What is an ESCO?

Using ESCOs to Deliver Maximum Dollar and Energy Savings

Energy efficiency is the cornerstone of all sustainable energy strategies. Implementing a comprehensive energy efficiency retrofit project that pays for itself through the energy savings can be a complex undertaking. There is an increasingly global need to implement energy efficiency projects on a widespread basis to reduce fossil fuel consumption, reduce greenhouse gas emissions, reduce the number of power plants being brought on line, to reduce transmission and distribution line capacity constraints, and to capture the amount of electricity lost and wasted  as it travels the power lines.

Energy Service Companies (ESCOs) are an experienced and effective delivery mechanism to provide the maximum amount of energy efficiency resources. Organizations often turn to ESCOs when considering retrofit projects since ESCOs have extensive design and implementation experience in integrating multiple efficiency measures, mitigating technical and performance risks, and providing a financial guarantee to project lenders that the energy savings generated  will cover the debt service.

ESCOs, in essence, act as project developers as they integrate the project’s design, financing, installation and operational elements.  Project contract terms typically range between seven and twenty years depending on the types of measures installed.  The main differentiator between ESCOs and other energy efficiency contractors is the guarantee of energy savings which is specified as part of the terms of an energy savings performance contract (ESPC). 

ESCO Service Offerings

ESCOs provide (either directly or through experienced subcontractors) all of the services identified by the organization as needed to implement the energy efficiency retrofit.  ESCOs present a comprehensive plan to maximize energy savings while meeting the customer’s specific facility requirements.  ESCOs engineer and design the project to include multiple conservation measures and to account for interactions among the installed measures.

Typical service offerings include the following:

  • Provide an Investment Grade Audit
  • Engineer projects of appropriate size and scope
  • Arrange project financing and assist the organization in understanding the available financing options.
  • Procure and install the equipment
  • Monitor and verify energy savings for as long as the customer wishes often the entire contract term
  • Provide, if requested, ongoing operations and maintenance savings
  • Prepare reports for the customer detailing energy savings and a reconciliation plan if energy savings were to fall below projections

ESCOs have been implementing comprehensive energy efficiency retrofit projects over the last three decades and a recent Lawrence Berkeley National Laboratory report estimates that ESCO investment in energy efficiency undertakings currently runs about $5 billion a year.

Since 1990, ESCOs have delivered:

  • $45B in projects
  • $50B savings – guaranteed and verified
  • 425,000 person-years of direct employment
  • $30 billion of  infrastructure improvements
  • 470 million tons of CO2 savings at no additional cost