In the 1980s and 1990s, vendors of HVAC equipment, oil and gas, and others entered the energy service company (ESCO) market, using end-to-end energy efficiency solutions as a platform to sell “stuff.” In the early 2000s, many of these service providers divested their service lines to re-focus on their core businesses, leaving integration up to others.
In recent years, however, a range of new players are entering – or re-entering – the energy efficiency services market. In our report, Energy Efficient Buildings: Global Outlook, Pike Research forecasts that the market for energy efficiency technology and services will grow to $103 billion by 2017, up from $68 billion in 2011. As the market for energy efficiency services grows, many players are finding that to compete for energy efficiency business – whether through procurement procedures in the public sector or outsourced energy efficiency services for commercial property owners and managers – they need to move further down the value chain and not only sell products, but also integrate those products into a complete solution.
One way to make the transition from manufacturing to integration is through acquisition. Eaton Corporation, for example, made its move into the energy efficiency services space with its 2010 acquisition of EMC Engineers. That paved the way for Eaton to achieve a certification as a Qualified ESCO by the U.S. Department of Energy in 2011, allowing it to access the federal energy efficiency services market as well.
Meanwhile, a number of other firms that don’t necessarily fit the traditional HVAC or property services profile have also been building on their product lines with new energy efficiency service businesses. In February, Hess, the Woodbridge, NJ-based oil and gas giant that’s better known for selling gallons of gasoline, announced the launch of Hess Energy Solutions.
The motivations for getting into energy efficiency services relate mostly to the opportunity to expand further down the energy efficiency value chain and to bring in higher-margin work. When sales of stuff plateau, or gaining market share becomes increasingly difficult, some firms see services as the logical extension of existing product lines. The global economic downturn encouraged the development of service lines as many manufacturing firms have had difficulty maintaining product sales levels at pre-recession levels. In addition, many services offer higher margins than product sales do, so folding a service business into a business’ broader portfolio can yield a higher average profit margin for the business as a whole.
Tags: Energy Services, Industrial Innovations, Mergers & Acquisitions, Smart Buildings Practice
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