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.

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.

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