Energy Project Financing : Resources and Strategies for Success

8 Energy Project Financing: Resources and Strategies for Success

or not the new truck actually saves money.

2. With a “flexible payment plan,” where the savings from the new
   truck are shared with the third party until the truck’s purchase
   cost is recouped with interest. This is basically a “shared savings”
   arrangement.

Subcontract Pizza Delivery to a Third Party

Since PizzaCo’s primary business is not delivery, it could subcon-

tract that responsibility to another company. Let’s say that a delivery

service company would provide a truck and deliver the pizzas at a

reduced cost. Each month, PizzaCo would pay the delivery service

company a fee. However, this fee is guaranteed to be less than what

PizzaCo would have spent on delivery. Thus, PizzaCo would obtain

savings without investing any money or risk in a new truck. This

arrangement is analogous to a performance contract. A performance

contract can take many forms; however, the “performance” aspect

is usually backed by a guarantee on operational performance from

the contractor. In some performance contracts, the host can own the

equipment and the guarantee assures that the operational benefits are

greater than the finance payments. Alternatively, some performance

contracts can be viewed as “outsourcing,” where the contractor owns

the equipment and provides a “service” to the host.

This arrangement is very similar to a third-party lease. However,

with a performance contract, the contractor assumes most of the risk,

Figure 2-4. PizzaCo’s Cash Flows for a Capital Lease.