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Benefits of using ESCOs
There are many benefits to using ESCOs. The key benefits include project risk management, financing, improved building performance, and access to energy expertise and new equipment at little or no upfront costs (Metz & Turkson 2000, p. 156). Most companies prefer performance contracting that allows the clients to shed most of the risks associated with ESCOs (Thumann & Woodroof 2009, p. 88).
Underperformance contracting, the company is at liberty to choose from many models of contracting (Bhattacharjee, Ghosh, Young-corbett 2015, p. 11). However, the guaranteed saving model ensures that most of these benefits are enjoyed. The guaranteed saving model sets the minimum saving level that must be attained. It stipulates that ESCO provides financing and does not enjoy added benefits in the event savings exceed expectations (Ribeiro 2011, p. 13). The shared saving model also ensures cost savings are shared between ESCO and the contracting party (Ribeiro 2011, p. 15).
Disadvantages of ESCO
ESCOs are good in the technical aspect but poor in the business aspect, a factor that has many implications that are directly transferred to the company or business involved (Thumann & Woodroof 2009, p. 85). Many financial institutions have little confidence in ESCOs. This makes their access to loans and other financial assistance impossible. In the case of this company, getting loans will be difficult because it undertakes numerous projects. ESCOs cannot secure loans for more than one project. Secondly, the legal frameworks to regulate them are weak, and the company stands to lose if the ESCO does not honour its contractual obligation (Metz & Turkson 2000, p.167). Lastly, the expertise of the ESCO system will have to be maintained even after the end of the project.
Lowry Renaissance Limited
The Titanic Mill was a refurbishment project of Lowestwood mill to accommodate 130 residential apartments of the upper floors, the hotel, spas and a restaurant on the lower floors (London Energy Partnership 2007, p. 22). Lowry Renaissance Limited is the developer of the project. It sought to lower energy use in the building. This would decrease carbon dioxide emission and the costs of energy. Bearing the expertise required, Lowry hired ESCO to operate and maintain the assets it had acquired. ESCO enabled the rational use of energy in the Titanic mill building. Efficient energy use enabled it to achieve low running cost and reduced carbon emission (London Energy Partnership 2007, p. 22). It ensured sustainability in low carbon energy while making provisions for asset replacement and maintenance. The physical layout ESCO used at the Titanic Mills site provided enough room for improvement.
In addition to the benefits, the hiring of ESCO had its demerits. The first one was that the operation ESCO used was beyond the residents’ expertise. For this reason, some of the ESCO specialists had to be retained at the end of the project. Secondly, Lowry Renaissance Limited had to come up with procedures that would ensure ESCO is managed despite the presence of contractual obligations (London Energy Partnership 2007, p. 24).
Bhattacharjee S, Ghosh, S & Young-Corbett, D 2011, Energy Service Performance In Construction: A Review Of The Literature. Web.
London Energy Partnership 2007, Making Escos Work: Guidance and Advice on Setting Up and Delivering an ESCO. Web.
Metz, B & Turkson, J 2000, Methodological and Technological Issues in Technology Transfer. Cambridge, UK: Published for the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge.
Ribeiro, I 2011. He Evolution Of Energy Service Companies (Escos) In Ontario: Extending The Traditional ESCO Model To Renewable Energy Contracting. Web.
Thumann, A & Woodroof, E 2009, Energy Project Financing, Fairmont Press, Lilburn.