A word on Escos

  Dana Cary, HOLTROP S.L.P. Transaction & Business Law  

As nonrenewable energy sources are depleting and becoming increasingly expensive, the European Union is taking strides toward adopting new, eco-friendly energy systems.  One particular industry the European Union wants to expand is its solar-thermal industry.
The European Union agrees that promoting solar thermal energy service companies (ST-ESCOs) would result in the growth of the solar industry.  By promoting solar heat services and expanding the solar market in Europe, the long term goal is that more energy would be available at cheaper costs with little environmental impact.

Unfortunately, little is known about the potential impact of ESCOs (and ST-ESCOs) on the European market and therefore consumers are hesitant to adopt this system.   In sum, ESCOs are energy service companies that function as project developers in developing and installing various projects designed to improve energy efficiency and reduce carbon emissions.    ESCOs assume all responsibility and technical risk of the projects, and their compensation is directly linked to the costs related to the amount of energy they save.

However, the initial high investment costs, coupled with the lack confidence in the reliability, resilience, and durability of these systems, have made the promotion of ESCOs a daunting task.  Electricity and energy prices are also still relatively cheap, which adds to this challenge.

Therefore, the question to ask is whether adopting this system is worth it in the long run.  Proponents of this system state that ST-ESCOs could substantially increase the use of solar energy, lower energy prices down the line, and contribute to the worldwide go-green movement.    

The widespread promotion of ST-ESCOS would additionally provide many direct benefits to consumers.  If all goes as planned, there would be guarantees for the solar yield and limits for energy costs with no investment risk for the consumer.  Since the ST-ESCO is responsible for the operation of the thermal energy plant, the consumer also wouldn’t need to worry about upkeep or maintenance costs.  

Strategies for promoting ST-ESCOS include advertising the benefits of solar thermal energy to increase its demand while simultaneously removing the barriers that are inhibiting its growth.  Numerous steps have already been taken in terms of promoting solar energy, as the European Renewable Energy Council made a 2005 proposal to promote renewable heating and cooling for a European directive—25% of the EU heating and cooling supply by renewables in 2020.  Additionally, some member states have been making the push toward using renewable solar energy through various subsidy and action programs. 

While continued progress has been made in terms of promoting the solar industry, removing the barriers has proved to be slightly more daunting. In short, it is imperative that consumers become aware of how solar heat services work.  Educating the population about solar thermal energy, as well as providing them with models, will help spread the word.   And because many consumers don’t know how to start with a ST-ESCOS project, it’s important that tools (such as a checklist for the procedure and model contracts) are provided to help support project initiation. Lastly, training needs to be provided to those that are responsible for operating and maintaining ESCOs so these energy plants can be easily installed, maintained, and operated.