Energy Services Contract: What is it and How Does it Work?

As the world`s energy demands continue to grow, businesses are looking for ways to reduce their carbon footprint and lower their energy costs. One effective way of achieving these goals is by signing an Energy Services Contract (ESC) with a qualified Energy Services Company (ESCO).

An ESC is a legal agreement that outlines the terms and conditions of a project to improve a building`s energy efficiency. The ESCO is responsible for designing and implementing energy-saving strategies, such as lighting upgrades, HVAC system optimization, and renewable energy installations, to reduce the building`s energy consumption and carbon emissions.

How Does an Energy Services Contract Work?

Under an ESC, the ESCO typically pays for the upfront costs of energy-saving measures and guarantees a certain level of energy savings over a specified period, usually between 5 to 20 years. The ESCO earns revenue by receiving a portion of the energy savings generated by the project, or a fixed payment over the contract period.

The ESCO performs an energy audit to identify the most significant energy-saving opportunities and proposes a package of measures to achieve the desired savings. The ESCO and the customer agree on the scope of work, the financing structure, the performance targets, and the post-installation monitoring and reporting requirements.

Benefits of an Energy Services Contract

Energy Services Contracts offer several benefits to businesses, including:

1. Reduced Energy Costs: An ESC can lower a building`s energy costs by up to 50%, depending on the scope and scale of the project.

2. Improved Energy Efficiency: An ESC can improve a building`s energy performance by up to 30%, reducing carbon emissions and enhancing sustainability.

3. No Upfront Costs: One of the biggest advantages of an ESC is that the ESCO pays for the upfront costs of the energy-saving measures. This means that the customer can enjoy the benefits of improved energy efficiency without the initial investment.

4. Guaranteed Savings: ESCOs guarantee a certain level of energy savings over the contract period and often provide monitoring and reporting to ensure that the savings are achieved.

5. Customized Solutions: Each ESC project is customized to the customer`s specific needs, building type, and energy use profile. This means that the project is tailored to achieve the maximum energy savings possible.


An Energy Services Contract is an effective way for businesses to reduce their energy costs, improve their energy efficiency, and enhance their sustainability. ESCOs provide customized energy-saving solutions that guarantee significant energy savings and reduce carbon emissions. Signing an ESC can result in long-term savings and enhanced brand reputation as a sustainable and environmentally conscious company.