Energy Savings Contract: Indiana Code Chapter 36-1-12.5
The guaranteed energy savings contract is set up to reduce the energy use
of a specified system (such a traffic signals), and the main benefit is
that does not require a large upfront capital investment. Instead, the city
or owner can pay for the upgrades out of the energy savings. Another advantage
is that the energy savings contract gives the local government more flexibility
on choosing a provider for the upgrade as opposed to the typical bid process.
This allows the government freedom to pick the provider based on their own
needs, as long as the energy savings will pay for the project within 10
One of the main benefits of this program is the ability to have on provider
handle the entire project. There are many companies that solely deal with
energy savings contracting; and while this company will select and hire
all the subcontractors, the city only has to pay one bill to the provider.
This greatly simplifies the workload on the local government’s part
of the job. In addition to not requiring upfront capital, this approach
also allows the government and provider to shop around for third party
financing to get the best deal. Finally, the risk is reduced as the responsibility
of guaranteeing the energy savings falls on the provider, not the city
local government. This information was takien from “An Introduction
to Guaranteed Energy Savings Contracts” that was published by the
Indiana Department of Commerce and can be found at http://www.in.gov/doc/businesses/PDFs/GESC_Guidelines.pdf.
Many companies and suppliers choose not to get involved with the Guaranteed
Energy Savings Contract, and these companies often offer their own way to
finance the project. Many suppliers have their own financing plans, which
loosely revolve around the idea of simply providing a loan at a set interest
rate. In addition to this financing through the supplier method, the local
government always has the option of financing the upgrade internally. This
may be accomplished through planning into the capital budget or simply negotiating
a loan with a local bank.