An energy services company, or ESCO, is a company that delivers energy services, energy efficiency programmes and other measures in a user´s facility, and accepts some degree of technical and financial risk in so doing. The payment for the services is based on meeting quality performance standards and/or energy efficiency improvements. In the public sector, ESCOs usually finance energy-saving projects in buildings without any up-front investment costs for the public authority. The investment costs are recovered and a profit is made through the energy savings achieved during the contract period. Once the contract has expired, the public owns a more efficient building with less energy costs.
ESCO can also be public (public internal performance commitments—PICO). A department in the public administration acts as a unit similar to an ESCO working for other departments and administrations.
‘Third Party’ refers to an agency (other than the customer or the ESCO) that provides the initial capital to fund the energy efficiency investments. For instance, the financier may be a private individual, a private equity investment agency such as a venture capital fund or an institutional investment fund, the financing division of a large company, a government investment fund, a utility, a bank or other lending agency. The financier may view the capital being supplied as equity, debt, a lease, etc. The financier may supply the finance to either the ESCO or the customer.