ESCOs Say Market May Triple in 10 Years

With the 20-percent-plus sales decline over the past two years that many electrical distributors, reps and manufacturers have had to endure, it's somewhat startling to stumble across a market niche that grew in the high single digits even during the depths of the recession and may double or triple in size over the next 10 years.

Welcome to the world of energy-service companies (ESCOs). Relatively small in number with no more than a few dozen major ESCO players, these energy specialists develop, install, and arrange financing for projects designed to improve the energy efficiency and maintenance costs for a facility over an extended period of time, according to the National Association of Energy Service Companies (NAESCO) , Washington, D.C.

NAESCO says what sets ESCOs apart from others interested in energy-efficiency projects, such consulting firms and equipment contractors, is the concept of performance-based contracting. When an ESCO undertakes a project, NAESCO says the company's compensation, and often the project's financing, are directly linked to the amount of energy that is actually saved.

ESCOs focus on slashing a customer's total energy bill by retrofitting a building systems including electrical, HVAC, insulation, roof and windows. Some, like ConEd Solutions, Valhalla, N.Y., a division of New York mega-utility ConEdison, even provide customers with a source of electricity. Lighting retrofits are a comparatively small - but very visible - part of the services that ESCOs provide for their customers, which typically includes Fortune 500 companies, federal projects and the MUSH market (municipal, state/local business, K-12 schools, universities and health-care facilities).

NAESCO's ESCO members range from small, privately held companies to large entities like ConEd Solutions that are owned by electric utilities and do more than $1 million in annual revenues. Listed among NAESCO's members are some familiar names from the electrical world - Eaton Corp., Cleveland; the Siemens Energy and Environmental Solutions business unit based in Buffalo Grove, Ill.; and Schneider Electric, which all have growing interests in providing building owners with turnkey design and installation services.

Two industry insiders say ESCOs never really saw any drop in business during the recession. James Dixon, V.P. energy services, ConEd Solutions, said the ESCO market has grown 7 percent to eight percent in recent years. Don Gilligan, NAESCO's president, says a study by Lawrence Berkeley National Laboratory projects that ESCOs may see their business double, triple or grow even more by 2020 “depending on what happens with the federal energy and climate legislation.”

The popularity of utility rebates and states' financial incentive programs are also helping propel this growth. Gilligan says the total volume of rebates is growing 15-20 percent.

Dixon and Gilligan say ESCOs are eager to work with electrical contractors and distributors who are willing to prepare themselves for this growth opportunity. “We see a real need to work more closely with the contractors and wholesalers,” he says. “Both of these groups have to keep up with the new developments in technology and have to understand the volume of business that is coming out of our industry.”

“They have to stay on top of the technology,” agrees Dixon. “The lighting contractors who can be a partner and identify new technologies and better ways of achieving energy efficiency through lighting are the real value-adds. Those are the ones you want to partner with and bring into jobs. Lighting is just the low-hanging fruit. You can buy a lot of project with a good lighting partner who can go in and really find some savings. It's not just a matter of changing lightbulbs. They must stay on top of the latest photometric analysis. Those are the ones that we continuously go back to when we are developing proposals and invite in as a partner.”