Liberating the Power of Energy Services and ESCOs in a Liberalised Energy Market

Energy Services Companies (ESCos) could help to address barriers to energy efficiency and microgeneration, by providing information, finance, installation, operation and maintenance under a long-term contract. Three distinct types of market are identified. First, the commercial and industrial sector, using a ‘facilities management’ or ‘performance contract’ model, where the ESCo offering is most developed, and where there remains great potential. Second a community model, where decisions are taken by or on behalf of a group of customers in the same location (for example, but not exclusively, a Community Heating scheme). There is particular opportunity in new build, and in social housing. Third, a household model, where energy suppliers, contractors or equipment suppliers to existing residential customers may evolve to include energy efficiency and microgeneration. This is the hardest market for ESCos since the transaction costs of servicing millions of small (and skeptical) consumer is currently large compared to the savings. There is a well-established incumbent industry with significant barriers to new market entry for an alternative business model. The paper explores opportunities and barriers as well as policy options to promote each of the three models, with particular focus on the residential sector. The paper builds on research in the EU market for ESCO’s undertaken by European Commission DG JRC, together with research by Oxford University as part of the UK Energy Research Centre, which explored opportunities for ESCos beyond the commercial and industrial sectors. The facilities model is well known, while ESCOs specialized in servicing households are virtually almost non-existent. What is new in this paper is the outlining of the communities model (especially the opportunities in new build) as an opportunity to transfer the ESCos model to smaller customers as an intermediate step to serving households, and to identify possible actors to promote ESCos in the residential sector.

BERTOLDI Paolo;  REZESSY Silvia;  HINNELS Mark; 

2006-11-13

European Commission DG JRC

JRC33747