Energy-Service Company

Energy-Service Company

Energy-Service Company (ESC) is a type of for-profit business specializing in providing energy services, especially, energy savings to its clients. Recent focus on energy conservation has induced rapid growth in ESCs: according to an industry group, revenues of ESCs in the U.S. grew by 22% in 2006, reaching $3.6 billion.

A typical transaction involves the ESC borrowing cash to purchase equipment or to implement energy-savings for its clients. The client pays the ESC its regular energy cost (or a large fraction of it), but the energy savings enable the ESC to pay only a fraction of that to their energy supplier. The difference goes to pay the interest on the loan and to profit. Typically, ESCs are able to implement and finance the efficiency improvements better than their client company could by itself.

Currently, most of the business of ESC is with governments and large corporations. Transaction costs prevent ESCs from working with homeowners.

References

* Review in The Economist, retrieved May 12, 2008 [http://www.economist.com/displaystory.cfm?story_id=11326549]
* NAESCO: National Association of Energy Service Companies [http://www.naesco.org/]


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