An ESCO is a company that offers energy services which may include implementing energy-efficiency projects (and also renewable energy projects) and in many case on a turn-key basis. The three main characteristics of an ESCO are:
- ESCOs guarantee energy savings and/or provision of the same level of energy service at lower cost. A performance guarantee can take several forms. It can revolve around the actual flow of energy savings from a project, can stipulate that the energy savings will be sufficient to repay monthly debt service costs, or that the same level of energy service is provided for less money.
- The remuneration of ESCOs is directly tied to the energy savings achieved;
- ESCOs can finance, or assist in arranging financing for the operation of an energy system by providing a savings guarantee.
Therefore ESCOs accept some degree of risk for the achievement of improved energy efficiency in a user’s facility and have their payment for the services delivered based (either in whole or at least in part) on the achievement of those energy efficiency improvements.