ESCO

An Energy Service Company (ESCO) is a firm that develops, finances, installs, and maintains energy efficiency projects for facilities and guarantees the resulting energy savings. ESCOs typically operate under an energy performance contract (EPC) with a client such as a government agency, school district, hospital, or large business. In an EPC, the ESCO’s compensation is tied to the verified energy savings, allowing projects to be funded with little or no upfront capital by the client; the savings are used to repay the project over time, and in many contracts the customer pays only from the realized savings. If savings are not realized, the ESCO bears some risk depending on the contract terms.

Services commonly include energy audits, feasibility studies, design and engineering, procurement, installation, and commissioning of energy‑efficient equipment and controls (lighting, HVAC, building envelope, motors, pumps), and ongoing operation and maintenance. Financing arrangements vary, including guaranteed savings, shared savings, or other performance‑based models.

Measurement and verification (M&V) is a central aspect, with procedures often aligned to IPMVP or similar protocols to quantify and verify savings. Projects aim to reduce electricity and fuel consumption, peak demand, and greenhouse gas emissions.

The ESCO model emerged in the United States in the 1980s and has since been adopted worldwide, supported by public procurement rules, energy‑efficiency programs, and robust M&V practices. Critics caution about contract complexity and the importance of credible baselines. ESCOs operate in public, commercial, and industrial markets, serving as a principal channel for financing and delivering energy efficiency upgrades.