What's an Energy Service Company (ESCO)?

By Tom Cashman
Director, Project Management at Fairbanks Energy Services

You see the term tossed around all the time: find the right ESCO. Here’s a list of the best ESCOs. How to choose an ESCO. And on it goes. Usually you get the next level of definition as well: ESCO (Energy Service Company). But that’s where the explanation can stop.

However, you need to know more about the acronym to make smart choices about your energy project partners. All efficiency projects should be supported by experts to help you choose the right solutions and gain the most energy savings available to you.

Project "before and after" results when working with an ESCO


Define ESCO

ESCO stands for Energy Service Company and refers to experienced engineers who develop efficiency projects to lower energy use in buildings. These companies provide resources and expertise to implement projects that may involve multiple efficiency measures. They mitigate project risk, manage logistics and qualify projects for additional funding that helps lower capital expenditure. defines an ESCO as a company that provide efficiency services rooted in performance-based contracting where project results directly affect compensation. Other ESCOs have shorter-term agreements about leveraging utility incentives as part of the project cost.

This means that ESCOs “put their money where their mouth is” and build projects that prove their results – otherwise forfeiting part of their revenue. Either way, all ESCOs should be able to engineer projects that prove out a certain amount of annual savings.


Example of an ESCO performance contract graph


Types of services provided by Energy Service Companies

All services provided by ESCOs help facilities lower energy use. These can include:

  • LED lighting

LED lighting is a more efficient lighting fixture that uses far less energy than a fluorescent lamp or incandescent light bulb.

  • Lighting controls

Lighting controls are additional components that – when added or integrated to LED lighting – provide more ways for buildings to adjust light levels, schedule lighting on and off or add sensors to automatically turn lighting on and off as needed.

  • HVAC systems

Vast and complex, HVAC systems require regular updates. As equipment ages and new technology is released, HVAC systems must be reevaluated and at time, reengineered to run more efficiently.

  • Building Management Systems

The backbone of many facilities, building management systems or building automation systems connect HVAC, lighting and other building functions to dashboards that allow facility mangers a high level of control over how these systems work together.

  • Data center optimization

Data center optimization includes airflow management, loop optimization, HVAC retrofits, LED lighting and building management system integration. All of these solutions are designed to help data centers lower their energy use, freeing up capacity for additional traffic or tenants.

  • EV charging stations

New to the energy efficiency space, EV charging stations are growing in demand alongside the rise of electric cars and SUVs.

  • Energy procurement or outsourcing

Some ESCOs or energy consultants also specialize in energy procurement, which can include sourcing clean energy or building full-scale energy strategies for facilities and company campuses.

  • Training staff

Training in-house employees how to manage their newly-efficient systems is critical to prolonged success. This is especially important for building automation.

Regardless of type, all projects begin with a professional energy audit. This energy use assessment service is sometimes performed at no cost and should deliver a report on energy use with recommended solutions for improving efficiency. Energy audits are performed by the ESCO who then uses that information to design an appropriate project.


The steps of an efficiency project can include:

  1. Engineering project specifications

  2. Designing efficiency project options

  3. Securing financing

  4. Qualifying a project with the local utility for additional funding

  5. Implementing efficiency measures

  6. Measuring results

Typical process when working with an ESCO


The ESCO industry: market analysis + trends

As an industry, the global energy service company market was valued at $28.6 billion as of 2017. Due to the rise in demand for lowered carbon emissions and improved technologies, we expect that number has grown. Since 1990, ESCOs have produced $55 billion in verified savings through energy efficiency projects.

Lighting and controls are two of the most common measures implemented, though lighting accounts for just under 40% of private sector projects, where we’ve seen a corresponding rise in HVAC retrofits.

On average, projects developed by this type of energy partner deliver energy savings of about 25%.


Why Energy Service Companies were created

When energy efficiency started in 1973, commercial and industrial businesses all over the US faced the challenge of implementing efficiency solutions to lower energy use. The ESCO industry developed to meet these needs.

Over the last 40+ years, energy service providers have gained decades of experience and continue to evolve alongside new technologies to actively lower energy use across the private and public sectors.


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Post categories: Thought Leadership, Energy Efficiency, Energy Services

Originally published on May 28, 2020 | Last updated on 10/28/2020

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