Development of an ESCO Risk Assessment Model as a Decision-Making Tool for the Energy Savings Certificates Market Regulator: A Case Study  
[PERSON]  
1 Department of Energy Engineering, Sharif University of Technology, Tehran, P.O. Box 14565-114, Iran; [EMAIL_ADDRESS]  
[PERSON]  
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\"existence of financial institutions and instruments\"; and \"low energy prices and benefits of energy efficiency projects\". The impacts of these challenges are reflected in the increase of the risk of energy savings projects, especially under the ESCO business model which is based on the energy performance contracts (EPC). Because the ESCO business is based on the EPC, its benefit in energy efficiency projects will be obtained as a part of saved energy that is determined in a contract between the ESCO and energy consumer during a specific time period [5; 6]. This heightens the dependency of the benefits of ESCO to the energy consumer's behavior and thus makes it to be susceptible to different uncertainties [7; 8; 9; 10]. The investigation of the experiences of different countries shows that more success in removing four related challenges leads to higher regards for ESCO business. Additionally, successful experiences demonstrate that the market-based solutions are the best approach for solving the challenges of energy savings projects, and when the market structure, as shown in Figure 1, is more developed in a country, the ESCO business is more active in that country and their challenges are fewer. The creation of the ESC market, such as the tradable white certificates (TWC) market in recent years, is a testimony to this claim [11; 12]. However, the energy savings market, despite its benefits for solving the mentioned challenges of ESCO, is not mature yet and there is discussion about the ways for increasing its performance and effectiveness [14]. As with any market, the ESC market will work and be effective if its supply and demand sides are formed adequately and match with each other [15; 16; 17; 18]. From the demand side, policy makers and governments are pursuing different ways such as determining standards and penalties to reinforce it [19]. Apart from the supply side, which is done by ESCO, the encouragement of ESCO to perform more energy savings projects for creating an appropriate amount of supply is essential in order to lead to liquid markets. As previously mentioned, the ESCO business model is a high-risk model, which heightens its challenges for performing energy savings projects. Therefore, ESCO will be encouraged to perform more projects and subsequently supply more certificates in the ESC market if its risk is decreased. As such, the main question of this article is:  
\"How could the ESC market be effective for risk reduction in the ESCO business?\"  
As shown in Figure 2, after fulfilling the energy saving project, an ESCO, in addition to owning a portion of the benefits from the consumer reduced energy cost, can benefit from selling the certificates in the market for a time period that is determined by the market regulator. Due to this, a determined time period by the market regulator is one of the most important parameters that affect the risk reduction of ESCO in the ESC market. Figure 1: The schematic view of the Energy Savings Certificates (ESC) market structure [13]. As the allowed time period by the regulator for selling the certificates becomes longer, the benefit of ESCO will also increase and subsequently the risk in its business will reduce. However, too much risk reduction by this means is not appropriate, since it prevents the ESCO from attempting to implement other solutions such as developing more cost-effective technologies. On the other hand, a short-allowed time window will not be effective enough to make the ESCO project justified from the risk and economic viewpoints that cause the market to be unproductive for risk reduction. This means that determination of an appropriate time period by the market regulator is necessary to lead to an optimal allocation of financial resources to the ESCO.