Negotiation of an ESCO deal.

Negotiation is the whole process of reaching an agreement between the Customer and ESCO parties by means of the exchange of documents and/or peer-to-peer meetings. In actual terms, this process starts when any party issues the first document proposing, to counterparties, the execution of an EE-ESCO project establishing initial negotiation positions; it ends, in positive case, with the contract signature.

Gerd Altmann From Freiburg, Deutschland CC0 Public Domain
Negotiation by Gerd Altmann CC0 Public Domain

The essence of an EE-ESCO business model is a long-term partnership with the aim of sharing common benefits which are conditioned to a successful energy-saving strategy. So, each other´s gains addition is equal to the whole common benefits; a party´s over-gain supposes an over-loss to the counterparty. This business nature means a pair of apparent contradictions in the looking for arrangements process:

  • Self-interest is logically both parties´ main negotiation vector. In this case, the discussing field is focused on the collection of multiple variables that determine the gains´ split; this is, obviously, more complex than a simple sharing proportions agreement about the efficiency savings. There are uncertainties – energy future price-, partial knowledge –operating and maintenance real costs-, complex key rules –measurement and verification plan- future post-contract hidden costs –devices useful life, obsolescence-,…; these are risks that, in the dealing process, have to be compensated with equivalent guarantees.
  • But this is a win-win business where all depend on: the cooperation for achieving efficiency savings, the none existence of winners and losers –except the case of an unfair negotiation- and long lasting partnership ties. So, a smart negotiation is necessarily based on mutual understanding and trust compatible with the self-interest defense.

Negotiation phases

The sequenced phases that drive negotiation to the final agreement follow a scheme like this

From   «ESCOs, Myth and Reality»  Ribes&Casado