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Evolution of the U.S. energy service company industry: Market size and project performance from 1990–2008

Author

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  • Larsen, Peter H.
  • Goldman, Charles A.
  • Satchwell, Andrew

Abstract

The U.S. energy service company (ESCO) industry is an example of a private sector business model where energy savings are delivered to customers primarily through the use of performance-based contracts. This study was conceived as a snapshot of the ESCO industry prior to the economic slowdown and the introduction of federal stimulus funding mandated by enactment of the American Recovery and Reinvestment Act of 2009 (ARRA). This study utilizes two parallel analytic approaches to characterize ESCO industry and market trends in the U.S.: (1) a “top-down” approach involving a survey of individual ESCOs to estimate aggregate industry activity and (2) a “bottom-up” analysis of a database of ∼3250 projects (representing over $8B in project investment) that reports market trends including installed EE retrofit strategies, project installation costs and savings, project payback times, and benefit-cost ratios over time. Despite the onset of a severe economic recession, the U.S. ESCO industry managed to grow at about 7% per year between 2006 and 2008. ESCO industry revenues were about $4.1 billion in 2008 and ESCOs anticipate accelerated growth through 2011 (25% per year). We found that 2484 ESCO projects in our database generated ∼$4.0 billion ($2009) in net, direct economic benefits to their customers. We estimate that the ESCO project database includes about 20% of all U.S. ESCO market activity from 1990–2008. Assuming the net benefits per project are comparable for ESCO projects that are not included in the LBNL database, this would suggest that the ESCO industry has generated ∼$23 billion in net direct economic benefits for customers at projects installed between 1990 and 2008. There is empirical evidence confirming that the industry is evolving by installing more comprehensive and complex measures—including onsite generation and measures to address deferred maintenance—but this evolution has significant implications for customer project economics, especially at K-12 schools. We found that the median simple payback time has increased from 1.9 to 3.2 years in private sector projects since the early-to-mid 1990s and from 5.2 to 10.5 years in public sector projects for the same time period.

Suggested Citation

  • Larsen, Peter H. & Goldman, Charles A. & Satchwell, Andrew, 2012. "Evolution of the U.S. energy service company industry: Market size and project performance from 1990–2008," Energy Policy, Elsevier, vol. 50(C), pages 802-820.
  • Handle: RePEc:eee:enepol:v:50:y:2012:i:c:p:802-820
    DOI: 10.1016/j.enpol.2012.08.035
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    References listed on IDEAS

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    1. Barbose, Galen & Goldman, Charles & Schlegel, Jeff, 2009. "The Shifting Landscape of Ratepayer-Funded Energy Efficiency in the U.S," The Electricity Journal, Elsevier, vol. 22(8), pages 29-44, October.
    2. Okay, Nesrin & Akman, Ugur, 2010. "Analysis of ESCO activities using country indicators," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(9), pages 2760-2771, December.
    3. Vine, Edward, 2005. "An international survey of the energy service company (ESCO) industry," Energy Policy, Elsevier, vol. 33(5), pages 691-704, March.
    4. Goldman, Charles A. & Hopper, Nicole C. & Osborn, Julie G., 2005. "Review of US ESCO industry market trends: an empirical analysis of project data," Energy Policy, Elsevier, vol. 33(3), pages 387-405, February.
    5. Bertoldi, Paolo & Rezessy, Silvia & Vine, Edward, 2006. "Energy service companies in European countries: Current status and a strategy to foster their development," Energy Policy, Elsevier, vol. 34(14), pages 1818-1832, September.
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    Citations

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    Cited by:

    1. Shang, Tiancheng & Zhang, Kai & Liu, Peihong & Chen, Ziwei & Li, Xiangpeng & Wu, Xue, 2015. "What to allocate and how to allocate?—Benefit allocation in Shared Savings Energy Performance Contracting Projects," Energy, Elsevier, vol. 91(C), pages 60-71.
    2. Akman, Ugur & Okay, Esin & Okay, Nesrin, 2013. "Current snapshot of the Turkish ESCO market," Energy Policy, Elsevier, vol. 60(C), pages 106-115.
    3. Nolden, Colin & Sorrell, Steve & Polzin, Friedemann, 2016. "Catalysing the energy service market: The role of intermediaries," Energy Policy, Elsevier, vol. 98(C), pages 420-430.
    4. Pantaleo, Antonio & Candelise, Chiara & Bauen, Ausilio & Shah, Nilay, 2014. "ESCO business models for biomass heating and CHP: Profitability of ESCO operations in Italy and key factors assessment," Renewable and Sustainable Energy Reviews, Elsevier, vol. 30(C), pages 237-253.
    5. Bardhan, Ashok & Jaffee, Dwight & Kroll, Cynthia & Wallace, Nancy, 2014. "Energy efficiency retrofits for U.S. housing: Removing the bottlenecks," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 45-60.
    6. Sanghyo Lee & Sungho Tae & Sungwoo Shin, 2015. "Profit Distribution in Guaranteed Savings Contracts: Determination Based on the Collar Option Model," Sustainability, MDPI, Open Access Journal, vol. 7(12), pages 1-17, December.
    7. Deng, Qianli & Jiang, Xianglin & Zhang, Limao & Cui, Qingbin, 2015. "Making optimal investment decisions for energy service companies under uncertainty: A case study," Energy, Elsevier, vol. 88(C), pages 234-243.
    8. repec:eee:enepol:v:114:y:2018:i:c:p:13-21 is not listed on IDEAS
    9. repec:eee:enepol:v:107:y:2017:i:c:p:345-355 is not listed on IDEAS
    10. repec:eee:energy:v:126:y:2017:i:c:p:733-745 is not listed on IDEAS
    11. Garrett-Peltier, Heidi, 2017. "Green versus brown: Comparing the employment impacts of energy efficiency, renewable energy, and fossil fuels using an input-output model," Economic Modelling, Elsevier, vol. 61(C), pages 439-447.
    12. Lee, P. & Lam, P.T.I. & Lee, W.L. & Chan, E.H.W., 2016. "Analysis of an air-cooled chiller replacement project using a probabilistic approach for energy performance contracts," Applied Energy, Elsevier, vol. 171(C), pages 415-428.
    13. Stuart, Elizabeth & Larsen, Peter H. & Goldman, Charles A. & Gilligan, Donald, 2014. "A method to estimate the size and remaining market potential of the U.S. ESCO (energy service company) industry," Energy, Elsevier, vol. 77(C), pages 362-371.

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