1. WHERE THE ESP INDUSTRY MEETS THE FUTURE

2. Creating a Robust ESP Industry The US Experience
Donald Gilligan
NAESCO

3. Phases of US ESP Market Development
Pre-1985: US Energy Efficiency Industry, pre-1985
: Early Performance Contracting
: Evolution of the ESCO Model
: Setbacks
2006-present: Growth and competition

4. US Energy Efficiency Industry, pre-1985
Federal government mandates utilities to provide energy conservation
Business model: ESPs provide services
Energy audits, arranging contracting, etc.
Finance model: fee for service
Utilities pay ESPs for services
Negotiated fee per audit
M&V model
Services delivered, not energy savings

5. Growth of US ESCO Industry
Source:
Lawrence Berkeley National Laboratory

6. 1985-95: Early Performance Contracting
Utility regulators make EE into utility resource plans
Utilities solicit bids for “energy efficiency power plants”
Utilities pay % of project costs -- cheaper than power plants
Utilities pay for kWh delivered -- emulate utility metering
Business model -- ESPs become ESCOs
Assemble turnkey service offerings
Finance model -- shared savings – ESCOs provide capital
M&V Model -- ESCO-proprietary spreadsheets

7. Shared Savings Financing
ESCO finances project & assumes debt obligation on balance sheet
ESCO assumes project performance risk and credit risk
ESCO assumes credit risk, because it relies on the customer passing on savings to repay the loan
Easy start, because of the high utility incentives

8. 1985-95: Early Performance Contracting
NAESCO established as a national organization
Most ESCOs are small, entrepreneurial companies
Several major controls companies have ESCO subsidiaries
Honeywell
Johnson Controls

9. 1995-2000: Evolution of the ESCO Model
ESCOs could not expand meet the market demand
Federal government implemented large projects
Utility companies purchased entrepreneurial ESCOs
New Finance Model
Guaranteed savings replaces shared savings
Financiers and customers need transparent M&V Model
NAESCO, ASHRAE, US DOE created IPMVP
Industry threatened by bad actors – exaggerated savings
NAESCO starts accreditation program

10. Guaranteed Savings Financing
Customer finances project & assumes debt obligation on balance sheet
ESCO assumes project performance risk & guarantees that savings will be sufficient to cover customer’s annual debt obligation
Lender assumes credit risk

11. 2000-2005: Setbacks Utilities decide they don’t like ESCO business
Enron collapse poisons market for large industrial customers
Federal government downgrades energy efficiency to a “moral virtue”
Federal performance contracting legislation expires
NAESCO loses members
NAESCO accreditation becomes well established
More states and local governments accept credential

12. 2006-present: Growth and Competition
ESCOs focus on public buildings
Driven by federal and state energy savings mandates
Facilities pay for capital improvements with energy savings
M&V less rigorous – increasing use of non energy benefits
ESCOs add new services – distributed generation, renewables, etc.
Utility spending on efficiency continues to grow
Regulators see energy efficiency as the cheapest resource
New ESCOs started -- NAESCO ESCO membership doubles
Accreditation program streamlined
Competition from contractors limits ESCO growth

13. Questions? Donald Gilligan dgilligan@naesco.org