Some want to cut costs, others to improve service.
Uncertain economic times have always moved companies to find ways to cut costs. Utilities...
Energy Service Companies: No More Mr. Niche Guy
The larger companies are winning more business. But how will
they fit into a restructured industry?
Put 45 energy service companies (ESCos) into a $1-billion market, and they easily average over $20 million each. That's almost four dozen companies exploiting a niche an eighth the size of the microprocessor industry.
So it's easy to understand why new ESCos, half with utility roots, enter the fray weekly. Four years ago, when the National Association of Energy Service Companies (NAESCO) first studied the ESCo market under its strict definition criteria, member companies took in $500 million in annual revenues.
Much has changed since 1983, when NAESCO was founded by a lawyer toying with the concept of shared customer energy-savings plans. The growing industry is winning more multimillion dollar projects, and some predict that ESCos will garner the retail services business under electric deregulation. But to get there, ESCos may need help from regulators. Even at senior levels within the electric industry, ESCos still fight the perception that the work they do is an afterthought, an add-on to the "real" work of energy planning. To survive the transition to deregulation, ESCos may need something like a user charge.
What Do They Do?
Broadly defined, ESCos offer customers pricing options and contracts; information services; efficient lighting, heating, cooling, and drive power; maintenance; and financing for energy equipment investments.
NAESCO, however, which claims 90 percent of the market, manages a much narrower set of enterprises. (Its picture of the revenue pie, therefore, includes only those dollars invested for its brand of ESCos. Industry sources that use other criteria project a market as high as $4 billion.)
NAESCO defines an ESCo as a project developer, similar to a real estate developer, that takes risks to win returns. NAESCO members only get paid if their energy-efficiency measures deliver the targeted economies. The key lies in verified cost reduction or energy efficiency. If efficiencies are met, typical paybacks run about 25 percent over four years. Lighting installations could return savings in 18 months. On the other hand, an $18-million chiller could take seven years to return the investment.
Investments average $500,000 to $2.5 million. But that, too, is changing, says Terry E. Singer, NAESCO executive director: "Where they used to do a building, now they're doing entire school districts, entire universities, military bases. The number is going up slowly."
CES/Way, for example, under contract to Utah Power & Light Co., is boosting energy performance in a $19-million project for Hill Air Force Base, Utah's largest employer. The 20-year project covers 1,400 buildings on 13.4 million square feet; cost reductions form part of a larger goal of preserving jobs.
A good part of ESCo business is being won by the larger, better-known companies (em namely Honeywell, Inc.; Johnson Controls, Inc.; Landis & Gyr Powers, Inc.; and EUA Cogenex Corp. All four are offshoots of parent companies. They lead the industry perhaps because of the wide geography of their offices, their expertise in a niche, or their comprehensive service offerings.
ESCos, by NAESCO's definition, must offer a range of services. Companies are