What is an
An ESCO, or Energy Service Company, is a business that develops, installs, and arranges financing for projects designed to improve the energy efficiency and maintenance costs for facilities over a long time period, typically 5 to 20 years. ESCOs generally act as project developers for a wide range of tasks and assume the technical and performance risk associated with the project. Typically, they offer the following services:
- Develop, design, and arrange financing for energy efficiency projects;
- Install and maintain the energy equipment and/or building envelope measures involved;
- Measure, monitor, and verify the project's energy savings; and
- Assume the risk that the project will save the amount of energy guaranteed
These services are bundled into the project's cost and are repaid fully or partially through the financial savings generated over the life of the contract (and possibly beyond).
ESCO projects are most often comprehensive, which means that the ESCO employs a wide array of cost-effective measures to achieve energy savings. These measures often include the following: high efficiency lighting, high efficiency heating and air conditioning, efficient motors and variable speed drives, centralized energy management systems, roof insulation, efficient glazing, etc.
Alternatively, projects may concern one technology or application.
What sets ESCOs apart from other firms that offer energy efficiency, like consulting firms and equipment contractors, is the concept of performance-based contracting. When an ESCO undertakes a project, the company's compensation, and often the project's financing, are directly linked to the amount of energy that is actually saved.
Typically, the comprehensive energy efficiency retrofits inherent in ESCO projects require a large initial capital investment and offer a relatively long payback period. The customer's debt payments are tied to the energy savings offered under the project so that the customer pays for the capital improvement with the money that comes out of the difference between pre-installation and post-installation energy use and other costs. For this reason, ESCOs have led the effort to verify, rather than estimate energy savings. One of the most accurate means of measurement is the relatively new practice of metering, which is direct tracking of energy savings according to sanctioned engineering protocols.
Most performance-based energy efficiency projects include the maintenance of all or some portion of the new high-energy equipment and building elements over the life of the contract. Comprehensive projects will even often include the maintenance of the whole building. The cost of this ongoing maintenance is folded into the overall cost of the project. Therefore, during the life of the contract, the customer receives the benefit of reduced maintenance costs, in addition to reduced energy costs. As an additional service in most contracts, the ESCO provides any specialized training needed so that the customer's maintenance staff can take over, if required, at the end of the contract period.
Projects will often also include maintaining or even improving comfort for the occupants or providing other non-energy benefits.
Another critical component of every energy efficiency projects is the education of customers about their own energy use patterns in order to develop an "energy efficiency partnership" between the ESCO and the customer. A primary purpose of this partnership is to help the customer understand how their energy use is related to the business that they conduct.
Included in the ancillary services provided in a typical performance-based energy efficiency contract are the removal and disposal of hazardous materials from the customer's facility. When, for example, existing fluorescent lighting equipment, ballasts that contain PCBs, and fluorescent light tubes that contain traces of mercury are replaced, the old equipment must be disposed of as hazardous waste. Upgrades to heating, air conditioning, and ventilation systems may involve the removal of asbestos and would also be properly disposed of by the ESCO.
In addition to the economic benefits realized by ESCO customers through energy and maintenance cost savings, this growing industry has had a profound effect on the European economy. Similar benefits are expected in the Belgian national and regional economies. New jobs have been created, not only within the ESCOs, but through the use of contractors and through the many firms involved directly and indirectly in supporting energy efficiency projects. Since approximately one third of the money invested in ESCO projects is applied to labor costs
There are 2 types of definitions of what an Energy Service is.
There is a "broad" definition that covers a large array of services offerings in the area of energy management, energy efficiency, renewable energy projects, energy supply, etc. These can include energy audits, energy monitoring and bookkeeping, energy management, energy consultancy services, implementation of energy saving measures, energy performance contracts, energy supply, etc.
THIRD PARTY FINANCING
The are 3 options for financing energy efficiency projects, using energy services provided by ESCOs :
ESCO financing refers to financing with internal funds of the ESCO and may involve own capital or equipment lease. ESCO rarely use equity for financing, as this options limits their capability of implementing a large number of projects on a sustainable basis.
ENERGY PERFORMANCE CONTRACTING
An Energy Performance Contract (EPC) means a contractual arrangement between the beneficiary and the provider of an energy efficiency improvement measure, verified and monitored during the whole term of the contract, where investments (work, supply or service) in that measure are paid for in relation to a contractually agreed level of energy efficiency improvement or other agreed energy performance criterion, such as financial savings.