A method to estimate the size and remaining market potential of the U.S. ESCO (energy service company) industry
Introduction
A significant ramp-up in U.S. energy efficiency activities is occurring at the local, state, and federal level, driven in part by the adoption of energy efficiency or greenhouse gas reduction goals. For example, in the utility sector, the number of states with binding energy saving targets increased from seven in 2008 to twenty-one at present. Fifteen U.S. states have adopted EERS (energy efficiency resource standards) that require program administrators at utilities or other entities to achieve minimum energy savings targets that increase in the future (e.g., annually over the next 10 years). Six additional U.S. states have established statutory or regulatory requirements that utilities acquire “all cost effective” energy efficiency.1 In response to a 2011 presidential memorandum the U.S. DOE (department of energy) was tasked with implementing $2 billion ($US) in new ESPCs (energy savings performance contracts) and UESCs (utility energy savings contracts) in 2012 and 2013. If successfully implemented, this authorization represents a significant increase in U.S. federal market activity compared to previous years.2
This study presents a method to estimate the market investment potential for ESPCs and annual blended energy savings remaining in buildings typically addressed by U.S. ESCOs. The ESCO (energy service company) industry has a well-established track record of delivering substantial energy and economic savings in the public and institutional buildings sector, typically through ESPCs [1], [2], [3].
Larsen et al. [2] formally define an ESCO (energy service company) as: “A company that provides energy efficiency-related and other value-added services and for which performance contracting is a core part of its energy-efficiency services business. In a performance contract, the ESCO guarantees energy and/or dollar savings for the project and ESCO compensation is therefore linked in some fashion to the performance of the project”.3
This work builds on previous LBNL (Lawrence Berkeley National Laboratory) U.S. ESCO industry research that includes analysis of information from a database of over 4000 completed ESPC projects [1], [2] and previous research drawing upon interviews with ESCO executives [2], [4]. We analyze the market size, recent growth trends and market characteristics of the U.S. ESCO industry and provide a preliminary estimate of the remaining ESCO industry market potential (expressed in terms of investment opportunity and projections of potential energy savings) using a methodology we developed to accommodate data limitations.
This work is intended to inform federal, state and local policymakers, ESCO industry executives, other energy efficiency service providers, and end users in the institutional and commercial market in the U.S. and other countries with growing ESCO industries. In addition, the method and results discussed here (i.e., current market size and remaining dollar and savings potential) could be used directly (or adapted) by other researchers [5], [6], [7], [8] to estimate local, regional, or global demand for energy efficiency services. In Section 2, we introduce our estimation method and data sources. Section 3 provides findings on ESCO market size, growth, industry characteristics and the global context. Section 4 presents results of our estimate of the remaining U.S. ESCO market potential. Section 5 discusses the U.S. ESCO industry in a global context. In Section 6, we summarize findings and discuss limitations of the market potential estimation methodology.
Section snippets
Data sources and estimation methods
In this section, we discuss data sources and methods used to estimate 1) 2011 U.S. ESCO industry revenues and growth trends; and 2) the remaining U.S. ESCO industry market potential.
To establish the boundaries of what we define as the ESCO industry, we included only those companies that meet our definition of an ESCO: firms for which performance contracting is a core part of their energy-efficiency services business. We did not include companies such as engineering and architectural firms;
Revenues and growth trends
We estimate that aggregate ESCO industry revenue was about $5.3 billion in 2011; energy efficiency projects accounted for about 85% of revenue. In comparison, Satchwell et al. [13] estimated 2008 ESCO industry revenue to be about $4.1 billion (in nominal terms). Thus, we estimate that the U.S. ESCO industry grew about ∼9% per year between 2009 and 2011. These results suggest that the ESCO industry has maintained relatively steady growth in recent years despite the severe economic recession
Remaining ESCO market potential
Table 8, below, shows that the remaining market potential for the U.S. ESCO industry in terms of project investment opportunity ranges from a low estimate of about ∼$71 billion to a high estimate of $133 billion. The large amount of remaining investment potential is indicative of a ∼25% average market penetration rate across all U.S. market segments. This preliminary analysis found that there is still a considerable opportunity for ESCO activity in all market segments.
Fig. 8 shows that the
U.S. ESCO industry in a global context
Outside of the United States, ESCO industry development continues at a steady (or high-growth) pace. Some countries define ESCOs in a similar fashion and report that these companies were first introduced into Asia in the 1990s—based in part on the U.S. business model [25]. Nakagami reported that China's performance contracting market totaled just over $1.6 billion in 2008 [25] and Kostka and Shin [26] indicate that the ESCO market in China grew to $4.4 billion in 2009. A 2012 report from EMCA
Conclusion and limitations
This study provides a preliminary estimate of the remaining investment and savings potential in markets typically served by the U.S. ESCO industry, and details the methodology the authors developed to produce that estimate. The analysis results suggest that the remaining investment potential in facilities typically addressed by the ESCO industry is significant, ranging from ∼$71 to $133 billion. The authors also found that the U.S. ESCO industry continued to grow at a steady pace in recent
Acknowledgments
This work was supported by the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy, Weatherization and Intergovernmental Programs under Contract No. DE-AC02-05CH11231. We would also like to thank a number of anonymous reviewers for their helpful suggestions.
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