Energy services

Energy services play a crucial role in facilitating the implementation of energy efficiency measures by providing expertise, financing, and solutions to improve energy performance across various sectors. The primary goal is to enhance energy efficiency, provide technical expertise, facilitate financing, and support policy compliance. By delivering services that identify and implement energy-saving measures, offering specialized knowledge, making investments more accessible, and ensuring regulatory compliance, energy services significantly contribute to achieving the EU’s energy efficiency and climate objectives. Key methodologies include energy performance contracting, detailed audits, comprehensive project management, innovative financing solutions, ongoing maintenance and optimization, capacity building, and continuous monitoring and verification. This comprehensive approach ensures that energy services are integral to driving significant improvements in energy efficiency and sustainability.

Terms and definitions

Given the broad variety of actions that can be part of any category of services, for a better understanding of the specificities of EPC, it is necessary to define the general notions first. This document uses the following main notions and their respective definitions:

• Energy service – the physical benefit, utility or good derived from a combination of energy with energy-efficient technology and/or with action, which may include the operations, maintenance and control necessary to deliver the service, which is delivered on the basis of a contract and in normal circumstances has proven to lead to verifiable and measurable or estimable energy efficiency improvement and/or primary energy savings
• Energy Efficiency Services – the terms energy services and energy efficiency services are mostly used interchangeably; a distinction can be made to highlight the specific focus on energy efficiency of the latter
• Energy Services Company (ESCO) – there is a difference between the interpretation of what is entailed by ESCO in the Energy Services Directive and the Energy Efficiency Directive. They describe an ESCO as follows:

The Energy Services Directive 2006/32/EC describes an ESCO as a natural or legal person that delivers energy services and/or other energy efficiency improvement measures in a user’s facility or premises and accepts some degree of financial risk in so doing. It stresses that the payment for the services delivered is based (either wholly or in part) on the achievement of energy efficiency improvements and on the meeting of the other agreed performance criteria

The Energy Efficiency Directive 2012/27/EC describes an ESCO as any natural or legal person delivering energy services and/or other energy efficiency improvement measures in a final customer’s facility or premises

• Energy performance contracting (EPC) – a contractual arrangement between the beneficiary (ESCO Client) and the provider (ESCO) of an EE improvement measure (EEM)/energy conservation measure (ECM), verified and monitored during the whole term of the contract, where investments (work, supply or service) in that measure are paid for in relation to a contractually agreed level of energy efficiency improvement or other agreed energy performance criterion, such as financial savings
• EPC providers – ESCO companies that carry out EPC contracts. In this meaning EPC providers are a type of ESCOs that offer a savings guarantee and link their remuneration to the achievement of the contractually set savings target
• Energy Service Provider Companies (ESPC) provide energy services for a fixed fee or as added value to the supply of equipment or energy. They operate on a design and build principle and their compensation is based on a predefined fee. All companies such as energy auditors, issuers of energy performance certificates or engineering firms that do not assume performance risk fall under this term
• Energy Audit (EA) – a systematic examination of a building or a group of buildings, an industrial or commercial process or facility, or a private or public service to obtain a proper understanding of their energy consumption profile, to identify and quantify cost effective energy savings opportunities, and to report the findings
• Energy Conservation Measure (ECM) – a single initiative undertaken to reduce the energy consumption of a particular piece of equipment or a certain aspect of essential building services; ECMs are combination of several ECM initiatives to reduce energy consumption across an entire facility. Aside from the obvious benefit of reduced energy consumption, ECMs can also i) reduce expenditure on utility bills, ii) reduce O&M costs, iii) reduce CO2 emissions, iv) improve occupancy comfort and v) increase asset value
• Guaranteed savings – a defining feature of the EPC, which are the savings (energy and O&M) that the ESCO guarantees the beneficiary (ESCO Client) to generate after ECMs implementation. These savings must be measurable and verifiable, and their value must be equal to, or exceed, the value of annuities for repaying the investment. This ensures the repay of the invested capital from the savings generated by the project
• Shared savings – another way of sharing savings under EPC that the ESCO and the beneficiary (ESCO Client) may agree from the start or national regulatory acts may require. This model involves a higher degree of trust between the parties
• Measurement and verification of savings – a process by which the parties define the expected savings before the implementation of EE interventions, describe how to measure these savings, and agree how they will verify the achieved savings after the ECMs implementation. It is the main pillar of a successful implementation of projects of this kind, and, once established with maximal dexterity, it decreases the project risks to the lowest level accepted by all stakeholders
• Monitoring and assessment of savings – a phase post the implementation of ECMs/ investments. In this phase, a continuous monitoring and recording of energy savings compared to a baseline energy consumption, pre-energy improvements will take place
• Baseline energy consumption – the use of energy before the implementation of the ECMs, which is used to make comparisons with the use of energy after their implementation. Agreeing upon the initial baseline energy consumption is essential for contract configuration, it offers the basis for the payments the facility owner (ESCO Client) makes to the contractor (ESCO). In order to be able to compare the energy consumption before and after the ECMs implementation, the baseline energy consumption could be normalized (e.g. indoor temperature), calibrated (e.g. outdoor temperature) and adjusted (e.g. changes in the operational mode)
• Reference year – the year whose energy use serves as the baseline energy consumption for the contract, offering the basis for comparing energy consumptions between two years. The difference in energy consumption constitutes the generated annual savings
• Dispute resolution – a contractual clause determining a specific procedure and mode for settlement of arose disputes during a contract execution between the parties. A good dispute resolution method does not lead to contract disruption, minimizes costs and time for settlement and it is fair for all contractual parties

All the above shows that the EPC arrangement is a complex contract, whose success depends on the generated savings and where the payback is contingent on whether the agreed baseline energy consumption is higher or equal to the actual one. Therefore, the ESCO—facility owner relationship is also complex and requires a complex setup for proper management.

Goal and Objectives

The primary goal of energy services is to facilitate the implementation of energy efficiency measures by providing expertise, financing, and solutions to improve energy performance across various sectors. The objectives associated with this element include:

1. Enhancing Energy Efficiency: Delivering services that identify and implement energy-saving measures to reduce energy consumption.
2. Providing Technical Expertise: Offering specialized knowledge and skills to design, execute, and manage energy efficiency projects.
3. Facilitating Financing: Making energy efficiency investments more accessible through innovative financing models and reducing financial barriers.
4. Supporting Policy Compliance: Ensuring that energy efficiency projects meet regulatory requirements and contribute to national and EU energy targets.

Methodologies or Approaches for Implementation

To achieve these goals and objectives, the following methodologies and approaches are recommended:

Energy Performance Contracting (EPC): Engaging energy service companies (ESCOs) to implement energy efficiency projects where the costs are covered by the resulting energy savings.

Audit and Consulting Services: Providing detailed energy audits and consulting services to identify opportunities for energy efficiency improvements.

Project Management: Offering comprehensive project management services to oversee the implementation of energy efficiency measures from start to finish.

Financing Solutions: Developing financing mechanisms, such as third-party financing, leasing arrangements, and revolving funds, to support energy efficiency investments.

Maintenance and Optimization Services: Ensuring the ongoing optimization and maintenance of energy systems to sustain and enhance energy savings over time.

Training and Capacity Building: Conducting training programs and workshops to build capacity and expertise in energy management and efficiency practices.

Monitoring and Verification: Implementing systems for continuous monitoring and verification of energy savings to ensure the effectiveness of energy efficiency measures.