(i) BEE initiated empanelment of ESCOs since a decade ago to assist Project Facility’s Owners in implementing energy efficiency projects in their existing facilities. In order to create a sense of credibility among the prospective agencies that are likely to secure the services of an ESCO as well as the financial institutions, BEE has undertaken a process of rating the ESCOs in terms of their capacity and experience in the implementation of energy efficiency projects based on performance contracting, availability of technical manpower, financial strength, etc. The rating exercise was done through SEBI accredited agencies viz. CARE, CRISIL and ICRA. The results of the exercise are being made available in public domain and to the various State Governments/SDAs, so as to facilitate them in implementing EE programs in their respective states. 

(ii) BEE is also carrying out capacity building of ESCOs in technical and financial aspects to promote uptake of Energy Efficiency Projects in India.

ESCOs provide their services under Energy Savings Performance Contract (ESPC) model. There are few variants of the ESPC model as described below: -

i) Shared savings model: - 

Energy Savings Performance Contracting (ESPC) approach is implemented on turnkey basis by energy service providers. ESCO services include energy audit and determination of baseline energy consumption following which the projects are identified for execution as per mutual agreement between the ESCO and the Facility’s Owner. ESCO thereafter undertakes design, engineering, installation/construction, commissioning, and measurement & verification of energy savings post commissioning.  In certain cases, and subject to the comfort of the ESCO and the Facility Owner, ESCOs also undertake operations and maintenance, providing/ arranging financing and training and training of O&M staff of Facility’s Owner for sustaining the energy savings post completion of the contract period. The key criteria here are to share the value of the energy savings, and this is what constitutes the revenue stream for the ESCOs. The Facility’s Owner gets to retain all the savings beyond the contract period. However, the Facility’s Owners are obligated to provide some security of cash flow to the ESCO, which is provided either through an Escrow or Trust and Retention Account (TRA) account. 

ii) Guaranteed savings model: - 

The basic model is the same as in case of shared savings model except that financing of the project is provided by the Facility’s Owner. ESCOs implementing the projects offer a guarantee in energy savings, and these translate to cost savings. The Facility’s Owner pays ESCO a sum agreed upon, based on the service being provided, linked to the guaranteed energy savings from the energy efficiency project. If savings are lower than the guarantee, the ESCO pays the difference. If the savings are higher, the ESCO may get (but not entitled to) a bonus payment. The M&V protocol and terms of payment to the ESCO will be specified in ESPC. In this model, Facility’s Owners may mobilize margin money for the debt and the Financial Institution (FI) will lend debt to the ESCO. The Facility’s Owner then provides for loan repayments and interest to the FI from its savings. 

iii). Deemed savings model: - 

Similar to the shared savings model, ESPC will be executed between the ESCO and Facility’s Owner with a fixed price for services provided and financial agreement will be executed between the ESCO and FI for debt. The former will make loan repayments and interest from Facility’s Owner and utility/government payments. The ESCO will execute the agreement between itself and the government or utility, for which it receives payments based on deemed savings. The fixed price (annuity) is determined on the basis of demonstration of energy savings on sample basis due to replacement of an inefficient device by the more efficient device and calculating the savings by multiplying the demonstrated reduction in power (KW) with the normative annual usage hours and the prevalent tariff at the time of execution of the project. This model helps in simplifying the contracting arrangement as it would not be necessary to develop complex baseline and M&V protocol. 

iv) Outsourced energy model 

This model is also known as energy supply contracting. An agreement will be executed between the ESCO and Facility’s Owner facility under which the former takes over operation and maintenance of the energy using equipment in the Facility’s Owner facility. The ESCO pays for equipment upgrades, repairs, and related expenses and sells the energy output, such as steam, heating, cooling, and lighting, to the Facility’s Owner under a long-term contract at an agreed price. The ownership of equipment ultimately remains with the ESCO (build-own-operate model) or is transferred to the Facility’s Owner (build-own-operate-transfer model).

The typical steps for an ESCO to develop, fund and implement an EEP under the ESPC model is shown in below table: -