What is an ESCO and how does it work?

An Energy service company (ESCO) is an organization that develops, designs, builds, and arranges financing for projects that save energy, reduce energy costs, and decrease operations and maintenance costs at their client’s facilities. 

After an energy audit is conducted in a facility, energy conservations measures (ECMs) are recommended and presented to the client. Once these ECMs are implemented, the client is guaranteed reduced energy costs and decreased operations and maintenance costs.

ESCOs come in to assist with the implementation of these ECMs. They assume all the technical and performance risks associated with the projects and allow their clients to start repaying after they achieve energy savings. 

Assuming you are an SME and your energy/electricity bill is around Ksh 2,000,000 per month. You hire the services of an energy auditor who comes up with a list of recommended energy conservation measures (ECMs), which if implemented, would lead to significant energy savings. You have 2 options from this point;

  1. Fund the energy efficiency projects yourselves. This option may be expensive at first, but later on after the payback period is over, the SME enjoys lower energy costs.
  2. Seek the services of an ESCO company. The ESCO will design, build and fund the energy efficiency projects. The SME will then repay the ESCO from the achieved savings. For instance, if after the ECMs are implemented, your new energy bill is Ksh 1,000,000, this means you will repay the ESCO from the extra 1,000,000 saved until you have fully repaid their implementation costs.

In general, we can say that ESCOs act as project developers for a comprehensive range of energy conservation measures (ECMs). What makes them special is their ability to assume all the technical and performance risks associated with a project. 

What makes an ESCO different from other firms offering energy efficiency solutions?

Well, ESCOs use the performance-based contracting methodology. This means that when an ESCO comes in to implement the energy efficiency projects that have been recommended, their compensation is directly linked to the actual energy cost savings.

Most energy energy-efficiency retrofits and renewable energy technologies essential in energy savings performance contract (ESPC) projects, typically require large initial capital investment and may have a relatively long payback period. 

Debt payments are tied to the energy cost savings guaranteed for the project, so the SME/or the client pays for the capital improvements of the ESPC project with the money saved by the project (i.e., the difference between pre-installation and post-installation energy use and other related costs).

About Eenovators Ltd as an Energy Service Company (ESCO) in Kenya

Eenovators is an Energy Service Company (ESCO) registered in Kenya but operating in Kenya and Uganda. The company implements a customized energy service package consisting of planning, building, operation and maintenance. Eenovators finances projects and get paid back through the energy savings.

The contract between Eenovators and the building owner contains guarantees for cost savings. As an ESCO, the company takes over financial and technical risks of implementation and operation of the entire project thus leaving the building owner to focus on their core business and still enjoy reduce energy costs with little to no capital investment.


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