While the ESCO industry has been active for approximately 30 years, it continues to evolve in response to business opportunities and economic trends, notes Pike Research. Today, newer service offerings, such as demand response and energy management software, enabled by intelligent metering and control systems that afford customers greater flexibility and control over their energy usage, are opening new opportunities for ESCOs.

“The full impact of recent federal stimulus funding has yet to be realized,” said research analyst Brittany Gibson. “But the American Recovery and Reinvestment Act of 2009 has directed billions of dollars into energy efficiency projects at all levels of government and in all geographic regions of the nation, driving increased investment and accelerating innovation among ESCOs.”

The ESCO market predominantly takes the form of direct contracting between providers of energy efficiency services and equipment and government agencies, public institutions, and commercial customers — typically via performance contracts, where funding for individual projects is based on a promise of “guaranteed savings” to facility owners/managers. In particular, the federal sector’s appetite for this energy service performance contract model is growing, helping give rise to a market structure dominated by a group of very large companies that specialize in these contracts. At the same time, project sizes are increasing as clients look for more comprehensive technologies and designs to address their energy consumption.

Of particular significance for ESCOs is President Obama’s 2009 executive order, which mandates that all federal agencies must achieve a 30 percent reduction in energy use by 2015.

Publication date: 03/12/2012