What is an ESCO and an ESPC?

The U.S. Department of Energy defines ESCP and ESPC as follows:

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).

Per Massachusetts General Laws, Chapter 25A, Section 11L: Energy management services contracts; request for qualifications; regulations; payments; performance bond:

"(h) The energy management services contract shall include a written guarantee of the qualified provider that either the amount of energy savings guaranteed shall be achieved or the qualified provider shall reimburse the state agency, local governmental body or building authority for the shortfall amount. Methods for measurement and verification of energy savings shall conform to the most recent standards established by the Federal Energy Management Program of the United States Department of Energy."