Session 9 is devoted to Energy Services Companies (ESCOs). First, it introduces the Energy Performance Certificates concept and EPC contractual approaches. Then, it presents the need for measurement and verifications (M&V). It presents different ESCOs models: the utility-based ESCOs with the cases of Croatia and Uruguay; the Governement-based ESCO with the case of India; the private sector ESCO with the case of China. It concludes with the examples of institutional development schemes in Tunisia and Ivory Coast.

1. Energy Performance Contracting
Energy Services Companies (ESCO)
Webinar 5 April 2012
Pierre Langlois
President - Econoler
Course on Regulation and Sustainable Energy in Developing Countries –
Session 9
www.leonardo-energy.org/course-regulation-and-sustainable-energy-
developing-countries
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2. Energy Performance Contracting
Energy Services Companies (ESCO)
By Pierre Langlois
President
Econoler
Webinar April 5, 2012
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3. PRESENTATION STRUCTURE
1. EE benefits and barriers
2. The EPC concept
3. EPC contractual approaches
4. EPC financing structures
5. Measurement and verification
6. ESCO: different models and examples
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4. 1. EE PROJECTS
BENEFITS AND BARRIERS
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5. END USER BENEFITS
› Lower operational costs
› Optimization of equipment operation
› New and modern equipment (increased value)
› Improved competitiveness
› Improved product quality
› Higher comfort level
› Green image
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6. BARRIERS
Awareness
Knowledge
Lack of capacity
Lack of confidence in project results
and
Financing
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7. 2. ENERGY PERFORMANCE CONTRACTING
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8. ENERGY PERFORMANCE CONTRACTING
A contractual arrangement between a
beneficiary and a provider (called an Energy
Service Company) for the implementation of an
EE project, where the global investments have
to be paid for through a contractually agreed
level of energy cost reduction.
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9. ENERGY SERVICE COMPANY
A firm that provides integrated solutions
for enhanced energy cost reductions
and whose payments are directly linked
to project performance.
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10. THE EPC APPROACH
Contractors
Client
Equipment
manufac-
turers
Governments
Financial
ESCO institutions
Guarantee
•Analysis Professional
•Concept consulting
•Installation engineer
•Financing Energy
•Monitoring Suppliers
•Training
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11. THE SKILLS OF AN ESCO
Development Technical
Sales IGA
Marketing Engineering
M&V
Financial Project Construction
Direct financing Management
or arrangements Management or execution
Legal Risk Management
Contracts For guarantee of savings
Local regulations and for cost and delay
control
Training and Operation &
Management Maintenance
Support (Occasionally)
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12. Figure 1: Overview of Comprehensive Project Service Sales Process (continued)
ESCO Customer provides
establishes Preliminary survey and energy bills and
preliminary scope walk-through of customer operating cost data
and budget for facility
potential project
ESCO Verification of energy
understands
and validates savings methodology,
customer procurement process, customer Customer verifies
concerns and spending categories and ESCO findings
issues as well as
other project financial needs
parameters
ESCO creates
proposal summarizing
all info from previous Preliminary proposal Customer reviews
step; preliminary
budget estimates
used
ESCO signs Letter of Intent (LOI) Customer signs
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13. Figure 1: Overview of Comprehensive Project Service Sales Process (continued)
ESCO finalizes
all project
parameters incl.:
ops, energy, & cap
(if any);
financing; Conduct
implementation detailed engineering study, ; Customer reviews
schedule; contract initiate contract and preliminary
development starts start financing discussions contract
ESCO conducts
a complete
review of job Risk review
estimates and risks;
contract finalized
ESCO prepares
presentation with Customer reviews
final project Proposal presentation contract and
parameters financing
and benefit
statements
Energy Service
ESCO signs Agreement (ESA) Customer signs
Project
implementation
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14. 3. EPC Contractual Approaches
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15. Guaranteed Savings Concept
Achieved energy savings Client retains 100%
of savings
Bank loan to Client pays ESCO during
client which implementation
provides Client
guarantees
Client
BANK reimburses
loan directly ESCO reimburses for
to the bank underperformance of ESCO
the project
Financial institution
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16. Shared Savings Concept
ESCO
Client
Financial
institution
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17. “Chauffage” Concept
ESCO supplies ESCO implements
energy from project and owns the
facility energy facility
Typically pays 10% -
30% equity share
Customer
pays ESCO ESCO
for energy Energy Bank lends 70% -
Customer 90% of project
facility
costs to ESCO
ESCO is the
borrower
BANK
ESCO assigns receivables from customer
directly to bank (sometimes pays via bank)
Lending
Loan is usually secured with energy assets institution
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18. CURRENT USE OF THE CONCEPTS
The more the country is developed
Guaranteed savings
The less the country is developed
Shared savings
It should actually be the reversed
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19. EPC AROUND THE WORLD
More used around the world
Greatly underdeveloped world wide
Important barriers in the public sector du to
procurement issues
No good information
on the market size available
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20. EPC AROUND THE WORLD
Concept is expending in many countries
North America still the biggest market
EPC is used in many different forms
Europe will use more EPC base on the
current CC objectives and regulations (EC
directives)
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21. 4. MEASUREMENT AND VERIFICATION
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22. A NATIONAL BASELINE
1,000,000
Baseline + Adjustments
750,000
Energy
500,000
Savings
Baseline Period Reporting Period
250,000
Metered Energy
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23. INTERNATIONAL PERFORMANCE
MEASUREMENT AND VERIFICATION PROTOCOL
› The most known protocol on M&V
› Produced and disseminated by the Efficiency
Value Organization
› Can be downloaded for free from EVO
www.evo-world.org
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24. 5. ESCO: Different Models
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25. ESCO: DIFFERENT MODELS
› Utility-based ESCO (the cases of Croatia and
Uruguay)
› Government-based ESCO (the case of India)
› Private sector ESCO (the case of China)
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26. ESCO: UTILITY BASED ESCO
› Utility-based ESCO (the cases of Croatia and
Uruguay)
› Owned by Utility
› Targeted sectors: all sectors but mainly focusing on
government facilities and institutions (schools, offices,
universities, hospitals, industries, etc)
› Maximum payback period : Variable, Private 5
years, Public 8 years(Croatia)
› Project’s range: USD 100,000 to 2 Million (Croatia)
› Utility financing:
› Croatia : 7 million
› Uruguay: 7.1 million
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27. ESCO: UTILITY BASED ESCO
› Advantages
› Client data base available
› Available financing source
› Easy access to clients
› Client trust utility
› Access to all sectors especially government
› Disadvantages:
› Not flexible and could not follow the fast changes
as it is a part of big system
› Difficulties to stimulate staff
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28. ESCO: GOVERNMENT BASED ESCO
› Government-based ESCO (EESL: the case of
India)
› Established by Government to facilitate
implementation of energy efficiency projects
› Targeted sectors: Demand Side Measures
including municipal functions, agriculture,
public building, lighting etc.
› EESL work as ESCO, as Consultancy
Organization for CDM, as a Resource Centre
for capacity building of State Designated
Agencies, Utilities, financial institutions, etc.
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29. ESCO: GOVERNMENT BASED ESCO
› Advantages
› facilitate preparation of energy efficiency projects
› Partner with private ESCO’s and other companies
to promote energy efficiency.
› Assists and help for project financing
› Capacity development and activities support to
potential ESCOs in the market
› Disadvantages:
› Longer delay for project development and
implementation
› Rigid procedure
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30. ESCO: PRIVATE SECTOR ESCO
› Private sector ESCO (the case of China)
› Owned by private companies: vendors of energy-
efficient equipment or subsidiaries, companies with
innovative proprietary technology, companies with
special skills in diagnosis of energy efficiency. Some
ESCOs have evolved from local energy conservation
technical centers, etc
› Targeted sectors: industrial enterprises are the
dominant clients with building sector and commercial
› Payback period : The focus on commercial clients
has helped lead to a fast-paced business centering on
projects which can conclude within three years or less
› Number: registered ESCOs in China reached over
900 by the end of 2010
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31. ESCO: PRIVATE SECTOR ESCO
› Advantages
› Very flexible EPC following client criteria
› Ability to develop and adjust to a win-win
approach
› Full services project or focus on a single
technology or system renovation
› Disadvantages:
› Required important fianancial capacity
› Limited access to gouvernement facilities
› Limited support form governemental institutions
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32. 6. EPC: Public procurement
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33. PUBLIC PROCUREMENT FOR EPC
Although EPC may be well suited to
address the challenges of improving public
sector energy efficiency, rigid administrative
systems are quite poorly suited to efficient
procurement of energy services
Helping public agencies manage the EPC
process is a difficult task
Solutions must be country specific
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34. PUBLIC PROCUREMENT FOR EPC
A COMPLEX ISSUE
HTTP://www.esmap.org/filez/news/72720091058
11_P2E2_presentation_REV_3.pdf
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35. 7. Conclusion
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36. CONCLUSION:
IS EPC IS THE SOLUTION FOR EE?
Limitation of the concept
› Size is an issue
› Credit risk in the private sector is a limitation
Focused Markets
› Public sector has always been the favorite
› Limited use in the industrial sector
Case studies
› Successes: Canada, China, Croatia, Germany
› Failures: Egypt, Tunisia, Poland
› Mixed successes: Brazil, India
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37. THANK YOU
Pierre Langlois
President
Econoler
planglois@econoler.com
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