BY LINDA MANYALA
What is an ESCO- Energy Service Company?
A company ‘engaged in the business of undertaking energy audits and the development, design, financing, and building of energy conservation projects and whose compensation is directly linked to actual energy savings.
Eenovators Ltd is an energy service company that is focused on offering energy management solutions that reduce energy consumption, energy cost and carbon emissions through Clean Energy consumption initiatives.
What ESCO’s do
Energy service companies can help scale up energy efficiency by offering specialized technical and financial services for project design and implementation such as;
- providing technical skills (energy assessments and audits)
- assuming performance risks
- facilitating access to finance from commercial lenders
- enabling energy users to repay initial costs through future savings.
How it works
The services are offered through various steps; a) assessment of client’s site or building to determine the energy ‘footprint’ and potential energy cost or carbon savings, b) making recommendations through the initial report on the measures to achieve these savings c) implementing the recommendations in the client’s site through identified projects d) offering contractor support and financial options to implement the projects.
ESCO’s use these expected energy savings to arrange for finance to support the delivery and implementation of the project.
The ‘big idea’ is that the energy savings made on the client site or building should reduce the client’s energy bills enough each month to cover any financing repayments to lenders or contractors.
The use of measurement and verification tools indicate the exact savings achieved on the client’s energy bills therefore offering a level of assurance for the identified energy efficiency project.
The common barriers to implementing energy efficiency projects in the Public sector are; awareness, budgeting and contracting while those in the Private sector include; awareness, standardization and financing.
Eenovators Ltd supports clients with the necessary expertise, advise, financing and technical opportunities to ensure implementation of projects and repayment through the assured energy savings acquired over a period of time.
Energy Performance Contracts
Most agreements between clients and ESCOs are underpinned by energy performance contracts also known as (EPCs). The EPC outlines the commitment by the ESCO to install the necessary equipment, provides a performance guarantee and establishes the terms of any ongoing payments or repayments by the client, which are intended to be less than the financial savings realised by the project. Such contracts last for a period of 2-20 years depending on the measures to be implemented. The two most common types of EPCs are the (a) shared savings or (b) guaranteed savings model.
Shared Savings model: the ESCO can provide financing, as well as project development and implementation costs, with the energy savings shared between the ESCO and the client over the contract period.
Guaranteed Savings model: the ESCO guarantees a certain savings on the client’s energy bill. The ESCO takes on the technical risk. The client obtains a bank loan, or uses their own equity, to pay contractually determined fees to the ESCO and the bank, and keeps the difference.
The Importance of ESCO’s in the Energy Sector
| Barriers Across the Energy Sector | How ESCO’S Can Help | |
| 1 | Small project size, which makes commercial financing difficult | Demonstrate benefits of efficient equipment and facility modernization, mobilize external financing, facilitate installation, and offer simplified turnkey arrangements |
| 2 | Lack of understanding among lenders about business models | Mobilize commercial financing with loan repayments made from project cost savings, providing positive cash flow throughout the project |
| 3 | Lack of interest or motivation among energy users | Aggregate similar projects for smaller facilities to increase project “ticket size” and facilitate financing |
| 4 | Inadequate information and technical expertise | Offer performance-based contracts, clearly define project benefits and costs, demonstrate low risk of projects already implemented, and conduct formal measurement and verification |
| 5 | High project development and transaction costs | Provide technical skills and expertise to identify, assess, and implement projects |
| 6 | Perception among lenders of high risk and a limited capability to estimate energy savings | Utilize standard, streamlined tools for energy auditing (M&V), option identification and assessment, and standardized energy services agreements |
| 7 | Limited internal capital for project investments | Demonstrate the success of business models and increase the credibility of performance contracting |
For Eenovators, the intention is to translate knowledge and expertise gained by our energy technicians to our clients by decreasing their energy costs and Carbon emissions and, alleviating concerns such as;
- Project complexity
- Project risk
- Contractor & Contractual framework
- Technology (availability & performance)
- Project finance
- Compliance with Energy Management Regulations, Policies and Stakeholder engagement
- Time and availability of resources