Scaling up energy efficiency: the case for a Super ESCO

Abstract

In developing countries the implementation of energy efficiency projects has fallen far short of the potential due to a number of institutional and financial barriers. The concept of energy performance contracting (EPC) implemented by energy service companies (ESCOs) has been recognized as a mechanism to overcome some of these barriers. However, despite the fact that the potential for application of performance contracting in developing nations is enormous, the growth of the ESCO industry has been rather slow. In particular, EPC and ESCOs have played a very limited role in implementation of energy efficiency projects in the public sector. This paper identifies barriers to the development of a viable ESCO industry in developing countries and identifies the need for and the potential role of a “Super ESCO” as a means of facilitating large-scale implementation of energy efficiency projects. While there are different definitions of the term Super ESCO, this paper refers to a Super ESCO as an entity that is established by the Government and functions as an ESCO for implementing projects in public facilities and supports capacity building and project development activities of existing private ESCOs. The Government capitalizes the Super ESCO with sufficient funds to undertake public sector performance contracting projects and to leverage commercial financing. The Super ESCO may also act as a financing or leasing organization to provide private ESCOs and/or customers financing for EE projects or leasing for EE equipment. The paper identifies examples of existing and proposed Super ESCOs in developing countries and defines how Super ESCOs may address some of the barriers to large-scale implementation.