Energy Contracting: The Role of Energy Service Companies (ESCO) in Project Execution


By: Praveen Gopal --

30 September, 2014

Energy Contracting: The Role of Energy Service Companies (ESCO) in Project Execution

In today's world of rising energy prices and high awareness of energy conservation, many organizations are taking steps in reducing energy use by using more sustainable solutions during construction of new facilities. The governments are also initiating several programs at different levels offering certain incentives and promotional mechanisms.

In general, energy efficiency projects do not receive much appreciation in terms of internal funds. At this junction ESCO's comes in to play. ESCO offers guaranteed performance and successful implementation of the energy efficiency measures. They provide guarantee savings and their fee is linked to the projects performance. ESCO also facilitates access to external capital for project implementation. This whitepaper throws light on what is an ESCO, their mode of operation and how they can be contracted.

Energy Contracting - also known as ESCO or Energy Service - is a comprehensive energy service concept to execute energy efficiency projects in buildings or production facilities according to minimized project cycle cost. An energy service company or energy savings company (ESCO) is a commercial or non-profit business providing a wide range of energy saving solutions such as designs and implementation of energy savings projects, energy conservation, energy infrastructure outsourcing, retrofitting, power generation and energy supply, and risk management.

ESCOs are usually different from other energy efficiency improvement or Energy Services Company, by the concept of performance- based contracting. The ESCO's payment is directly linked to the amount of energy saved both in in physical and monetary terms. ESCOs offer similar services as Energy Service Providing Companies (ESPCs). However, in contrast to them, they guarantee the savings and their remuneration is linked to the projects performance. ESCOs may also provide or arrange financing.


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