An ESCO, or Energy Service Company, is a business that develops, installs, and arranges financing for projects designed to improve the energy efficiency and maintenance costs for facilities over a seven to twenty year time period depending on the viability of the proposed project. ESCOs generally act as project developers for a wide range of tasks and assume the technical and performance risk associated with the project. Typically, they offer the following services:
- develop, design, and arrange financing for energy efficiency projects;
- install and maintain the energy efficient equipment involved;
- measure, monitor, and verify the project's energy savings; and
- assume the risk that the project will save the amount of energy guaranteed.
These services are bundled into the project's cost and are repaid through the monetary savings generated.
ESCO projects are comprehensive, which means that the ESCO employs a wide array of cost-effective measures to achieve energy savings. These measures often include the following: high efficiency lighting, high efficiency heating and air conditioning, efficient motors and variable speed drives, and centralized energy management systems.
What sets ESCOs apart from other firms that offer energy efficiency, like consulting firms and equipment contractors, is the concept of performance-based contracting. When an ESCO undertakes a project, the company's compensation, and often the project's financing, are directly linked to the amount of energy that is actually saved.
Typically, the comprehensive energy efficiency retrofits inherent in ESCO projects require a large initial capital investment and offer a relatively long payback period. The customer's debt payments are tied to the energy savings offered under the project so that the customer pays for the capital improvement with the money that comes out of the difference between pre-installation and post-installation energy use and other costs. One of the most accurate means of measurement is the relatively new practice of metering, which is direct tracking of energy savings according to sanctioned engineering protocols.
Most performance-based energy efficiency projects include the maintenance of all or some portion of the new high-energy equipment over the life of the contract. The cost of this ongoing maintenance is folded into the overall cost of the project. Therefore, during the life of the contract, the customer receives the benefit of reduced maintenance costs, in addition to reduced energy costs. As an additional service in most contracts, the ESCO provides any specialized training needed so that the customer's maintenance staff can take over at the end of the contract period.
Another critical component of every energy efficiency projects is the education of customers about their own energy use patterns in order to develop an "energy efficiency partnership" between the ESCO and the customer. A primary purpose of this partnership is to help the customer understand how their energy use is related to the business that they conduct.
In addition to the economic benefits realized by ESCO customers through energy and maintenance cost savings, this booming industry has had a profound effect on the economy. New jobs have been created, not only within the ESCOs, but through the use of contractors and through the many firms involved directly and indirectly in supporting energy efficiency projects.
Historically, the energy service industry is relatively young. Most ESCOs place the industry's origins in the late 1970s and early 1980s when energy prices rose dramatically following the 1973 Arab oil embargo and the Iranian Revolution in 1979. These events created the opportunity to make a business out of reducing customers' growing energy costs. The future for ESCOs and for their customers is bright as there is an increasingly global need to implement energy efficiency projects on a widespread basis. (Reference: National Association of Energy Service Companies, Washington DC, USA)
The Department of Energy ESCO Certificate of Accreditation
In 2008 the Department of Energy (DOE) issued Department Circular –DC-2008-09-0004 which enforces the requirement for an ESCO company to apply for a certificate of accreditation with the DOE while engaging in any energy efficiency related performance contracting projects. The objectives of the Circular are the following: (a) to promote and expand ESCO business as new emerging business industry in the local market; (b) to classify ESCOs in the market according to their area of expertise and financial capability; (c) to help inefficient companies avail of ESCO services with least to no-cost investment in energy efficiency project; (d) to be able to create more jobs and stable ESCO business sector to help contribute to the country’s economic development and poverty alleviation program of the government; (e) to promote and build-up the networks of the DOE accredited ESCOs in the local market as well as in the ASEAN region market; and (f) to be able to accelerate implementation of energy efficiency projects and programs within the context of the government thrust on energy security, soaring energy prices and climate change mitigation.
Currently, there are four (4) ESCO companies accredited by the DOE, namely: (1.) Thermal Solution, Inc. (2.) PhilCarbon, Inc. (3.) Electro-System Industries Corp., and (4) Design Science, Inc. There are several other submissions undergoing evaluation by the Energy Efficiency and Conservation Division of the DOE. Any ESCO company which is interested to be accredited by the DOE must submit a filled-up Application Form and complete documents as enumerated in the DOE Accreditation Guidelines.
For inquiry, interested parties may inquire to the Office of the Director of the Energy Utilization Management Bureau (EUMB) at telefax number (02) 840-2289 or to the Office of the Division Chief of the Energy Efficiency and Conservation Division (EECD) at telefax number (02) 840-2243.
ESCO Energy Efficiency Project Report