Answer by Alejandro Morell (Creara)
The consequences for over or under estimating the savings depend on the contract model selected for the EPC project.
- 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.
- 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.
- 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.