ESCOs Are Paying Off

Energy service companies (ESCOs). Energy service providers (ESPs). One hears about such entities these days, but what exactly is an ESCO or ESP? What can they do for a facility? And do their services have anything to do with power quality and reliability? To answer all these questions: They assist customers with their energy-related needs: energy purchases, efficiency, operations and maintenanc...

By Scott Siddens, Managing Editor December 1, 2003

Energy service companies (ESCOs). Energy service providers (ESPs). One hears about such entities these days, but what exactly is an ESCO or ESP? What can they do for a facility? And do their services have anything to do with power quality and reliability?

To answer all these questions: They assist customers with their energy-related needs: energy purchases, efficiency, operations and maintenance, and integrated energy management services. They can provide physical and financial payback while offering budget stability by sharing risk. And yes, their services help to guarantee power quality and reliability. ESCOs, not surprisingly, are often marketing partners to utilities and provide turnkey implementation and demand-side management services to facilities. During the last decade, many ESCOs been involved in projects to implement energy-saving technologies.

According to the Washington, D.C.-based National Association of Energy Service Companies (NAESCO), there are currently more than 60 national and regional ESCOs. NAESCO, in conjunction with the Lawrence Berkeley National Laboratory have built a database of ESCO projects—1,500 as of mid-May.

NAESCO’s definition of an ESCO is comprehensive. It is a business that develops, installs and finances projects designed to improve the energy efficiency and maintenance costs for facilities over a seven- to 10-year period. ESCOs generally act as project developers for a wide range of energy-related systems and assume the technical and performance risk associated with the project. Typically, they offer the following services:

  • Develop, design and finance energy efficiency projects.

  • Install and maintain the required equipment.

  • Measure, monitor and verify energy savings.

  • Assume the risk that the project will save a guaranteed amount of energy.

But what distinguishes ESCOs from similar types of firms is the concept of performance-based contracting . When an ESCO undertakes a project, its compensation—and often, the project’s financing as well—is directly linked to the actual energy savings. Performance contracting provides turnkey services that reduce utility and operation and maintenance costs. More is left for infrastructure investment, so it is claimed, and the savings covers the debt service.

Another significant feature of ESCOs is that they rely on a wide variety of cost-saving tools and strategies. Replacement of HVAC systems, lighting retrofits, installation of efficient motors and variable-speed drives and centralized energy management systems are almost always a part of an ESCOs energy efficiency program.

And this is where power quality and reliability can be an issue in these projects. Lighting systems and motors definitely affect power quality through harmonics and other interference. Moreover, metering of power, and decisions regarding energy providers, are definitely an influence on how reliable the power will be.

Typically, ESCO projects require a large initial capital investment with a relatively long payback period. The customer’s debt payments are tied to the energy savings offered under the project so that the customer pays for the capital improvement with the money that comes out of the difference between pre-installation and post-installation energy use and other costs.

For this reason, ESCOs are very interested in the verification of energy savings through metering and monitoring of power consumption. In addition, most performance-based energy efficiency projects include the maintenance of all or some portion of the new high-energy equipment over the life of the contract. The cost of this ongoing maintenance is folded into the overall cost of the project. Therefore, during the life of the contract, the customer receives the benefit of reduced maintenance costs, in addition to reduced energy costs. As an additional service in most contracts, the ESCO provides any specialized training needed so that the customer’s maintenance staff can take over at the end of the contract period.

The multitude of tools that ESCOs draw on for their services is only matched by the number of types of firms that have opted to function as ESCOs. But generally speaking, there are three main types: utility-spawned entities; building systems integrators; and engineering firms.

Power Company as ESCO

Oncor, the regulated energy-delivery business within the Dallas-based TXU Corporation, is a member of NAESCO, and a good example of the utility-based ESCO. And the following case study gives an idea of how the ESCO functions.

The company uses high-speed Ethernet to transmit energy production data from power plants to the Independent System Operator (ISO), a direct result of the Texas Electric Restructuring Act, signed into law in 1999, to introduce a competitive state energy market by January 1, 2002. The act obligated all transmission utilities to provide power plant settlement meter data to the Electric Reliability Council of

Texas (ERCOT) ISO. Under the Act, ERCOT operates a meter data acquisition system that collects generation and consumption energy data on a 15-minute interval basis from all transmission utility companies in the state.

But this presented a problem for Oncor. There are over 100 generating units scattered over a third of Texas. Fifty-nine of these units are owned by TXU and the remaining units are merchant/independent power producer/cogen facilities. Oncor had to install and maintain over 260 new revenue-accurate meters as part of their existing data-collection system, and add the necessary communications links to make the data available to ERCOT daily without adding additional effort for Oncor’s staff.

Another challenge was that many of the power plants required high-accuracy wide dynamic current metering, especially the Independent Power Producers (IPPs), whose peaking plants would consume very little energy when dormant but deliver enormous amounts of current when producing. The huge range in measurements—from 5 kW to 500 MW— require special metering capabilities.

According to Mike Greene, Oncor Transmission and Pipeline president, “the new market rules challenged us to ensure that the meters would be compatible and deliver the necessary information to both Oncor and ERCOT.”

Oncor needed a system that would allow both Oncor and ERCOT to gather data from the meters independently. The solution is an innovative combination of advanced metering devices and Ethernet, serial and dial-up communications links.

The conversion to ERCOT-Polled Settlement (EPS) meters over a 12-month period was a daunting task for Oncor because of its large number of geographically dispersed generating units. Oncor owns and maintains the EPS meters for all 102 generating units, and is responsible for installing, controlling and maintaining the meters, recorders, instrument transformers, wiring, communi-cations, and other associated equipment needed to measure energy generation and internal plant consumption.

It is also responsible for installing and maintaining backup metering at each EPS meter location for resources, auxiliary netting, and bi-directional meter points. The final meter point count at all the plants for plant output metering, plant load consumption metering and backup metering is 262 meters.

Oncor decided to use a hierarchical meter structure, linking a number of meters through RS-485 serial communication links to a central meter that acts as an Ethernet gateway—a definite advantage because RS-485 has a much longer range than Ethernet and is generally less expensive. About 40 gateway meters are connected to the existing Ethernet local area network (LAN) and wide area network (WAN).

Through these networks, both Oncor and ERCOT can communicate with all 262 meters in the system individually. For a small number of meters (less than 20 in the overall system) located outside the range of a direct Ethernet connection, a modem connection to the gateway meter suffices. The meters are generally located between the power plants and transmission switchyard to maintain the most beneficial separation between generation and transmission.

Meters supplied by ABB and manufactured by Power Measurement were chosen as both the serial and gateway metering devices because of their direct Ethernet links, wide dynamic range, and support for multiple simultaneous communications channels. “This equipment represents a whole new generation of meters,” notes Greene. At the time of the installation, the specified meters were the only ones on the market with built-in Ethernet that supported MV-90, a common billing collection package used in the utility environment, including by both ERCOT and Oncor.

The meters are read daily over Oncor’s WAN by three independent MV-90 systems, two located in Dallas and one located at ERCOT’s facility near Austin, providing billing and status information instantly to both Oncor and ERCOT.

When either organization’s MV-90 billing package initiates the process to collect meter data, the request is channeled through the Ethernet router to a gateway meter, and then passed through the RS-485 connections to the individual meters. The meters have rolling logs—with the oldest information dropping out of the log when new information is added—so that the latest relevant data is always available regardless of when the meters are polled. And because of the reliability and speed of the Ethernet connections, the data collection takes only a fraction of the time that would be required for dial-up connections, as well as being more cost effective, more reliable and more secure.

The meters also provided the wide dynamic current metering required to accurately monitor IPPs connected to Oncor’s system. When an IPP facility is generating power, up to 500 MW can be flowing onto the grid. When the facility is not generating power, it can draw about 5 kW from the grid. These locations pose a particular challenge for the metering system, because of the wide voltage range that must be accurately measured. The meters are specially designed to monitor these ranges, offering revenue certification accuracy, another reason the meters were chosen for all metering points within the system.

Other communications channels were used to pass information to the Resource’s Energy Management group. The group can access the meters directly using DNP protocol through secondary RS-485 connections, polling the meters frequently (typically every two to four seconds), then using the real time data for dispatching and predictive planning.

Besides the technical complexities, the project also faced significant administrative challenges. Technical specifications changed as the project progressed, with the ERCOT protocols revised nine times and the ERCOT operating guides revised as recently as October 2001. These changes affected the design phase of the project, making design changes necessary to ensure that all phases of the project were compatible and met ERCOT’s standards outlined in the Texas restructuring law.

The metering elements of the ERCOT deregulation model are crucial for the settlement process in an open market. A well-calibrated and maintained meter system is essential for the market to function efficiently. For Oncor, knowing that they have a dynamic, efficient system in place means they can face the future successfully in a deregulated market, secure in the knowledge that they can meet their obligations to ERCOT and the public.

This is all fine for large utilities and their distribution systems. But what about the typical commercial or institutional facility—or even manufacturing plant. Building systems integrators and engineering firms are functioning as successful ESCOs for these facilities.

Integrators and Engineers as ESCOs

BCS is a systems integrator that serves the upstate New York and northwestern Pennsylvania region. In addition to the design and installation of building and industrial control systems, the firm is also an ESCO. (For a description of a BSC project, see “Savings in Education,” p. 16.)

The company has found a profit center in energy services. Through in-depth engineering analyses, BCS identifies specific energy areas to address and identifies energy cost-savings potentials. Customers retain the right to select subcontractors while BCS provides single contract responsibility for upgrading and retrofitting the physical plant and building systems: Service that the company performs include:

  • Performance contracting

  • Preliminary feasibility studies

  • Energy and utility bill analysis

  • Life-cycle cost analysis

  • Comprehensive energy studies

  • Energy monitoring and control systems

  • System evaluation, testing, commissioning/startup

  • Project financing and management

  • Energy management plans

  • Natural gas/electricity procurement

  • Utility rate reduction negotiations

  • Utility monitoring and energy savings verification

  • Cogeneration feasibility studies/implementation

  • Grant/financial incentive applications

  • Process optimization

But no matter what type of firm decides to become an ESCO, they all have something in common. They tend to work in conjunction with government agencies such as U.S. DOE initiatives or state initiatives such as Rebuild Colorado. And they also have an interest in power—not only its efficient use but also its quality and reliability. The growing demand for turnkey services and outsourcing to ESCOs has meant that these consultant firms have a continuing interest in maintenance; increasing interest in distributed generation and a keen concern for onsite generation—customers want the independence of onsite generation but not the headache of operating and maintaining it. ESCOs are also power monitoring and troubleshooting power quality problems.

Much of the information for this article is drawn from the official web site of NAESCO. For those interested in further information about energy service providers and their project successes, visit the web at . Another valuable site is that of the Madison, Wis.-based Energy Services Coalition at .

Provider Categories

The National Association of Energy Service Companies (NAESCO), Washington, D.C., offers three categories of accreditation for companies in the energy service business: energy service company (ESCO), energy service provider (ESP) and energy efficiency contractor (EEC).

ESCOs develop and implement turnkey, comprehensive energy efficiency projects. Performance-based contracts are a major part of their business. To gain accreditation, ESCOs must demonstrate technical and managerial competence to design and implement projects involving multiple technologies, including lighting, motors and drives, HVAC and controls. ESCOs must also show that they can provide a full range of services such as energy audits, design engineering, providing or arranging project financing, construction management , commissioning, operations and maintenance.

ESPs usually offer all the same services as ESCOs, but they also provide energy supply options, including: development and implementation of build/own/operate distributed generation, cogeneration or combined heat and power (CHP) projects; arrangement of commodity electricity or gas supply on a consulting basis; and firm contracting of energy supply.

EECs offer some, but not all, of the services of an ESCO. EECs typically concentrate on one energy efficiency measure—such as lighting—or one type of service (e.g., engineering or project management), but can offer multiple services. EECs typically work as subcontractors to ESCOs or ESPs.

Savings in Education

BCS, a building systems integrator based in Tonawanda, N.Y., realized over $100,000 in annual energy savings for a school district in western New York. Functioning as an ESCO, the firm implemented 41 measures in three school buildings. Measures included lighting system upgrades, energy efficient motors, energy monitoring and control systems, ventilation system upgrades, building envelope improvements (including new windows and roof), kitchen equipment replacement, and domestic water heater replacement.

A cogeneration system was installed that consisted of four 75-kW gas-fired cogenerators. Annual electrical energy savings exceeded 857,000 kWh or $69,000 in annual cost savings. The system provides the primary electricity for the facility and supplemental thermal energy for building heating, domestic hot water, and swimming pool water.

A district located north of Buffalo, N.Y., realized over $130,000 annually as a result of a comprehensive energy-based performance contract. Six district buildings were included in this energy savings program that included such energy conservation measures as:

Direct digital control systems

New energy efficient chiller

Rooftop unit replacement

Air conditioning unit replacement

Electric to hot water conversion

Steam trap replacement

New boiler installations

In the high school, a cogeneration system was installed that consisted of two 90-kW gas-fired engines. Annual electrical energy savings exceeded 101,000 kWh or $58,000 in annual cost savings. The engines also produce waste heat that will be utilized to partially offset building heating requirements. The cogeneration system had a simple payback of 3.7 years.