As Vietnam’s economy continues to grow rapidly, businesses are increasingly seeking ways to optimize their energy consumption and reduce costs. One innovative solution gaining traction is the Energy Service Company (ESCO) model. But what is an Energy Service Company, and how can it benefit businesses in Vietnam? This article explores the concept of ESCOs, delves into the numerous advantages they offer to companies looking to enhance their energy efficiency and sustainability practices in the Vietnamese market, and provides guidance on how to start working with an ESCO. 

 

What is an Energy Service Company (ESCO)?

 

An Energy Service Company, commonly known as ESCO, is a specialized business that offers comprehensive energy solutions to organizations seeking to improve their energy efficiency, reduce costs, and minimize environmental impact. The primary goal of an ESCO is to help clients achieve significant energy savings through customized solutions tailored to their specific needs. These companies typically operate under a performance-based contracting model, where their compensation is directly linked to the actual energy savings achieved for the client.

The ESCO model serves a broader purpose beyond individual client benefits. It aims to promote energy conservation, cost reduction, and environmental protection on a larger scale. As a result, there has been a growing trend to encourage the adoption of the ESCO model, recognizing its contribution to sustainable development and environmental stewardship.

ESCOs provide a wide range of services, encompassing roles from assessors to project managers. Their services typically include:

• Energy assessments and audits: ESCOs conduct thorough analyses of a client’s energy usage patterns and identify areas for potential improvement.
• Energy efficiency recommendations: Based on their assessments, ESCOs suggest tailored measures to enable energy savings.
• Design and implementation of energy-saving projects: They develop and manage the implementation of customized solutions to enhance energy efficiency.
• Installation and maintenance of energy-efficient equipment: ESCOs often handle the entire process from equipment selection to installation and ongoing maintenance.
• Monitoring and evaluation of savings: They use sophisticated tools and methodologies to measure and verify the actual energy savings achieved through their interventions.
• Ongoing support and optimization: They continue to work with clients post-implementation to fine-tune systems and maximize energy savings.

 

 

Overview of Vietnam’s ESCO Market

 

ESCOs play a crucial role in Vietnam’s pursuit of energy efficiency. They are integral to achieving the objectives of the Vietnam National Energy Efficiency Programme, which aims to reduce energy consumption 5 – 7% from 2019 – 2025 and 8 – 10% from 2019 – 2030. ESCO projects have demonstrated significant potential in enhancing energy efficiency across various sectors.

However, the ESCO market in Vietnam faces numerous challenges. The legal and regulatory frameworks are often inadequate, and there is a lack of financial support mechanisms for developing and implementing energy-saving projects. Furthermore, only a limited number of funds and financial institutions participate in ESCO activities, restricting the growth of this sector.

Another significant hurdle is the lack of trust from potential customers. Businesses’ reluctance to enter binding agreements complicates matters, creating high risks for ESCO operations. This hesitation stems from a combination of unfamiliarity with the ESCO model and concerns about long-term commitments. Currently, Vietnam has approximately 50 ESCOs, but most lack the financial capabilities to sustain their operations and grow. It needs to establish a robust legal foundation for ESCOs and provide essential financial support, according to VIR. 

To address these challenges, initiatives like the EVEF, a joint technical cooperation project co-financed the EU and the German Federal Ministry for Economic Cooperation and Development (BMZ), are working closely with Vietnam’s Ministry of Industry and Trade. Their goal is to enhance governance in the energy sector, facilitating a shift towards more sustainable energy development in Vietnam. Such efforts are crucial for implementing the regulatory framework needed to achieve Vietnam’s commitments to reduce energy-related greenhouse gas emissions, as outlined in its Nationally Determined Contributions (NDCs).

 

 

Benefits of using ESCO model for Businesses in Vietnam

 

The ESCO model offers numerous advantages for businesses in Vietnam, making it an attractive option for companies looking to improve their energy efficiency and sustainability. Here are some key benefits:

 

1. Low initial investment

 

ESCOs provide solutions that allow businesses to implement energy-saving projects with low upfront costs. This reduces the financial burden on companies while still enabling them to benefit from improved energy efficiency. This model is particularly useful for businesses looking to upgrade their energy infrastructure but have limited budgets. Typically, businesses only need to invest less than 20% of the total project cost upfront, according to VNEEC. Moreover, some ESCO solution packages require no initial investment or maintenance costs from the business during the entire cooperation period.

A prime example is the case of Jim Brother’s Corp. In their collaboration with SolarESCO to provide a full package of energy services, the company spent less than 10% of the initial investment cost (excluding the cost of system reinforcement to qualify for solar installation). The results were impressive: each year, the plant reduces emissions by an average of 952 tons of CO2 and cuts 7,300 MWh of electricity consumption.

 

2. Low-risk investment

 

The performance-based model of ESCOs minimizes financial risks for companies implementing energy-saving measures. ESCOs typically guarantee energy savings, ensuring that businesses only pay if the promised results are delivered. This approach shields companies from technological and operational risks associated with energy efficiency projects. In case the projected savings are not achieved, the ESCO bears the financial responsibility.

 

3. Meeting sustainable production standards

 

Many international customers and partners now require adherence to strict sustainability standards. Implementing ESCO solutions helps Vietnamese businesses meet these requirements, enhancing their competitiveness in the global market. The result is a strengthened position in the market, demonstrating a proactive stance on environmental responsibility and solidifying the company’s green brand image. 

 

4. Access to expertise

 

ESCOs provide specialized knowledge and experience in energy management, often unavailable in-house. Their teams include energy engineers, financial experts, and project managers, bringing a wealth of industry-specific insights. This expertise allows for comprehensive energy audits, tailored solution design, and effective implementation of energy-saving measures. ESCOs stay updated on the latest technologies and best practices in energy efficiency, ensuring businesses benefit from cutting-edge solutions.

 

5. Improving energy efficiency

 

ESCO initiatives have demonstrated significant promise in enhancing energy efficiency. A prime example is the collaborative ESCO project between Heineken Brewery in Ba Ria-Vung Tau and Indochine Import Export Investment Industrial JSC. This project, which focuses on steam and electricity generation as well as drying brewers’ spent grain, has achieved impressive results. According to Vietnam Investment Review (VIR), the project has led to approximately 30% reduction in the brewery’s electricity consumption.

 

6. Cost savings

 

Reduced energy consumption leads to lower operational expenses and improved profitability. ESCOs typically identify and implement multiple energy-saving measures across a company’s operations. These can include upgrading lighting systems, optimizing HVAC equipment, improving insulation, and implementing energy management systems. 

 

7. Comprehensive energy management

 

ESCOs provide end-to-end solutions for energy optimization, covering the entire spectrum from initial audits to implementation and ongoing monitoring. This holistic approach begins with detailed energy audits to identify inefficiencies and opportunities for improvement. Based on these findings, ESCOs develop and implement customized energy management plans, which may include technological upgrades and process improvements. After implementation, they continuously monitor energy consumption and system performance, using sophisticated measurement and verification protocols to quantify savings. ESCOs also offer ongoing optimization services, adapting strategies to changing business needs and technological advancements. 

 

How to start working with an ESCO?

 

Initiating a partnership with an ESCO can significantly improve your business’s energy efficiency. Here are some key steps to get started:

• Understand your needs: Before approaching ESCOs, conduct an internal energy audit to identify your major energy consumption areas and potential savings opportunities. 
• Research and shortlist ESCOs: Look for ESCOs with experience in your industry. Check their credentials, past projects, and client testimonials. Create a shortlist of potential partners based on their expertise and track record.
• Request detailed proposals: Provide your shortlisted ESCOs with comprehensive information about your facility and energy usage. Ask for detailed proposals that include projected savings, implementation plans, and financial arrangements.

Remember, a successful ESCO partnership is built on clear communication, mutual trust, and aligned goals. Take your time to find the right fit for your business. If you have any questions about ESCOs or energy monitoring and saving solutions of Vinergy, don’t hesitate to contact us today!