Developing Model ESCO Performance Contracts
10. KEY LEARNINGS While the key objective of the project was to develop a legal framework compatible with energy efficiency investments; a number of barriers/ challenges have been observed through this project. These are as follows: 1) Low awareness, and Lack of information on energy performance contracting Though energy performance contracting has been around for a long time, the modalities of this business in understood and practised by only a handful of ESCOs. Clients are unaware of the value addition in terms of an Energy Performance Contract. Also, there is a low confidence in the ESCO mechanism by the Industry due to short track record or poor performance. Other challenges include low understanding of criteria evaluation for project financing, limited understanding of energy use patterns and load profiles, as well as unavailability of historical data or process data for establishing a baseline; even top industries do not have historical data and this increase the risk perception in case of an energy performance contract. 2) Lack of Procedure on following a M&V plan While it is known that M&V is the crux of an EPC to establish saving to the client, there is a very low understanding and usage of M&V as a means to successful project implementation. Measurement and verification protocols for assuring performance guarantees are not fully understood and neither practised. 3) Availability of Project Financing The business models submitted by ESCOs are diverse, and not all based on shared savings and non-financing factors also on need to be accounted for. Financial Institutes have their own criteria to evaluate the various business models submitted by ESCOs. A framework for providing loans will make lending to ESCOs easier. 4) Small size of projects: While Project Financing is critical for project to go forward – there as many factors which are important for financing a project. Many energy efficiency projects and ventures are too small to attract the attention of large multilateral financial institutions. Client agreement to the rate of interest charged by a third party financial Institute vs. doing the project on itself. Project bundling (pooling/aggregation) strategies can help overcome many of the key barriers.
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