Developing Model ESCO Performance Contracts
EXECUTIVE SUMMARY In an urge to embark upon the sustainable development and pursue the plans for climate change mitigation, India has identified energy efficiency (EE) as a key component of the strategy. Energy Service Companies (ESCOs) provide attractive options for companies willing to undertake EE projects. However, in the Indian context, ESCOs have not been able to tap into this potential and deliver savings to the companies. Several reports have examined the issues. The absence of credible experiences in success stories for large scale replications, lack of credible M&V tools which build confidence in client relationships, lack of credibility in existing mechanisms for dispute resolution, and demonstration of technology expertise are identified as key constraints.1 Furthermore, the absence of policy support, favourable legal framework, limited financing have constituted major barriers and could have defeated young and emerging ESCO companies.2 Based on the findings of these reports and to foster the development of the ESCO Industry, AEEE has developed a set of documents – a standard Energy Performance Contract (EPC) document and a Measurement & Verification template. The aim of this standard performance contract is to provide a consistent basis to negotiate an energy performance contract between the customer and the ESCO. The document provides a mechanism intended to cover the rights and obligations of both parties for implementing an energy performance contract. The M&V planning template has been developed to assist M&V planners incorporate the various design elements. EPC being a relatively new methodology in India, developing a standard set of documents will help customers work through the contracting process with the least amount of difficulty. The document can be suitably negotiated and modified to adapt to the needs and requirements of the individual projects. AEEE has worked on some key areas by assisting ESCOs through capacity building, preparation of agreements and assisting in third party financing, as per the requirements of the project. The report builds on and summarizes the first results of ESCO projects, both ongoing and completed. It gives a step-wise methodology for developing performance contracts, highlighting key challenges and barriers for EPC contracting and how these issues can be addressed; by running through the project development process, and showcasing examples and tips in the preparation of successful performance contract documents. Based on the review and the analysis, areas of activity are identified and indication is given as to what action is likely to foster the further development of ESCOs in India. The typical challenges faced and reasons for non execution or delay in executing these projects have been mentioned in detail as part of the Key Learnings of this report.
1
India manual for the development of municipal Energy Efficiency Projects” (2008) and “India Energy Efficiency Indicator 2010.” 2 International Finance Corporation- IFC Energy Service Company Market Analysis
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