What is a Biomass ESCO Project?
BIOMASS ESCO PROJECT is a project developed in accordance with the principles of ESCo’s operation which carries out energy improvement projects in customer’s enterprises using its own capital or resources (that is, the ESCo supplies, installs and sometimes even maintains an item of energy supplying/saving equipment on the customer’s site). The project is selected so that the energy cost saving is sufficient to cover the repayment cost to the ESCo over the contract period (usually in the range of 3-8 years). In so doing, the project is at least cash neutral to the customer and at the end of the period he takes ownership of the equipment at no charge and thereafter receives the full benefit from the equipment.
Some questions and answers:
1: Is this the same as a loan?
No. A BIOMASS ESCO PROJECT will not involve handing over any money to the customer. Instead it will purchase and install the energy equipment without asking the customer for any money. A BIOMASS ESCO PROJECT may involve maintaining the equipment to ensure optimum performance but this depends on the project and the customer’s ability to maintain and operate the equipment himself.
2: What type of equipment will a BIOMASS ESCO PROJECT install?
There is no real limitation so long as the cost saving in energy is sufficient to cover the monthly repayment cost. Some examples of suitable equipment include:-
· => Boiler plant
· => Co-generation plant
3: How is the repayment cost determined?
The split of the cost savings differs from contract to contract. Sometimes the customer would agree to pay a fixed amount each month (provided of course the equipment performs correctly) and sometimes the customer and a BIOMASS ESCO PROJECT developer/operator would agree to no fixed payment in favour of splitting the savings.
4: Why use BIOMASS ESCO PROJECT developer? Why not carry out the project myself?
If a company has an attractive energy cost saving project it would use BIOMASS ESCO PROJECT developer for the following reasons:
· =>BIOMASS ESCO PROJECT developer/operator has access to capital to install the equipment whereas the customer may not.
· =>BIOMASS ESCO PROJECT’s developer/operator has experience in identifying when and how energy cost saving equipment can be used effectively. Remember, the performance of the equipment becomes the responsibility of BIOMASS ESCO PROJECT.
· =>BIOMASS ESCO PROJECT’s developer/operator has enormous technical expertise in selecting equipment and designing its installation. In fact, the technical performance of the equipment generally becomes the responsibility of BIOMASS ESCO PROJECT. This eliminates a large element of risk for the customer.
· =>BIOMASS ESCO PROJECT’s operator has expertise in maintaining biomass energy equipment to ensure that the claimed cost savings are actually realised.
5: How is the cost saving measured?
This depends on the type of biomass energy equipment installed. It is in the customer’s and BIOMASS ESCO PROJECT’s developer/operator interest to minimise the cost of measurement. The cost of the equipment needed to measure the cost saving is included in the contract. When the new biomass energy equipment replaces existing equipment (e.g., boiler) then it will be necessary to determine and mutually agree the efficiency of the old equipment so as to calculate the cost saving to be expected. This is work which BIOMASS ESCO PROJECT will carry out and agree with the customer.
6: What happens if my production levels fall?
Obviously, if production levels are lower than agreed with BIOMASS ESCO PROJECT developer/operator then the saving will be lower. A certain degree of flexibility can be built into the original contract but ensuring that the plant is used is the customer’s responsibility.
7: How long does the contract last?
The length of the contract is tailored to suit the customer’s preferences. In general, the contract will have a duration of 3-8 years.
8: What is the risk for the customer?
The customer must undertake to use the biomass equipment for a given number of hours per annum (so that the projected savings can be made). If this does not materialise then the customer must pay a proportion of the monthly repayments as agreed in each individual contract.
9: What risk does BIOMASS ESCO PROJECT developer/operator carry?
· =>to correctly select the equipment.
· =>to carry out tests necessary to ascertain the level of cost savings which the new biomass equipment will achieve.
· =>to install and commission the equipment.
· =>to prove the level of savings to the customer after installation.
· =>to demonstrate the ongoing performance of the equipment.
· =>unless otherwise agree with the customer, to maintain the equipment to ensure its reliability and to ensure that the level of savings are maintained.
10: What conditions will the customer have to satisfy for a BIOMASS ESCO PROJECT project?
BIOMASS ESCO PROJECT developer/operator will need to be satisfied that the customer:
· =>has a high chance of maintaining a level of plant operation to ensure that the savings can be made using the installed equipment. Obviously, if the production plant does not operate, no saving can be made by the new equipment. At the application stage it will be necessary for the applicant company to provide BIOMASS ESCO PROJECT developer/operator with marketing and other information to allow it to have such confidence.
· =>has sufficient cash flow to make payments to BIOMASS ESCO PROJECT developer/operator. Again, it will be necessary for the applicant company to provide BIOMASS ESCO PROJECT developer /operator with financial information to prove this.
If a company cannot provide this information then it is unlikely that the application will proceed.