What is ESCO?

ESCO stands for Energy Service COmpany.

An energy service company (ESCO) is a company that provides comprehensive energy solutions to its customers, including auditing, redesigning, automating and implementing changes to the ways the customer consumes energy, the main goal being improved efficiency & reduced maintenance.

Energy Service Companies have now started investing in energy saving projects and such projects are now called ESCO projects. Other possible services provided by ESCO may include energy infrastructure outsourcing, energy supply, financing and risk management.

Typically compensation to the ESCO is performance based so that the benefits of improved energy efficiency and saving from reduced maintenance are shared between the client and the ESCO. ESCOs recover their investment by taking monetary share of monetary savings due to energy efficiency and reduced maintenance cost for certain period called payback period.

Costs to ESCO:

ESCOs considers following costs while deciding payback period
  • Audit of energy, maintenance and other costs before and after energy saving measures
  • Investment
  • Interest
  • Maintenance Cost
  • Risk Cost
  • Profit
  • Taxes

Typical Conditions of ESCO

  • Base line of expenses
  • How to measure saving.
  • Sharing pattern - total expenses
  • Payment security
  • Performance parameters - maintained
  • Fine structure for non performance
  • Insurance or some provision to cover breakage / theft
  • Expansion / additional installations