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ESCO business model: Key points.

Modelo ESCO publicado en ESCOs, Myth and Reality: Negotiation misunderstandings when outsourcing energy efficiency

ESCO business model: Key points.

We found the key points of the ESCO business model in a research report that the british “Department of Energy and Climate Change”, DECC, commissioned to Carbon Trust and SPA Future Thinking.

Exploring the design of policies to increase efficiency of electricity use within the industrial and commercial sectors”,dated in November 2012, had to build an evidence base on a system of incentives to stimulate efficiency solutions in the ESCO business environment.

That happens because the Department of Energy and Climate Change pushes the project Electricity Demand Reduction, EDR. This  project aims to ensure the effectiveness of efficiency measures and that potential energy and cost savings are actually realised.

Two key points in the ESCO Business Model

The researchers interviewed end users and ESCOs. Opinions revealed that there´s not unanimity about the best payback period, but, on the other hand, there´s consensus about two key points in this business model:

  • Trust in ESCO model. Literally:
    • End users: ‘No upfront cost’ offer is ‘too good to be true’
    • ESCOs : “The biggest barrier for ESCOs is selling and getting the concept accepted”
  • Efficiency project size. A single large project is easier to finance than a lot of small projects.
    • “If [the banks are] going to lend you something, they want to lend you £1m shall we say rather than £10,000.”

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