In a volatile world economic market, it appears that there is no shortage of lenders prepared to fund Energy Performance Contracts (EnPCs), as long as energy managers are prepared to get the contract concept right, according to a senior figure in the Royal Bank of Scotland (RBS).

Hung up on kit

Jon Miles, director of sustainable energy finance at RBS, told delegates at the EMA’s Energy Performance Future conference in London that the market had itself “hung up on kit”, which is why access to EnPC financing has been blocked in the past.

“There is no shortage of capital,” he said. “We will happily write a cheque, but we need the right financial wording embedded into your contracts. It’s really quite simple.”

Miles urged energy managers and energy service companies (ESCOs) to consider an EnPC as a service contract based around energy performance, rather than an asset-based contract centred on energy saving equipment.

Energy impracticalities

The preoccupation with energy saving equipment has made energy performance contracting far more complicated than it needs to be, he added, pointing to the impracticalities of using a fixed asset such as a school boiler as a guarantee for a loan.

Treating an EnPC as a service contract, much like a telephone or Internet service contract, means that it is less likely to be treated as debt, and will be far more attractive to both clients and lender, Miles said, adding that it simplifies the legal process, allowing EnPCs to be based around similar standardised service contracts.

A spot survey at the conference found that 39% of respondents considered the EnPC largely a financial product, on a par with the 39% who considered it a legal product. A further 21% considered it an engineering solution.

Banks are “not sophisticated enough”

Despite these facts, access to finance has frequently been identified as a barrier to EnPCs taking off in the UK, a view reinforced by Peter Feehan, partner at law firm Pinsent Masons, who said that banks are “not sophisticated enough” at the moment to deal with EnPCs.

“Banks don’t want to get involved in terms of primary lending,” he told delegates at the conference. “Once the contract is set up and they see the income streams rolling, then they will come in with secondary and sub debt, but the difficulty is that on day one they aren’t there.”

However, Miles emphatically denied that the banks were not prepared to lend, saying that all that is needed is the right contract format.

“We’ve had thee or four years at ESCO Europe saying we’ve got £27 billion which we can’t get out the door, and will someone please enter into an EnPC?” he said. “There is more money out there than you can shake a stick at, and we are all trying to deploy it, just stop overcomplicating things. We’ll work with the solicitors, but actually we’ll show you a contract that works.”