Energy Service Company Development

Abstract

ESCOs and the energy market for ESCO financing have been developing since 1976 when oil prices increased dramatically. ESCOs’ services cover projects in many energy areas, including energy extraction, power generation, energy conversion, transportation, power transmission, energy consumption, project financing, energy project audits, monitoring, and energy savings verification. In developing countries, there are many barriers in the energy market that are preventing ESCOs from developing. These barriers include lack of appropriate policy, financial mechanisms, and local capacities for ESCO development and management. Over the past 20 years, the GEF financed 39 ESCO projects in 25 countries and regions to remove these barriers. The results of these projects show that some countries are very successful in ESCO development, but others are not. Different models of ESCOs in different financial markets in various countries are analyzed; case studies are undertaken for China, India, Ukraine, and Brazil. This chapter concludes that while developing financial markets for ESCOs, countries need to consider the following: (1) initiating national government policy to stop energy subsidies and to reform energy pricing, (2) establishing a real, market-based financial mechanism for ESCOs, (3) involving the private sector in project co-financing, (4) creating incentives to ESCOs in the market by investing part of government revenue from energy tax, and (5) incentivizing ESCOs by government corporate tax exemption.