Energy service contracts (ESCs) have become increasingly popular in recent years as a way for businesses to manage their energy consumption and reduce costs. ESCs are agreements between a consumer and an energy service company (ESCO) that outline specific energy efficiency measures and energy management services that the company will provide to the consumer. These contracts can cover a wide range of services, from energy audits and building retrofits to ongoing energy management and monitoring.

The scope of energy service contracts can vary widely depending on the specific needs and goals of the customer. However, there are a few key elements that are typically included in most such as: energy audits, energy efficiency improvements, financing, implementation, ongoing monitoring and management, performance guarantees, measurement and verification [1].

The first step in any energy service contract is usually an energy audit. This involves a detailed analysis of the client’s energy use, systems and equipment to identify opportunities for improvement. An ESCO will typically visit the site to collect energy consumption data and conduct a thorough analysis of the building envelope, lighting, HVAC (heating, ventilation and air conditioning) systems and other energy consuming equipment. The audit report will collect data on current energy consumption, analyse and diagnose processes, equipment and systems, develop recommendations and measures to improve energy efficiency, and identify potential for reducing energy consumption.

Upon completion of the energy audit, the ESCO will submit a proposal for specific energy efficiency upgrades that can be implemented in the building or facility. These upgrades may include upgrading lighting systems, replacing or modernising HVAC systems, or improving the building envelope with better insulation and weatherproofing [2]. They typically provide a detailed cost-benefit analysis of each proposed upgrade, including estimated energy savings and payback period.

One advantage of energy service contracts is that they often include financing options that allow customers to make energy efficiency improvements without upfront capital expenditures. ESCOs may offer financing options such as leases, guaranteed energy performance contracts, or energy savings agreements. These financing options allow customers to pay for energy upgrades using the savings generated by the improvements, which can help offset upfront costs.

Once financing is secured and the customer approves the proposed energy efficiency measures, the energy service company will oversee the implementation of the improvements. This may include coordinating with contractors and suppliers to ensure that the upgrades are installed correctly and on schedule. It may also provide project management services to ensure that the implementation process runs smoothly.

Once the energy efficiency upgrades have been implemented, the ESCO will often provide ongoing monitoring and management services to ensure that the improvements are delivering the expected energy savings. This may include installing energy monitoring systems to track energy use and identify areas where further improvements can be made. The company can also provide the customer with regular reports on energy usage and savings, as well as recommendations for further improvements.

Many energy service contracts include performance guarantees that provide expected energy savings. If the energy savings fall short of the guaranteed amount, the ESCO may be required to pay a penalty to the consumer or provide additional services to make up the shortfall [3]. These performance guarantees provide customers with additional assurance that energy efficiency improvements will deliver the expected savings.

ESC practices vary by country and region. In developed countries, contracts are well established and widely used. However, in developing countries they are still in the early stages of development.

In developed countries, ESCs are commonly used in the commercial and industrial sectors. Companies provide energy efficiency services to these sectors by introducing energy efficient equipment and systems such as lighting, HVAC and building automation systems. ESCs are also used in the residential sector, although to a lesser extent.

Contracts are typically structured as performance-based contracts, where the ESCO guarantees the customer a certain level of energy savings. The customer pays the energy service company a percentage of the savings resulting from the energy efficiency measures. The company is responsible for the design, installation and maintenance of equipment and systems.

Project description: Under the contract, about 3 thousand street lighting fixtures and about 10 thousand incandescent lamps were replaced. Such volume of street lamps is equivalent to the population of a city with a population of 50 thousand people. Mostly obsolete lamps and lamps with the efficiency of 10-30 Lm/W are replaced by modern LED lamps with the efficiency of 100-130 Lm/W. The total installed capacity of lighting fixtures will be reduced by 1.3 MW [4]. The economic indicators of the project are presented in Table 1.

Table 1

Brief economic indicators of the implemented project

Under the contract, JSC «Mosenergosbyt» performed the following works: pre-project survey of the existing lighting system and design works, procurement of new lighting fixtures and materials, construction, installation and commissioning works, organisation of exchange fund (warehouse stock) in the amount of at least 3% of their total number, operation and maintenance of equipment for the period of the energy service contract [5].

The project implementation resulted in planned electricity savings of at least 80% for all branches. Energy service contracts allow consumers to reduce energy consumption costs by improving energy efficiency and using energy-saving technologies. The contracts include performance guarantees, where if the expected energy savings are not achieved, the service providers undertake to compensate for the difference, giving consumers confidence in the return on investment. Once energy efficiency measures have been implemented, suppliers provide ongoing monitoring of energy use and regular reports to help consumers optimise energy resources [6]. These include measuring actual energy savings, which allows consumers to assess the real results and effectiveness of the measures implemented. Energy service contracts offer consumers the opportunity to improve the energy efficiency of their facilities, save on costs and receive guarantees of results, making them an attractive tool for managing energy consumption and improving energy efficiency.

Entering into energy service contracts allows suppliers to establish long-term relationships with consumers, which provides a stable and constant source of income. Participation in energy efficiency projects allows suppliers to expand their market by attracting new customers and the opportunity to participate in various projects. Working on ESC projects encourages suppliers to implement modern technologies and develop their expertise in the field of energy services. As energy service payments are usually calculated based on the energy savings saved, this gives suppliers a stable income linked to the results achieved [7]. As a result, ESC providers have the opportunity to gain stable income, expand their customer base, develop their technological competences and strengthen their position in the energy service market.

In conclusion, it can be noted that energy service contracts are becoming increasingly popular as an effective way to manage energy consumption and reduce costs for businesses. The use of ESCs differs between developed and developing countries. In developed countries, they are widely used in the commercial and industrial sectors, while in developing countries the emphasis is on renewable energy technologies. Challenges associated with them include unclear contract terms, high upfront costs, difficulties in measuring results and limited access to energy efficiency programmes. Successful contract implementation requires increased transparency of contract terms, offering financing options, establishing clear measurement protocols and co-operating with local institutions. Addressing these challenges can make them a key tool in achieving energy efficiency and reducing energy costs.