Consolidation Among U.S. Energy Service Companies Will Continue

June 20, 2012

The Energy Service Company (ESCO) market, which comprises companies that provide end-to-end efficiency measures through the use of performance-based contracts, exceeded $5 billion in revenues in 2011.  Driven by public policies that encourage a greater emphasis on energy efficiency, this market is expected to continue growing at a pace that exceeds general economic growth.  According to a new report from Pike Research, consolidation among ESCOs will continue through the remainder of this decade, as highly competitive players aim to increase market share, resulting in an industry structure concentrated to a large extent in a group of very large companies focused on serving the federal government.

Overall, the cleantech market intelligence firm forecasts, this market will continue to grow faster than the domestic economy and reach at least $13 billion in sales by 2020.

“In some respects, the rapid rise of mergers and acquisitions in the ESCO industry over the past decade is similar to the intense consolidation of many smaller electric and gas utilities at the start of the 20th century,” says research analyst Brittany Gibson.  “However, the utility mergers generally resulted in the creation of mid-to-large territorial monopolies, sanctioned and institutionalized by a regulatory structure meant to protect the public interest. In contrast, the consolidation of ESCOs has resulted in an unregulated but highly structured tier of companies pursuing business in national or regional markets.”

At the very top of this tier are the 16 ESCOs selected in 2009 by the U.S. Department of Energy for special consideration in contracting through the use of Energy Service Performance Contracts (ESPCs), designated by the U.S. government as “Super ESPCs.”  Of particular importance for these “super ESCOs” is the 2009 executive order issued by President Barack Obama that mandates that all federal agencies must achieve a 30% reduction in energy use by 2015.  While a select few utility affiliates remain among the largest ESCOs, perhaps the biggest change in terms of the ESCO competitive landscape has been the rapid disappearance of many utility-affiliated companies.

Pike Research’s report, “The U.S. Energy Service Company Market”, describes the continuing evolution of the ESCO market, detailing drivers and barriers to deeper penetration of energy efficiency in the U.S. economy.  The study focuses on the role that performance contracting is playing as a vehicle for financing efficiency projects for public entities that face budget and credit limitations, as well as the convergence of new technologies and service offerings into traditional energy conservation projects.  Key industry players are profiled in depth and market forecasts extend through 2020.  An Executive Summary of the report is available for free download on the firm’s website.

Contact: Richard Martin

+1 303 997 7609

press@navigantresearch.com

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