FINANCIAL MODEL OF AN ENERGY SAVINGS PROJECT FOR ENERGY SERVICES COMPANY (ESCO)

Abstract

Economic development of any nation is heavily linked with its per capita energy consumption levels rather we can say that per capita energy consumption is greatly indicates wellbeing of human life. This is very much evident in the developed economies in Europe and North America. With the intent to develop the lives of their citizens and its people, most of the under developed nations in Asia, Africa and South America are going for economic developments. A consistent increase in the demand for energy has caused a significant exploitation of fossil fuels which has adversely impacted the environment. To “meet the needs of present generations without compromising the ability of future generations to meet their needs” (Our Common Future, Brundtland Report, 1987) has become one of the greatest challenge to the mankind. “One unit of energy saved at the consumer end evades 2.5-3 times fresh capacity addition. Moreover, such savings via the efficient use of energy can be achieved at less than one-fifth of the cost of new capacity generation”[7]. “Energy efficiency is key to the transformation of energy systems and, it is estimated, will play a critical role in limiting the growth of world energy demand to one third by 2040” [1]. Energy Efficiency can helps , for example, help bring down the cost of lighting, heating, refrigeration and other services as we get the same performance with energy efficient system while reducing our energy expenditure. Moreover energy efficiency helps reduce pollution and greenhouse gas emissions also by a substantial amount.

“Enhanced energy efficiency offers a unique opportunity to reconcile economic competitiveness with sustainable development, and simultaneously reduces the cost of energy and increases productivity. Improvements in residential and public sectors, for example, have delivered a wide range of social, environmental and economic benefits, including energy security, job creation, poverty alleviation, improved health, and reduced greenhouse gas emission”[8]. v India Government is providing incentives for usage of non-conventional energy sources besides mandating the businesses to reduce their energy consumption per unit production on year on year basis. This has led to increasing focus of corporates/ other organizations to reduce their energy usage. With newer and efficient technologies besides modifications in the process/ layout, it is possible to reduce the energy consumption without impacting the overall process. A newer business line of energy services has developed wherein the projects are fully or partially funded from the savings achieved after implementation of the project.

“Energy Service Companies (ESCOs) is a company that offers energy services, usually design, retrofitting and implementation of energy efficiency projects after identifying energy saving opportunities through energy audit of existing facilities. It also includes energy infrastructure outsourcing, power generation and energy supply, financing or assist Facility’s Owners in arranging finances for energy efficiency projects. ESCOs operates by providing a savings guarantee, risk management in the implementation of the energy efficiency projects and also perform measurement & verification (M&V) activities to quantify actual energy savings post implementation of energy efficiency projects etc “[2]. A financial model covering some of the aspects of such a project have been developed. This is an extension of the work taken up in the last semester and more aspects will be added in future work.