Severely strained government budgets have convinced state and local governments across the United States to embrace a new form of performance-based investments in energy efficiencyoffered by energy services companies, or ESCOs.
An ESCO 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 or financial savings for the project, which means ESCOs only make money if the project performs as promised.
The industry expanded by about 1.6% over the previous year, reaching $32.9 billion in 2010. Ironically, the ESCO industry considers it a victory simply not to have lost money in 2010. Revenues from the commercial and industrial sectors have fallen sharply as a result of the economic downturn. Energy management firms have struggled to find financing for energy-efficiency contracts as credit conditions remain less-than-ideal. End-users that endured the economic recession are hesitant to commit to a long term financial strain while still incurring repercussions of the market.
The “MUSH” markets—municipal and state governments, universities and colleges, K-12 schools, and hospitals—have historically accounted for the lion’s share of U.S. ESCO projects. In 2006, the MUSH market’s share of total ESCO revenues accounts for about 69% of ESCO industry revenues, an increase of over 10% since 2006, according to an analysis by researchers atLawrence Berkeley National Laboratory in Berkeley, Calif.
The industry’s expectations for the next five years are a little less modest, expecting significant and sustained growth for several years. The total energy management services market – which includes ESCOs – will approach $50 billion by 2017, according to a new research report by Verify Markets.
“Various grant and stimulus money such as ARRA funding has provided billions of dollars for MUSH (municipalities, universities, schools, hospitals) markets that are implementing energy efficiency projects,” said Anthony Miller, an analyst at Verify Markets Analyst. “Also, these end-users are becoming more and more aware of the need for more efficiency and are now realizing that it’s not only necessary in terms of sustainability, but that it saves substantially on energy bills.”