Energy service company

A newer breed of ESCO includes innovative financing methods, such as off-balance sheet mechanisms, a range of applicable equipment configured in such a way that reduces the energy cost of a building.

The primary reason that the product did not initially sell was because potential users doubted that the savings would actually rise.

To combat this doubt, the company decided to install the device upfront and ask for a percentage of the savings that was accumulated.

The industry grew slowly through the 1970s and 1980s,[3] spurred by specialist firms such as Hospital Efficiency Corporation (HEC Inc.), established in 1982 to focus on the energy intensive medical sector.

Also, with the new opportunities on the supply side, many energy services companies (ESCOs) started to expand into the generation market, building district power plants or including cogeneration facilities within efficiency projects.

[6] In the wake of the Enron collapse in 2001, and the sputtering or reverse of deregulation efforts, many utilities shut down or sold their energy services businesses.

Once the owner is aware of the possibility of an energy savings project, he or she may choose to place it out for bid, or just stick with the original ESCO.

During the initial period of research and investigation, an energy auditor from the ESCO surveys the site and reviews the project's systems to determine areas where cost savings are feasible, usually free of charge to the client.

The engineers are responsible for creating cost-effective measures to obtain the highest potential of energy savings.

[3] These measures can range from highly efficient lighting and heating/air conditioning upgrades, to more productive motors with variable speed drives and centralized energy management systems.

[1] These options are, from least to most expensive: A typical transaction involves the ESCO borrowing cash to purchase equipment or to implement energy-savings for its clients.

The typical process includes a Request for qualifications (RFQ) in which the interested ESCO's submit their corporate resumes, business profiles, experience, and initial plan.

For example, a chiller retrofit would require measurements of chilled water supply and return temperatures and kW.

The International Performance Measurement and Verification Protocol (IPMVP) is the standard M&V guideline for determining actual savings created by an energy management program.

A plan for applying the most appropriate of the 4 general methods to a specific project is typically created and agreed upon by all parties before implementation of the ECMs.

The simulation model must be calibrated so that it predicts an energy pattern that approximately matches actual metered data.

The initial implementation is done, in a sense, free of charge, with the payment coming from the percentage of the energy savings collected by a financing company or the ESCO.

Upgrades to the mechanical/electrical system, new building envelope components, or even restorations and retrofits may be included in the contract even though they have no effect on the amount of energy savings.

[12] The program was modified and reauthorized in December 2008, and sixteen firms were awarded Indefinite delivery/indefinite quantity (IDIQ) contracts for up to $5B each, for total potential energy-savings projects worth $80B.

Utility-affiliated firms offer ESCO projects as a value-added service to attract and retain large customers and generally focus only on their utility footprint.

Equipment affiliated Utility affiliated Non-utility energy services In June 2005, the GAO released a report, “Energy Savings: Performance Contracts Offer Benefits, But Vigilance Is Needed To Protect Government Interests.” The Office of the Under Secretary of Defense for Technology, Acquisition, and Logistics agreed with the GAO findings.

“While these complicated contracts are structured to ensure that savings will exceed costs,” the DOD noted, “we recognize that our measurement and verification procedures must be improved to confirm estimates with actual data.” Unverified savings, often stipulated rather than proven, do not put more oil in the ground, take CO2 out of the air or reduce operating budgets The GAO ESPC study brings into question whether or not there is sufficient data to prove that the gains delivered by ESCOs are sustainable over time.

In fact, most buildings and facilities exhibit the same basic limitations with respect to energy conservation and optimum maintenance.

US Federal studies show that major and minor building systems routinely fail to meet performance expectations, and these faults often go unnoticed over time.

The reason the concept makes sense is because for green buildings, the costliest prerequisites to meet are usually the energy efficiency requirements.

The National Institute of Standards and Technology (NIST) found that an average building lasts only two-thirds of its forecast life before it needs to be replaced or substantially retrofitted.

According to NIST, the time needed to do building commissioning right is rarely available, defects and opportunities are overlooked, and system potential goes unrealized.

Few, if any, of these factors are addressable by the Energy Services Companies or through ESPCs because the information needed to define the real problems is not captured.

There is a clear need for integrated solutions that offer the kind of accountability and transparency — and plenty of the “actual data” — that is currently lacking in the ESPC process.

US Federal reporting into OMB Scorecard A number of firms have started offering ESCO services in Europe.