Energy Service Companies: No More Mr. Niche Guy

Fortnightly Magazine - April 15 1996
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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.)

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