ESCO is a firm that provides solutions for achieving energy cost reductions, and whose overall compensation can be linked (in part or in full) to the performance of the implemented solutions. In that context, an ESCO can handle projects, mobilize financial resources (not necessary its own equity), offers turn-key services (either on its own or through collaborating with other market players) and assume performance risks.
Energy Performance Contracting (EPC) means a contractual arrangement between the beneficiary and the provider of an energy efficiency improvement measure, verified and monitored during the entire term of the contract, where investment in that measure is paid for in relation to a contractually agreed level of energy efficiency improvement or other agreed energy performance criteria, such as financial savings.
Thus, ESCO is related to the company offering energy efficiency services and EPC is the contractual model that governs the relationship between the ESCO and the client.
What are the advantages of an ESCO project?
Usually, the service offered by an ESCO integrates all energy services for all of the phases of the project through a single contract. Furthermore, the ESCO, grounding its benefits in energy savings, offers a guarantee of obtaining rational solutions consistent with the customer needs. Thus hiring an ESCO enables customers to renew their technology and improve competitiveness and productive assets.
Why and when it is interesting to negotiate with an ESCO?
The underlying logic of an ESCO model is to offer a solution whereby private contractors convert energy inefficiencies into future cash flows and energy-saving investments are repaid from savings resulting from the analysis.
EPC is highly recommended when the client needs to change its equipment and technologies to obtain gains in term of energy efficiency but the large up-front investments discourage this action.
An ESCO enables its client to outsource energy management activities that are usually not in the client core business
An ESCO focuses on the reduction of energy costs through best management practices, including M&V
Consequently, it is interesting to enter into negotiations with an ESCO whenever a high initial investment is needed since such an initial investment is minimized or eliminated by an ESCO. In the case where the ESCO provides funding for the implementation of projects, the borrowing capacity of the client will not be affected. The Client can then employ its financial resources for other needs.