DG lenders and developers should consider standardizing a model form of energy service agreement.
Nicholas Giannasca is a partner in the Energy and Environmental Practice Group of Davis Wright Tremaine LLP. In his 28 years of practicing, he has represented developers and hosts of commercial distributed generation facilities.
Distributed generation, DG, stands on the verge of significant growth. But to facilitate financing for DG projects, lenders and developers should consider standardizing a model form of energy service agreement, ESA,1 that can be used as the basis for financing DG development.
Regulators and legislators are increasingly viewing DG as a cost-efficient alternative to the expenditure of significant ratepayer dollars to fortify and rebuild distribution systems. Some states envision that DG will play a central role in the development of a smart, interactive, resilient, and reliable distribution grid. Several regulatory, legislative, and contractual factors will impact the development of DG (e.g., regulatory uncertainty), and these factors will need to be thoroughly and carefully examined by stakeholders.
Once new market and rate designs are established, DG will need to be financed and constructed. But ESA forms that skew performance, breach, and liability obligations in favor of the DG developer and its lender will dissuade potential hosts from pursuing DG. If ESAs are not developed in a more "pro forma" style - a balanced model adopted by a sizeable contingent of the DG industry in a particular region - then DG deal flow will be hampered and market momentum for the wide-scale deployment of DG may not occur.