Most businesses recognise the potential benefit of reducing their energy use and expenditure by improving the energy efficiency of their operations. However, for some, finding the upfront capital needed to pay for such upgrades can be a challenge.
One tried and tested solution is the ‘ESCO model’, which allows businesses to have upgrades carried out for little or no cost. This investor-funded route can remove the financial barrier faced by many organisations. Sound too good to be true? Well here we’re going to look in greater detail at how it works.
What is the ESCO model?
The ESCO model, while still considered a relatively new concept in the UK, is already well-established in the US and Europe, and its popularity is growing across Asia. The model was first developed in America and the country continues to lead the way when it comes to the ESCO market.
For businesses and local authorities, it is an effective way to upgrade the energy efficiency of properties and assets, without the need to allocate precious funds.
How does the ESCO model work?
The ESCO model works by first examining the current energy use of an organisation and its operations, before then assessing which combination of energy efficiency measures and upgrades could be implemented to bring the greatest benefit.
The model looks at the entire operations of an organisation – whether that’s one building or a group of properties split across multiple locations – and covers everything from offices to housing stock, car parks and other facilities.
After seeing how energy is currently being used, calculations are then made to assess the feasibility of potential energy efficiency upgrades, including costs, savings and potential payback periods.
The measures implemented can cover a broad range of services and technologies, including upgrades to infrastructure, such as lighting, insulation and environmental controls, through to
the installation of onsite co-generation facilities.
Common measures and upgrades seen within commercial properties, include: solar PV, energy storage, biomass, LED lighting and intelligent lighting controls, building management systems and voltage optimisation.
Through the ESCO model, measures are installed at little or no upfront cost. For organisations of all sizes, the model can be a gamechanger, enabling them to reduce their energy bills and carbon emissions, while improving the efficiency of corporate buildings and housing stock, replacing end of life assets and reducing maintenance costs – all without the need for upfront capital.
At the heart of the ESCO model are renewables investors, who will fund the upgrades and recoup their investment by sharing a percentage of the savings generated on energy bills.
Developments in the ESCO market mean there are now even greater incentives for investors, such as the introduction of specialist insurance policies. If a project does not generate the promised return on investment, then an insurance policy can be put in place to ensure that any shortfall is covered for investors, acting as an asset performance guarantee.
By guaranteeing the energy savings estimated, an insurance policy gives investors even greater confidence that their investment will be protected.
One thing is clear, the UK is finally catching up with the rest of the world and seeing the full benefit of the ESCO model, as a workable and financially beneficial model for energy efficiency.