1. What is an ESCo?
2. How is an ESCo different from an Energy Auditor?
3. How is an ESCo different from an equipment vendor?
4. How is an ESCo different from an Engineering Consultant?
5. I have heard that ESCos bring in money for Energy Efficiency improvement projects. Is this the only reason why we should contract with an ESCo?
6. ESCos charge a mark-up on project costs. Why should we pay these costs?
7. We employ qualified engineers so why do we need an ESCo?
8. Will an ESCo put in its money in the Energy Efficiency project?
9. What is an ESCo’s stake in the EE projects implemented by it?
10. What financing means are available?
11. Is there any subsidy for Energy Efficiency projects?
12. Are there any tax benefits?
13. How much do I need to invest?
14. How do I get my returns and what is the risk?
15. What do I get from Energy Efficiency?
16. Do I need to devote my manpower?
17. Does ESCO bring in new technologies that I don’t know?
18. Do ESCOs have tie up with equipment vendors?
19. How much does this activity cost and what are the heads?
20. How are Savings monitored?

1. What is an ESCo?
ESCo is an abbreviation for Energy Services Company, sometimes also referred to as Energy Efficiency Services Company. ESCos generally act as project developers for a wide range of tasks and assume the technical and performance risk associated with the project. Typically, they offer the following services:

1. Develop, design, and finance energy efficiency projects;
2. Install and maintain the energy efficient equipment involved;
3. Measure, monitor, and verify the project's energy savings; and
4. Assume the risk that the project will save the amount of energy guaranteed.

These services are bundled into the project's cost and are repaid through the monetary savings generated.

ESCo projects are comprehensive, which means that the ESCo employs a wide array of cost-effective measures to achieve energy savings.

What sets ESCos apart from other firms that offer energy efficiency, like consulting firms and equipment contractors, is the concept of performance-based contracting. When an ESCo undertakes a project, the company's compensation, and often the project's financing, are directly linked to the amount of energy that is actually saved.

Briefly then, an ESCo is a company that provides comprehensive and integrated energy cost reduction services to its customers (mainly large energy users, but also utilities) on a guaranteed performance basis. An ESCo provides performance and savings guarantees, and its remuneration is directly linked to the measured energy savings achieved.

However, the clear distinction is that they do not implement and they do not assume performance risk.

However, ESCos bring in a number of other benefits to their customers, which should motivate you to contract with one.

1. Any person who is engaged to manage the project would be paid a salary. It might be argued that the person is already drawing a salary and entrusting him/her with the responsibility for the project would not result in any additional cost to the company. However, to the extent that this person is working on the project, he is not available for any other work, and either this work remains undone or has to be done by someone else: perhaps a person on some short-term contract! It does cost money to employ a person to manage the project.
2. Project management requires the use of infrastructure: office facilities, drawing and draughting facilities, computers, communication reference books, standard specifications etc. There is an investment as well as an operating cost to these facilities.
3. Project much have quality assurance and much managerial effort goes into managing schedules, co-ordinating the efforts of the numerous vendors and contractors engaged on the project, anticipating snags in the schedule and finding ways and means of avoiding them.
4. Similarly, considerable effort goes into managing project costs, and cash flows. An ESCo would provide these services but it costs them money to provide them, just as they would cost you. The mark-up is to recover these costs incurred. If the ESCo were to choose not to incur these costs, the indirect (and perhaps, even the direct costs) of the Energy Efficiency project would be much higher to you. Bear in mind that most ESCo project are retrofit projects, and good management is necessary to keep the indirect cost of lost production or non-available manufacturing time as low as possible. Good project managers with ESCos can often do this work very efficiently for you.

1. Engineers engaged in operations have primary responsibility towards production, maintenance or quality assurance. Energy efficiency improvement is quite often not even mentioned in their job-description. In-house teams often have to find time after doing their regular work to plan and develop measures for energy cost reduction. Such projects therefore, progress in fits and starts. An ESCo’s primary responsibility is to develop and to install energy cost reduction measures. Therefore, work assigned to an ESCo progresses quickly. Since their remuneration is linked to actual measured savings, they spend considerable time and effort in risk analysis and developing mechanisms to protect their projects from various risks. This homework pays off in the form of assured savings. Since ESCos enter into a long-term relationship with their customers, and their projects must save money during the enter course of their relationship, they typically build in reliability into their projects. This works to the benefit of the customer.
2. Engineering of systems and specifying equipment for a particular duty is a skill (like manufacturing engineering is) that has to be nurtured through training in persons who have the inclination for it. Good manufacturing or maintenance engineers often do not have the experience or training to be good at specifying equipment and configuring systems (though some exceptions are seen). ESCos employ engineers who are trained in this function, and therefore, are able to perform this function better.
3. Good project management is key to a well-implemented Energy Efficiency project, as most projects require the co-ordination between several different vendors and contractors.

1. Customer self-financing
2. Financing by bank or financing institution
3. Public Financing or bonds usually not applicable for Energy Efficiency projects.
4. ESCo or third party financing

Since ESCos are risk averse, they design their projects in a manner that they are free of technical and performance risks. Further, Energy Efficiency projects are completely free of market risks, as they aim to carve out savings from exiting cash outflows.

1. Plant working conditions are often improved.
2. Personnel and equipment safety is often better after an Energy Efficiency project.
3. Quality could be better because of better controls installed.
4. Throughput could be higher because of a reduction in constraints on the critical utility input to the process.
5. Very definitely, environmental conditions are improved, and there are reductions in emissions of GHGs (either directly or indirectly).

The broad under which, the cost are divided are:

1. Audit and project development
2. Project design and engineering
3. Project management
4. Measurement and verification