Analysis of the Energy Management Services Market

Frost & Sullivan, November 2011, Pages: 89

Volatile Energy Prices Support Uptake of Energy Management Services

The simultaneous occurrence of an economic crash, the widespread implementation of regulations for energy efficiency, and an increase in financial incentives has driven the fastest growth for the energy management services’ (EMS) market revenue in recent history—approximately 29 percent from 2009 to 2010. The public sector has been the strongest adopter of these services through performance contracts and third-party financing. “Volatile energy prices during an economic recession are among the strongest drivers for growth in the energy management services market,” notes Frost & Sullivan Research Analyst Suzan Riazi. “Building owners challenged by reduced budgets need a better way to manage costs, and comprehensive building retrofits have been proven to generate millions in energy cost savings for customers over the length of their contracts.”

In particular, public entities governed by federal or state mandates to reduce energy usage and increase renewable energy sources have grown more accepting of performance contracts. Through this contracting method, and with the help of third-party financing, they are able to meet energy reduction targets and simultaneously address the need for facility upgrades without the obstacle of high upfront costs.

Long Payback Terms Deter the Private Sector

“While the uptake of energy management services has been strong among public entities, the private sector remains a challenge for energy service companies (ESCOs),” remarks Riazi. “Depending on the energy conservation measures involved, a complete building retrofit can cost upward of $100 million in total contract value and take as much as 15 years to recover costs through generated savings.” Most private entities, such as those in the commercial and industrial sectors, require faster returns on their investments. Hence, they are less inclined to adopt comprehensive energy management service contracts. Commercial and industrial clients tend to choose individual energy conservation measures, such as lighting upgrades, with short payback terms rather than integrate more complex measures that have long-term benefits. Triple net lease terms, where the building owner assumes the costs for most building upgrades while the tenant reaps the benefits of lower utility bills, further discourage commercial real estate clients.

“In light of these challenges, traditional ESCOs have focused their sales efforts on the public sector, the primary customer segment for performance contracts, which represented more than 75 percent of the total market revenue,” concludes Riazi. “With regard to private entities, ESCOs have focused more on the private higher-education and healthcare vertical markets, which have more long-term goals than maximizing immediate shareholder value.”

Market Sectors

Expert Frost & Sullivan analysts thoroughly examine the following market segments in this research:

- Performance contracts
- Non-performance-based contracts

By Vertical:

- Government
- Institutional
- Healthcare
- Commercial
- Industrial

This Frost & Sullivan research service titled Analysis of the Energy Management Services Market provides market revenue forecasts, competitive analysis, and end-user analysis. In this research, a Frost & Sullivan expert analyst thoroughly examines the following market segments: performance contracts and non-performance-based contracts. Vertical markets covered include government, institutional, healthcare, commercial, and industrial.

1. Executive Summary

2. Market Overview

3. Energy Management Services Market
- 3.1 External Challenges: Drivers and Restraints
- 3.2 Forecast and Trends
- 3.3 Market Share and Competitive Analysis

4. Performance Contract Segment Breakdown

5. Non-performance-based Contract Segment Breakdown

6. The Last Word

7. Appendix

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