THIS IS ADVANCED ENERGY: Energy Service Company (ESCO) Services

Posted by Caitlin Marquis on Sep 28, 2016 4:49:32 PM

This post is one in a series featuring the complete slate of advanced energy technologies outlined in the report This Is Advanced Energy. 


Image courtesy of AEE member Philips

Energy Service Companies (ESCOs) reduce customers’ energy use and costs by implementing comprehensive energy efficiency solutions. This typically involves retrofitting existing buildings with energy efficient equipment such as high-efficiency lighting, heating, ventilation, and air conditioning, and energy management and control systems. In addition, ESCOs often provide equipment and services related to onsite power generation, such as combined heat and power and distributed solar, and may also offer energy procurement services. ESCOs typically handle all aspects of a project, including financing, design, installation, maintenance, and monitoring. ESCOs pioneered the use of a business model called energy savings performance contracting or guaranteed energy savings contracting. With performance contracts, the energy cost savings are used to pay for the capital improvements of the project over time, with the ESCO assuming the risk. Performance contracts therefore eliminate one of the key barriers to energy efficiency deployment: raising capital.

ESCO services are widely used today, and the industry is growing at a steady pace. ESCOs currently serve mainly public and institutional customers, often called the MUSH market (municipalities, universities, schools, and hospitals). Together with the federal market, MUSH accounted for 84% of the ESCO market in 2011. These entities can take a long-term view on energy investments and operating savings, and can utilize ESCO financing for large projects, such as in Pennsylvania, where ESCO services have reduced energy consumption in state buildings by 18%. On a smaller scale, Johnson Controls worked with the public school system in Wyandotte, Michigan, to deliver $6.9 million in energy savings through the installation of new windows and HVAC systems as well as a building energy management system.

To ensure that the promised savings are achieved, ESCOs often install “extra” efficiency measures, resulting in savings beyond expectations. In fact, lifetime energy savings for federal performance contracting projects have achieved an estimated 174% to 197% of guaranteed savings, including significant cost reductions beyond the contract period. The Central Piedmont Community College in Charlotte, North Carolina, saved nearly $800,000 in the first two years of a performance contract with Trane, a subsidiary of Ingersoll Rand, exceeding contracted savings by 11% and 19% in years one and two, respectively. Nationally, Lawrence Berkeley National Lab estimates that ESCOs delivered 34 TWh of electricity savings in 2012, equal to approximately 2.5% of commercial electricity retail sales. Along with energy savings, since 1990, ESCOs have delivered an estimated $30 billion in infrastructure investments and 425,000 person-years of employment. Up 7% from 2013, the U.S. ESCO market produced approximately $4.7 billion in revenue in 2014, including ESCO-installed HVAC equipment. With an estimated 17 billion square feet of “ESCO-addressable” building space in the United States, the entire ESCO market is expected to double or triple in revenue by 2020.

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Topics: This Is Advanced Energy