A Simple Example to Introduce the Basic Financial Arrangements 83The initial attraction to performance contracting was the financing
help. Through the years, the ESCO expertise has become equally attrac-
tive. For example, a 1988 survey found that the majority of US school
administrators still thought work on the building envelope, (e.g., added
insulation, double glazing of windows, etc.) was the most cost-effective
energy savings measure to take. However, a U.S. Department of Energy
analysis at the time showed that building envelope measures averaged
the longest payback (over eight years) of those measures studied. In
contrast, control measures paid back in roughly two years. In attempts
to cut energy costs, school administrators were not investing money
the most effective place. If fact, they were waiting eight years to get
the return on investment that they could have achieved in two years.
ESCOs have learned, sometimes at great expense, what works—
and what doesn’t!! The earlier temptation to invest in elaborate control
systems, for example, no longer exists. Today, experienced ESCOs know
exactly how sophisticated a system should be in a given facility. That
expertise can keep owners from investing valuable money in the wrong
measures.
Performance contracting has matured into a viable and reliable
way of doing business in North America and many countries around
the world. In the United States and Canada, federal law allows—even
encourages—federal agencies to use performance contracting to cut op-
erating costs. Over 4,000 of the US school systems have had some type
of performance contract, and these school systems have as many as 800
buildings each. Major manufacturers of energy-related equipment have
ESCO services and divisions, and many regional ESCOs have grown
from engineering firms, distributorships and mechanical contractors. It
is conservative to say that in the United States there are at least 10 major
national ESCOs and another 40 operating on broad, regional bases. Lo-
cal firms offering some ESCO services undoubtedly exceed 100. In fact,
the concept has become so popular there is great fear in the industry that
“wannabe ESCOs,” often dubbed WISHCOs, are offering services before
they fully understand the complexity of the process and are creating cred-
ibility difficulties for the industry.
In the mid-1990s, the International Energy Agency went on record
at the Conference on Energy Efficiency in Latin America to support and
encourage the ESCO industry. More recently the European Union has
been actively promoting the concept through papers and conferences.
The ESCO Europe Conference, sponsored in part by the EU, has become