The National Association of Energy Service Companies, (NAESCO) is the leading … Contact online >>
The National Association of Energy Service Companies, (NAESCO) is the leading
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ESCOs offer performance-based contracts (i.e., contracts that tie the compensation
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An energy service company (ESCO) is a company that provides a broad range of energy solutions including designs and implementation of energy savings projects, retrofitting, energy conservation, energy infrastructure outsourcing, power generation, energy supply, and risk management.
With the rising cost of energy and the availability of efficiency technologies in lighting, HVAC (heating, ventilation and air conditioning), and building energy management, ESCO projects became much more commonplace. The term ESCO has also become more widely known among potential clients looking to upgrade their building systems that are either outdated and need to be replaced, or for campus and district energy plant upgrades.
In the wake of the Enron collapse in 2001, and the sputtering or reverse of deregulation efforts, many utilities shut down or sold their energy services businesses. There was a significant consolidation among the remaining independent firms. According to the industry group NAESCO, revenues of ESCOs in the U.S. grew by 22% in 2006, reaching $3.6 billion.[7]
An energy service company (ESCO) is a company that provides comprehensive energy solutions to its customers, including auditing, redesigning and implementing changes to the ways the customer consumes energy, the main goal being improved efficiency. Other possible services provided include energy infrastructure outsourcing, energy supply, financing and risk management. It is this comprehensiveness of services that differentiates an ESCO from a common energy company, whose main business is solely providing energy to its customers. Typically compensation to the ESCO is performance based so that the benefits of improved energy efficiency are shared between the client and the ESCO.
ESCOs often use performance contracting, meaning that if the project does not provide returns on the investment, the ESCO is responsible to pay the difference, thus assuring their clients of the energy and cost savings. Therefore, ESCOs are fundamentally different from consulting engineers and equipment contractors: the former are typically paid for their advice, whereas the latter are paid for the equipment, and neither accept any project risk. The risk-free nature of the service the ESCOs provide offers a convincing incentive for their clients to invest.[8][9]
Some typical characteristic of ESCOs are as follows:[9]
This next phase is referred to as the engineering and design phase, which further defines the project and can provide more firm cost and savings estimates. The engineers are responsible for creating cost-effective measures to obtain the highest potential of energy savings.[3] These measures can range from highly efficient lighting and heating/air conditioning upgrades, to more productive motors with variable speed drives and centralized energy management systems.[1] There is a wide array of measures that can produce large energy savings.
Once the project has been developed and a performance contract signed, the construction or implementation phase begins. Following the completion of this phase, the monitoring and maintenance or Measurement and Verification (M & V) phase begins. This phase is the verification of the pre-construction calculations and is used to determine the actual cost savings. This phase is not always included in the performance contract. In fact, there are three options the owner must consider during the performance contract review.[1] These options are, from least to most expensive:
A typical transaction involves the ESCO borrowing cash to purchase equipment or to implement energy-savings for its clients. The client pays the ESCO its regular energy cost (or a large fraction of it), but the energy savings enable the ESCO to pay only a fraction of that to their energy supplier. The difference goes to pay the interest on the loan and to profit. Typically, ESCOs are able to implement and finance the efficiency improvements better than their client company could by itself.
"A qualified ESCO can help you put the pieces together:
After installing energy conservation measures (ECMs), ESCOs often determine the energy savings resulting from the project and present the savings results to their customers. A common way to calculate energy savings is to measure the flows of energy associated with the ECM, and then to apply spreadsheet calculations to determine savings. For example, a chiller retrofit would require measurements of chilled water supply and return temperatures and kW. The benefit of this approach is that the ECM is isolated, and that only energy flows associated with the ECM itself are considered.
This method is described as Option A or Option B in the International Performance Measurement and Verification Protocol (IPMVP).[10] Table 1 presents the different options. Option A requires some measurement and allows for estimations of some parameters. Option B requires measurement of all parameters. In both options, calculations are done (typically in spreadsheets) to determine energy savings. Option C uses utility bills to determine energy savings.
IPMVP Option A – Retrofit Isolation: Key Parameter MeasurementSavings are determined by field measurement of the key performance parameter(s) which define the energy use of the ECM''s affected system(s). Parameters not selected for field measurement are estimated.
IPMVP Option B – Retrofit Isolation: All Parameter MeasurementSavings are determined by field measurement of the energy use of the ECM-affected system.
IPMVP Option C – Whole FacilitySavings are determined by measuring energy use at the whole facility or sub-facility level.
IPMVP Option D – Calibrated SimulationSavings are determined through simulation of the energy use of the facility, or of a sub-facility. The simulation model must be calibrated so that it predicts an energy pattern that approximately matches actual metered data.
Since its creation in the 1990s, a single U. S. government program known as "Super-ESPC" (ESPC stands for Energy Savings Performance Contracts) has been responsible for $2.9B in ESCO contracts.[12] The program was modified and reauthorized in December 2008, and sixteen firms were awarded Indefinite delivery/indefinite quantity (IDIQ) contracts for up to $5B each, for total potential energy-savings projects worth $80B.
Grouping the sixteen firms provides a convenient illustration of the industry structure and the ways that each firm generates value through projects that use the ESCO model of energy-savings performance contracts. Equipment-affiliated firms use performance contracting as a sales channel for their products. Utility-affiliated firms offer ESCO projects as a value-added service to attract and retain large customers and generally focus only on their utility footprint. Non-utility energy services companies are product neutral, tend to have a larger geographic footprint, and typically offer a wide range of services from energy retrofits to renewable energy development.
Non-utility energy services
In June 2005, the GAO released a report, "Energy Savings: Performance Contracts Offer Benefits, But Vigilance Is Needed To Protect Government Interests." The Office of the Under Secretary of Defense for Technology, Acquisition, and Logistics agreed with the GAO findings. "While these complicated contracts are structured to ensure that savings will exceed costs," the DOD noted, "we recognize that our measurement and verification procedures must be improved to confirm estimates with actual data." Unverified savings, often stipulated rather than proven, do not put more oil in the ground, take CO2 out of the air or reduce operating budgets
The GAO ESPC study brings into question whether or not there is sufficient data to prove that the gains delivered by ESCOs are sustainable over time. The study further questions the practice of having ESCOs monitoring and validating the performance of their own projects.
In fact, most buildings and facilities exhibit the same basic limitations with respect to energy conservation and optimum maintenance. US Federal studies show that major and minor building systems routinely fail to meet performance expectations, and these faults often go unnoticed over time. The functions of a building, the number of tenants, and the configuration of the space change over time in unanticipated manners that adversely affect the systems that control building performance.
Surprisingly, almost all buildings, building complexes, and systems inside buildings still operate in a disconnected, stand-alone manner. Proprietary systems result in buildings that needlessly waste energy. Recent studies have found that roughly 30% of LEED certified buildings perform substantially better than anticipated, while 25% perform substantially worse than anticipated. In general, LEED certified buildings perform 25-30% better than non-LEED certified buildings with regards to energy use. It is ultimately difficult or impossible for customers to construct a single integrated picture that correlates energy usage and maintenance costs to control system performance, space usage, conservation measures, and the behavior of those using the facility space.
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