ESCO Capabilities and Skills

ESCOs are diverse: There is no real prototypical ESCO. However, most ESCOs typically have the following capabilities and skills: project develop­ment, engineering and design, feasibility analysis, energy analysis, general contracting, the ability to finance directly or arrange third-party financing, project and construction management, purchase and installation of equipment, risk management, mon­itoring and verification (M&V) of savings, training, operations and maintenance services for the installed equipment, and administrative services. Most of these capabilities reside among the staff of the company (in-house), but some of these skills are contracted out (e. g., installation of equipment). In addition, ESCOs may provide additional services, such as cogeneration and alternative power production.

Some additional comments on these activities are warranted. First, ESCOs use working capital for general corporate purposes such as marketing. They use project financing to construct a project; they also reimburse themselves through project financing for the amount of working capital expended to develop a particular project. All or most of the activities that ESCOs conduct for a project are bundled into that project’s cost, which is usually financed entirely with debt and lease financing (i. e., no equity contribution is required to be made by the customer since payments come only from realized savings); project financing using ESCO or third-party equity contribu­tions is rare. In sum, ESCOs attempt to remove the first-cost disincentive and technical uncertainty by providing outside sources of capital and guaranteeing the performance of the equipment. The first-cost disincentive is a real barrier to investments in energy efficiency, whereas the perception of technical uncertainty is a more formidable barrier than the actual performance of energy-saving measures. The cost of the ESCO service is typically paid for from the stream of energy cost savings resulting from the project.

Second, because ESCO projects are performance based, ESCOs must measure and verify the energy savings, and these savings must be monitored over the project’s life to make sure the performance-based savings are accurate and persist. M&V is typically conducted by periodically comparing a customer’s energy bills with an established pre-project baseline and/or through energy metering.

Third, maintenance is usually the final component of most performance-based energy-efficiency pro­jects. The maintenance is for all (or some portion) of the new equipment over the life of the contract. The cost of this ongoing maintenance may be folded into the overall cost of the project. Thus, throughout the life of the performance contract, the customer receives not only the benefit of reduced energy costs but also the benefit of reduced maintenance costs. The maintenance component is also important since it enables the ESCO to ensure that the equipment is maintained in a way that preserves optimal perfor­mance. As an additional service on most contracts, the ESCO also provides any specialized training needed so that the customer’s maintenance staff is equipped to take over at the end of the performance contract period (the period may be 5, 10, or 15 years, and sometimes longer).

Fourth, each ESCO entering into an energy – savings performance contract tries to educate its customer on energy use and seeks to bring that customer into an energy-efficiency partnership whose purpose is to achieve the maximum energy savings available from the customer’s facility. This is not only good for the customer but also beneficial for the ESCO as it seeks to maintain a long-term contract with the customer and obtain additional business.

In sum, although none of the discrete skills that an ESCO employs are particularly unique, the added value an ESCO brings is its ability to inte­grate a wide variety of skills and apply them efficiently to projects ranging from several hundred thousand dollars to tens of millions of dollars. Thus, ESCOs view themselves as project developers and integrators.

Updated: December 19, 2015 — 7:59 am