How does an ESCO Operate
ESCOs or energy service companies are comprise of engineers and energy experts that consult with other companies and help them reduce their energy consumption. They do so by analyzing the company’s energy requirements and operational processes and then engineering customized solutions and technologies for use. They also provide financial support to consumers who wish to switch to renewable energy sources or better energy plans.
There are two basic functions of an ESCO:
- Efficient use and distribution of energy.
- Selling power on the market.
- Providing energy solutions to consumers.
The deregulation of the power sector has led to private firms gaining the ability to manage and sell electricity. ESCOs can thus independently sell electricity to any consumer. Billing services and customer support are critical parts of the ESCO business model.
How ESCOs sell electricity
Energy service companies basically buy electricity from the open markets. It then sells the power to utility groups and distribution chains. They buy power from the ESCOs and the rights of power transmission. Subsequently, they transmit the power to consumers via the grid, a process which is known as wheeling. The ESCOs profit from the sale of power whereas utility companies charge their consumers for transmission costs. Switching to ESCOs instead of packing together power generation and distribution saves costs as transmission is usually tax-free and only the power generation is taxed. Whereas if bundled together, the entire cost to the consumer of the package would be taxable.
How ESCOs offer power-saving solutions
Most ESCOs follow a few basic steps while working with other companies. Their primary objective is to reduce power usage in a manner that is reflected in the earnings of the company. Their range of services includes consultations, facility and equipment planning, process planning, installation of energy efficient devices and training of staff in best practices of energy consumption. An outline of their working practice is described below.
- Preliminary observation and analysis- Professionals from ESCOs first visit the premises of the company and carryout an audit. This includes understanding the goals and needs of the company, their energy requirements, working schedules and the list of equipment in use. This preliminary analysis is vital in understanding the exact energy requirements of the company.
- Development of plans and proposal- After understanding the company’s operation and energy needs, the ESCO can then model energy usage plans and identify locations of possible energy efficient devices. The plan can also include changes in operation and equipment. All the details regarding the new system is submitted in the form of a proposal for approval.
- Facility installation and performance test- After the plan and budget has been approved, the ESCO can then guide the company in adopting the necessary changes in management processes and operations along with supplying newer technologies. Subsequently, performance tests are carried out of the proposed changes in order to ensure operational efficiency along with actual power savings. The systems are periodically analyzed and continuous customer support is provided throughout the operation.