 100% of guaranteed savings and the extra savings are shared between the ESCO and the client in accordance with the provisions of the contract.
• When savings are lower than agreed, the client´s guaranteed part is the first to be covered. If savings are lower than this, the ESCO is required to reimburse the customer for the savings not achieved. This usually means a penalty for the ESCO in order to guarantee the client’s savings.

2. CASE 2. Shared savings model

• When savings are higher than agreed, the ESCO and the client share the difference in accordance with the provisions of the contract.
• When savings are lower than agreed, the client´s part is the first to be covered. If savings are lower than this, the ESCO is required to reimburse the customer for the savings not achieved. This usually means a penalty for the ESCO in order to guarantee the client’s savings.

3. CASE 3. Mixed savings model

• When savings are higher than agreed, the ESCO and the client share the differences in accordance with the provisions of the contract.
• When savings are lower than agreed, the ESCO and the client share the savings according the contract but there is a penalty for the ESCO (defined by the contract) because the expected savings are not achieved.