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Energy Service Companies

Energy service companies (ESCOs) develop, design, build, and fund projects that save energy, reduce energy costs, and decrease operations and maintenance costs at their customers' facilities. In general, ESCOs act as project developers for a comprehensive range of energy conservation measures and assume the technical and performance risks associated with a project.

ESCOs are distinguished from other firms that offer energy-efficiency improvements in that they use the performance-based contracting methodology. When an ESCO implements a project, the company's compensation is directly linked to the actual energy cost savings.

The substantial energy-efficiency retrofits and renewable energy technologies inherent in energy savings performance contract (ESPC) projects typically require a large initial capital investment and may have a relatively long payback period. Debt payments are tied to the energy cost savings guaranteed for the project, so the agency pays for the capital improvements of the ESPC project with the money saved by the project (i.e., the difference between pre-installation and post-installation energy use and other related costs).

The U.S. Department of Energy (DOE) manages two categories of ESCOs that perform federal government ESPC projects: DOE IDIQ ESPC ESCOs and DOE Qualified ESCOs.

DOE IDIQ ESPC ESCOs

Men with orange safety vests and hard hats) enter an energy-efficient building under construction.

Firms on the DOE Qualified List of ESCOs that competed for and were awarded a DOE ESPC master indefinite-delivery, indefinite-quantity (IDIQ) or "umbrella" contract.

DOE Qualified ESCOs

Man with a white hard hat examines panels installed on the exterior wall of a building under construction.

Firms that have submitted applications and have been approved by a qualification review board that comprises DOE staff to be on the DOE Qualified List of ESCOs.