Energy Service Company (ESCO)

Home » Energy Service Company (ESCO)

GKEMPL identifies and evaluates energy saving opportunities in industrial units, commercial complexes, hospitals, municipalities, buildings and utilities by using energy audit tools and recommends a package of improvements that can give competitive advantage and thus give resultant savings. The ESCO will guarantee the savings that would meet or exceed the annual payments to cover up the entire project costs usually a period of 5 to 10 years.

Salient Features: –

  • Nil/zero investment by customer.
  • ESCO to identify Energy Efficient Measures (EEMs) to replace / modify existing inefficient systems.
  • ESCO supplies, installs and maintains the Energy Efficient Measures (EEMs) during the contract period.
  • Energy saving is shared between ESCO and customer as per agreed terms. Total project cost is funded by ESCO.
  • Guarantee Energy savings and recover its investment including interest & other costs out of generated energy.

The two common types of Performance-based Contract structures used by ESCOs, called “Guaranteed Savings” and “Shared Savings” are widely adopted but there are a few more emerging models which have been described below:

A. Guaranteed Savings

In this case the customer finances the design and installation of the project by borrowing funds from a third party such as a bank or through leasing the equipment. The ESCO has no contractual arrangement with the bank but does assume the project risk and guarantees the energy savings made. If the agreed minimum savings is not reached the ESCO covers the difference, if they are exceeded then the customer agrees to share the savings with the ESCO.

B. Shared Savings

Under this model the ESCO finances the project either through its own funds or by borrowing from a third party. The ESCO takes on the performance risk of the project. The cost savings are divided between the ESCO and customer at a prearranged percentage for an agreed length of time.

C. Lease Rental Model

The supplier installs the equipment and maintain it. The lease payments are financed by verified savings and the ownership is generally transferred at the end of a lease period. The client makes payments of principal and interest; the frequency of payments depends on the contract. The stream of income from the cost savings covers the lease payment.

D. BOOT Model

A BOOT (Build-Own-Operate-Transfer) model may involve an ESCO designing, building, financing, owning and operating the equipment for a defined period of time and then transferring this ownership over to the client. This model resembles a special purpose enterprise created for a particular project. Clients enter into long term supply contracts with the BOOT operator and are charged according to the service delivered.