Scaling up the energy service company business: Market status and company feedback in the Russian Federation

Abstract

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 initiated reductions in the country's energy intensity, including of the large public sector, which accounts for 9 percent of Russia's total energy consumption. To achieve energy efficiency goals in the public sector, Russia experimented with its public procurement rules, adjusting them to encourage EPCs. We reviewed the Russian government's official public database, conducted structured interviews with Energy Service Companies (ESCOs) in Russia and supplemented them with online research. Even though this process might not have captured all of the EPCs signed in Russia as of mid-2013, we estimate that 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.