Mongolia Targets Escos to Achieve Sdgs

To achieve its commitments to improve energy efficiency by 20 percent within the country's Sustainable Development framework, Mongolia is focusing on reducing the energy consumption of 135 designated entities by increasing their energy efficiency through energy service companies (ESCOs). Recently, a three-day workshop on ESCOs was organized by The Deutsche Gesellschaftfur Internationale Zusammenarbeit GmbH (GIZ) and Energy Conservation Department (ECD) of the Energy Regulatory Commission (ERC) exploring opportunities and required cooperation to establish ESCOs in Mongolia.

Head of ECD Ts.Atarjargal announced at the workshop that Mongolia is learning from Latvia's case and other ESCOs to use the Energy Performance Contract (EPC) financing system in implementing the National Energy Efficiency Action Program 2017-2020.

According to trainer of the workshop Eric Berman, simply put, ESCO is a concept in which engineering companies that previously rented out their service and certain gear or product started selling their performance instead. Berman is the founder of Renesco, the first renovation and energy service company, with an emphasis on renovation and retro-fitting as a housing solution for low and middle income households.

'The energy component is actually the way to pay for the renovation,' he said. The ESCO solves its financing through what's called an EPC. The EPC is a simple arrangement where usually an ESCO represents the clients and takes their technical responsibility to deliver energy efficiency, and use the income from the cost savings to pay for the bank loan. 'It requires transparency and clarity, and makes it easier to quantify the benefits to finance these very long-term renovation contracts,' said Berman.

'[EPC was common] mainly on the manufacturing, supply side, as [humans] produced a lot but also spent a lot of energy doing that. So someone 30, 40 years ago said, 'Hey, you can improve your energy consumption by this much, and we'll help you do that.' So it refers to improving the energy consumption of any type of production. It could be energy itself, anything. On the demand side, it's a bit less common. In America, they use it in their public sector, for authorities to not just reduce energy consumption, but very much for the maintenance of their properties. It creates clarity for the owner, to unburden them of the issues of how to maintain the building, as the building owner is not necessarily an engineer, so we have to outsource that,' Berman said.

Renesco was established in Latvia, a post-Soviet country similar to Mongolia in terms of housing. Their business model runs somewhat like this: Let's imagine that an apartment's Home Owner's Association (HOA) paid for 400 MWh electricity to the House Maintenance Company (HMC). The HOA and the whole apartments shall agree on a demand for renovation. After the HOA signs a preliminary EPC with the ESCO, the ESCO uses its own funds to pay for the energy auditing and technical scoping. This project development process takes about six to eight months. Afterwards, the actual EPC of 20 years is signed and financed by a bank. They sign a contract with the construction company to perform the renovation, which takes place for three to nine months. The...

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