Scaling up the energy service company business: market status and company feedback in the Russian Federation
Many energy efficiency professionals have proposed using Energy Performance Contracts (EPCs) as a mechanism to improve public sector energy efficiency in countries with restrictive government budgets. However, in practice, most middle-income countries have used this mechanism only in a limited way. Russia offers an interesting case study because of its huge energy savings opportunities, increasing energy prices, robust political backing for public sector energy efficiency, and evolving legislation that supports EPCs. In 2009, the Russian Federation launched a program to reduce the energy intensity of the country’s large public sector, which accounts for 9 percent of Russia’s total energy consumption. To achieve energy efficiency goals, Russia experimented with its public procurement rules, adjusting them to encourage EPCs. We conducted structured interviews with Energy Service Companies (ESCOs) in Russia and supplemented them with online research. Our review shows that, to date, nearly 50 ESCOs signed about 150 contracts in public facilities. Most ESCO contracts in Russia are for 5 years, and they generally are small (under $100,000). ESCOs in Russia face a challenging environment, which leads to smaller projects. ESCOs also are concerned about costly and risky tender procedures, uncertainty regarding repayment from public facilities, the inability to expand projects, and financing. We discuss these challenges and propose potential solutions at policy and company levels. The ESCOs feedback regarding Russia’s experimental model can inform the country’s program for public sector energy efficiency and offer lessons for other countries attempting to develop the EPC mechanism.