Does the Recovery Act help the ESCO industry?

Posted by Dalkia Solutions on Nov 19, 2009 3:13:01 AM

I’m here in Los Angeles at the Beverly Hilton for the 26th annual NAESCO conference called Energy Efficiency, Kicks it up a Notch.  Many of the attendees have been involved in the ESCO industry for a long time and yesterday’s discussions were a lot about “our time has finally come.”

With pending climate legislation, challenging economic times, a higher motivation for becoming energy efficient and a recognition that energy efficiency is lower cost than renewable energy, all the stars seem to be aligned.  The consensus here is that over the next few years this industry could experience tremendous growth, heading from $5 billion to $15-30 billion depending on who you’re talking to….or maybe not.

In general, the ESCO industry provides turn-key energy efficiency upgrades for tax exempt customers such as states, cities, municipals, schools and hospitals.  The ESCO identifies the savings through an investment grade energy audit, installs the energy efficiency upgrades, provides a financial guarantee that the energy savings will be achieved, and the customer pays the ESCO with proceeds from their issuance of tax exempt bonds.

With the introduction of the American Recovery and Reinvestment Act (ARRA), these same customer prospects are now the potential recipients of lots of grant $$$$$$.  This additional “free” money means they should be doing even a greater number of projects, right?

Today there remains a lot of confusion about how exactly they can spend these grants if they receive them.  Maybe they should use the ARRA money just to buy these upgrades instead of borrowing to pay for them?  Can they co-mingle the ARRA grants with State grants through the EECBG program?  Can they buy down part of the project cost and issue less debt? And, by the way, the reporting and administration hooks that come with any of these grants are even more confusing.  All of which has contributed to the slowing of decision making….

Which leaves the ESCO’s thinking maybe this wasn’t such a good thing after all.

Topics: ARRA, American Recovery and Reinvestment Act, NAESCO, ESCO, energy service company, performance contracting, Stimulus