What is ESCO financing?

Answer by Dale Blundell (Atkins)

The delivery vehicle for investment and governance for the implementation of CHP systems can take various forms:

The simplest contractual option is to own and operate the CHP using self-funding, where the business takes on the full risk of the project.  Alternatively, the Company could own the asset and sub-contract out the operation and maintenance, passing on the operational risk. 

Some dedicated CHP suppliers offer energy purchase schemes where they will design, specify, install, own and operate the CHP at their cost, and then sell the power, or heat (or both) to the customer under preferential terms. The customer is then able to benefit from CHP whilst avoiding any financial outlay and risk.  A performance contract would be put in place to ensure that the provider delivers to specific operational and performance criteria, and which commits the customer to a long term contract that will specify the minimum amount of energy to be delivered by the CHP.

An alternative delivery vehicle would be through an ESCo  (Energy Savings Company), that provides various solutions for achieving cost / carbon reductions.  The basis of the contract might include fixed service charges, revenue from sale of energy and shared savings in energy efficiency measures implemented. The advantages of an ESCo include:

  • Multiple projects can be dealt with by a single ESCo offering a single contract, reducing the administrative burden.
  • The ESCo can mobilise / provide capital investment
  • Provision of turnkey services and taking on operational & performance risk,
  • Compensation for failure to meet the standards as defined in a service level agreement and related specific performance KPI’s (Key Performance Indicators).



See also our FAQ on ESCO’s and EPC