Developing Model ESCO Performance Contracts
1. INTRODUCTION 1.1. Energy Service Companies (ESCO’s) and Performance Contracts Definitions for Energy Service Companies (ESCOs) vary from country to country. An ESCO is a professional services business providing a broad range of comprehensive energy efficient solutions, including design and implementation of energy savings projects, energy infrastructure outsourcing and risk management. ESCOs perform in-depth analyses of physical properties, design energy efficient solutions, install proper equipments, and maintain the systems to ensure energy savings. The Bureau of Energy Efficiency (BEE), Ministry of Power (MOP), India defines ESCOs as an organization engaged in a performance based contract with a client firm to implement measures which reduce energy consumption and costs in a technically and financially viable manner4.The Bureau of Energy Efficiency has taken certain necessary steps to encourage the supply of performance-contract based energy-efficiency enhancement services through Energy Service Companies (ESCOs) in India. An accreditation exercise of ESCOs, in terms of success in implementation of energy efficiency projects, ability of technical man-power, and financial strength to invest in such projects, was carried out by CRISIL and ICRA 5, with technical and financial support of BEE6 Organizations wishing to improve their energy efficiency and reduce energy related costs usually engage energy consultants to conduct an energy survey to identify energy saving opportunities. ESCOs are usually differentiated from other firms that offer energy efficiency improvement or energy services, such as consulting firms and equipment suppliers, by the concept of performance-based contracting, this means that the ESCO’s payment is directly linked to the amount of energy saved (in physical/material or monetary terms). The two commonly observed classifications of ESCOs are vendor-driven ESCOs, who use their own technology/products for implementation of energy improvement measures, and general ESCOs, who are product-neutral. As commonly observed in other countries, the Indian ESCO industry is also dominated by vendor-based ESCOs. Energy Service Companies (ESCOs): A for Profit Commercial Entity ESCOs are profitable commercial entities and provide a range of services and look to derive profits from the amount of energy saved. Although the ESCO business is profitable, it also involves high amounts of risks and demands technical and financial competency. 4
As per the announcement made from organizations for enlisting as Energy Service Company - The Bureau of Energy Efficiency 5 CRISIL , ICRA - Credit rating agencies 6 Available at : http://bee-dsm.in/DSM_Service_Providers.aspx
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