ESCo

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An ESCO, the acronym for Energy Service Company, is a professional business providing designs and implementation of energy savings projects that allow building owners to perform projects to upgrade their building assets. The ESCO performs an in-depth analysis of the property, designs an energy efficient solution, installs the required elements, and maintains the system to ensure energy savings during the payback period^[1]. The savings in energy costs is often used to pay back the capital investment of the project over a five- to twenty-year period, or reinvested into the building to allow for capital upgrades that may otherwise be unfeasible. If the project does not provide returns on the investment, the ESCO is often responsible to pay the difference.^[2]

Contents 1 History 1.1 The beginning 1.2 The development 1.3 The industry today 2 How it Works 2.1 Developing a project 2.2 Choosing an ESCO 2.3 Utilizing the savings 3 ESCO 2.0 3.1 Retro-Commissioning 3.2 Independent Measurement and Verification 3.3 Key Components of ESCO 2.0 4 References 5 See also

[edit] History

[edit] The beginning

The energy savings business beginning can be accredited to the energy crisis of the late 1970’s, as entrepreneurs developed ways to combat the rise in energy cost. One of the earliest examples was a company in Texas, Time Energy, which introduced a device to automate the switching of lights and other equipment to regulate energy use. The primary cause the product did not initially sell was similar to issues faced by ESCO’s today: the doubt of savings actually materializing. To combat this doubt, the company decided to install the device upfront and ask for a percentage of the savings that was accumulated. The result was the basis for the ESCO model. Through this process, the company achieved higher sales and more return since the savings were large.^[3]

[edit] The development

As more entrepreneurs saw this market grow, more companies came into creation. The first wave of ESCOs were often small divisions of large energy companies or small, upstart, independent companies. However, after the energy crisis came to an end, the companies had little leverage on potential clients to perform energy-saving projects, given the lower cost of energy. This prevented the growth experienced in the late 1970s from continuing. The industry has grown relatively slowly since the 1970s, with only small spurts until energy prices again began to rise and predictions showed the potential for large rises in the future during the late 1990s.^[3]

[edit] The industry today

With the rising cost of energy, ESCO projects are becoming much more commonplace. The term ESCO has also become more widely known among potential clients looking to upgrade their building systems that are either outdated and need to be replaced, or for new buildings to be more energy efficient. The industry today has also become more competitive for this reason. Gone are the many small, independent companies, which have been replaced by utility companies or large energy conglomerates.

[edit] How it Works

[edit] Developing a project

The energy savings project often begins with the development of ideas that would generate energy savings, and in turn, cost savings. This task is usually the responsibility of the ESCO. The ESCO often approaches a potential client with a proposal of an energy savings project and a performance contract. This ESCO is said to “drive” the project. Once the owner is aware of the possibility of an energy savings project, he or she may chose to place it out for bid, or just stick with the original ESCO. During the initial period of research and investigation, an energy auditor from the ESCO tours the site and reviews the project’s systems to determine areas where cost savings are feasible, usually free of charge to the client. This is the energy audit, and the phase is often referred to as the feasibility study. A hypothesis of the potential project is developed by the client and the auditor, and then passed onto the ESCO’s engineering development team to expand upon and compile solutions to.

This next phase is referred to as the engineering and design phase, which further defines the project and can provide more firm cost estimates. The engineers are responsible for creating cost-effective measures to obtain the highest potential of energy savings.^[3] These measures can range from highly efficient lighting and heating/air conditioning upgrades, to more productive motors with variable speed drives and centralized energy management systems.^[1] There is a wide array of measures that can produce large energy savings.

Once the project has been developed and a performance contact signed, the construction or implementation phase begins. Following the completion of this phase, the monitoring and maintenance or measurement and verification (M & V) phase begins. This phase is the verification of the pre-construction calculations and is used to determine the actual cost savings. This phase is not always included in the performance contract. In fact, there are three options the owner must consider during the performance contract review.^[1] These options are, from least to most expensive:

• No warranty other than that provided on the equipment
• ESCO provided M & V to show the projected energy savings during the short term following completion
• ESCO provided M & V to show the projected energy savings during the entire payback period

[edit] Choosing an ESCO

Once the project has been defined, but before much of the engineering work has been completed, it may be necessary to choose an ESCO by putting the project “out to bid”. This is usually the case when the client has developed the project on his or her own or is required to allow others to bid on the work as required by the government. The latter is the case on any state or federally funded project. The typical process includes a Request for Qualification (RFQ) in which the interested ESCO’s submit their corporate resumes, business profiles, experience, and initial plan. Once received, the client creates a “short list” of 3-5 companies. This list is of the companies whose profile for the project best matches with the owners’ ideas in the RFQ. The client then asks for a Request for Proposal (RFP) that is a much more detailed explanation of the project. This document contains all cost savings measures, products, M & V plans, and the performance contract. The client often allows a minimum of six weeks to compile the information before having it submitted. Once submitted, the RFP’s are then reviewed by the client, who may conduct interviews with the applicants. The client then selects the ESCO that presents the best possible solution to the energy project, as determined by the client. A good ESCO will help the owner put all the pieces together from start to finish. According to the Energy Services Coalition,

“A qualified ESCO can help you put the pieces together:

• Identify and evaluate energy-saving opportunities;
• Develop engineering designs and specifications;
• Manage the project from design to installation to monitoring;
• Arrange for financing;
• Train your staff and provide ongoing maintenance services; and
• Guarantee that savings will cover all project costs.”^[2]

[edit] Utilizing the savings

Once the project is completed the immediate results of energy savings

(often between 15 and 35 percent), and the long term maintenance costs can be put towards the capital investment of upgrading the energy system.^[2] This is often how ESCO’s and performance contracts work. The initial implementation is done, in a sense, free of charge, with the payment coming from the percentage of the energy savings collected by a financing company or the ESCO. The client may also wish to use some capital investment money to lower that percentage during the payback period. The payback period can range from five to twenty years, depending on the negotiated contract. Most state or federally funded projects have a max payback of 15 years. Once the equipment and project have been paid for, the client may be entitled to the full amount of savings to use at their will. It is also common to see large capital improvements financed through energy savings projects. Upgrades to the mechanical/electrical system, new building envelope components, or even restorations and retrofits may be included in the contract even though they have no effect on the amount of energy savings. By utilizing the energy savings, the client may be able to put the funds once used to pay for energy towards the capital improvement that would otherwise be unfeasible with the currently allotted funding.

[edit] ESCO 2.0

In June of 2005, the GAO released a report, “Energy Savings: Performance Contracts Offer Benefits, But Vigilance Is Needed To Protect Government Interests.” The Office of the Under Secretary of Defense for Technology, Acquisition, and Logistics agreed with the GAO findings. “While these complicated contracts are structured to ensure that savings will exceed costs,” the DOD noted, “we recognize that our measurement and verification procedures must be improved to confirm estimates with actual data.” Unverified savings, often stipulated rather than proven, do not put more oil in the ground, take CO2 out of the air or reduce operating budgets

The GAO ESPC study brings into question whether or not there is sufficient data to prove that the gains delivered by ESCOs are sustainable over time. The study further questions the practice of having ESCOs monitoring and validating the performance of their own projects.

In fact, most buildings and facilities exhibit the same basic limitations with respect to energy conservation and optimum maintenance. US Federal studies show that major and minor building systems routinely fail to meet performance expectations, and these faults often go unnoticed over time. The functions of a building, the number of tenants, and the configuration of the space change over time in unanticipated manners that adversely affect the systems that control building performance.

Surprisingly, almost all buildings, building complexes, and systems inside buildings still operate in a disconnected, stand-alone manner. Proprietary systems result in buildings that needlesly waste energy. Recent studies have found that as many as 30% of LEED platinium buildings perform no beter than conventional buildings. It is ultimately difficult or impossible for customers to construct a single integrated picture that correlates energy usage and maintenance costs to control system performance, space usage, conservation measures, and the behavior of those using the facility space.

[edit] Retro-Commissioning

Studies show that virtually every building suffers from incompletely installed controls systems, excessive chilling and heating capacity, and an inability to obtain the data needed to let senior decision makers understand how a building is really performing. The National Institute of Standards and Technology (NIST) found that an average building lasts only two-thirds of its forecasted life before it needs to be replaced or substantially retrofitted. Often the explanation for this cluster of problems is incomplete or improper building commissioning at the beginning of the building’s life cycle. (Building commissioning is the start-up process by which every new building’s systems are initially configured and calibrated to its occupancy loads to get it up and running.)

According to NIST, the time needed to do building commissioning right is rarely available, defects and opportunities are overlooked, and system potential goes unrealized. Over time equipment performance and control sequences naturally degrade, and substandard performance or even failures of systems and components go unrecognized. The ultimate result is almost universal waste of various kinds, including substantial energy and maintenance cost.

[edit] Independent Measurement and Verification

Few, if any, of these factors are addressable by the Energy Services Companies or through ESPCs because the information needed to define the real problems is not captured. There is a clear need for integrated solutions that offer the kind of accountability and transparency — and plenty of the “actual data” — that is currently lacking in the ESPC process. What is needed in fact is an independent means of continuously monitoring performance so that buildings reach peak performance sooner and maintain peak performance over time (as represented by the yellow field in the figure) despite changes in use, maintenance, energy cost, and user behavior.

[edit] Key Components of ESCO 2.0

1) Real-time integration and visibility of building management systems, metering subsystems, and asset management applications. 2) Automated, real-time analysis and reporting of key performance indicators associated with subsystem operations, energy use, and equipment maintenance management. 3) Recommendations for results-oriented energy usage and maintenance program refinements that will enable energy reduction targets to be met or exceeded. 4) On-going monitoring of subsystems to continually expand energy conservation efforts and maintenance management improvements for further cost reductions. 5) Independent verification of ESCO and other Energy Conservation Measures (ECM) programs. US Federal reporting into OMB Scorecard

[edit] References

[edit] See also

Efficient energy use