How Super ESCOs can bypass regulatory restrictions for contracting private ESCOs (Webinar) – 14.12.2021

So-called Super ESCOs, which are initiated and generally financed by the public sector to serve other public-sector entities, are a growing phenomenon with particular advantages in dealing with other public entities, partly because by their very nature they may escape the restrictions that otherwise pertain to private entities and may be better placed to secure access to the public clients’ cash flows that are to finance the ESCO contracts. But even Super ESCOs may find that the private sector is easier to work with and may venture into competition with private ESCOs, leading to potential market conflicts. A level playing field is necessary. At the same time, Super ESCOs are ideal carriers of best practices due to their often superior access to concessional financing through multilateral channels.

In this webinar, Stephane le Gentil, CEO of Wattaqa, explores the still few examples of functioning Super ESCOs and the way they work based on his intricate involvement in the development of most of them. Although extracting best practices may still be difficult, Stephane elaborates on central principles and also points to the way forward for using Super ESCOs to drive the market forward.

Q&A Session

Q: “Can you clarify how Super ESCOs can bypass regulatory restrictions?”

A: “Super ESCOs do not per definition bypass regulatory barriers, but they can be designed to do so. They may provide:

1. A standard approach to contracting with the public sector.
2. Avoid legal constraints on public contracting beyond budget periods by providing finance and contracts.
3. Circumventing split incentives by mandating institutions to invest in EE through the Super ESCO.”

Q: “Would it not be more helpful and result in more energy savings to develop and support existing ESCOs rather than creating a super ESCO?”

A: “The Super ESCO in itself can be considered support to existing ESCOs, simply by providing a window through which existing ESCOs can provide their service to the public sector. This is particularly the approach by Tarshid in Saudi Arabia. The Super ESCO delivers no EE service by itself but contracts existing ESCOs for all implementation.”

Q: “Who are the top financiers currently supporting super ESCOs for private buildings?”

A: “Super ESCOs almost exclusively work in the public sector. As they are government-backed, it is generally not viewed positively if they venture into the private market and compete with existing ESCOs.”

Q: “What are the regulatory frameworks with better practices cases exemplary to follow?”

A: “We are in the process of assessing regulatory frameworks for ESCOs and expect to publish a report on this by the end of March 2022. Meanwhile, please consult our library of authoritative literature on ESCOs, including best practices, at globalesconetwork.unepdtu.org”

Q: “There are non-electrification solutions for transportation, such as Stirling heat engines. Are you looking into providing such solutions, given the urgency to have solutions that can use existing supply chains?”

A: “We leave the choice of specific technologies to the ESCOs in their provision of services to the market.”

Q: “With the focus on renewable energy, particularly solar, the focus can shift from energy savings to energy generation as the revenues are realized faster than long-term ESPC. Your views?”

A: “The ESCO concept emerged from Energy Efficiency, but is now also being used in energy supply. As such, it is a business model rather than a technology-specific solution. That also means that many different technologies may be deployed using ESCO/EPC-like approaches. We see it in ‘as a service’ concepts also for air and water. ESCOs focused on Energy Efficiency are not likely to shift to other technologies as they have their core competencies on Energy Efficiency. Still, other tech providers may adopt the performance contracting approach.”