LBNL Report Number
Key highlights from U.S. Energy Service Company (ESCO) Industry: Recent Market Trends
- After more than two decades of year-over-year growth, ESCO industry revenues appeared to flatten between 2011 and 2014. ESCOs reported 2014 industry revenue of approximately $5.3 billion, the same as revenues reported in 2011.
- Based on ESCOs’ 3-year growth projections, ESCOs expect total annual industry revenues to be approximately $7.6 billion in 2017, which equates to an average annual growth rate of ~13% between 2015 and 2017.
- Public and institutional market sectors accounted for 85% of industry revenue in 2014, which is consistent with previous study findings.
- Performance contracting generated 75% ($3.7 billion) of industry revenue in 2014, which is somewhat higher than the 69% share reported in 2011 and 2008. Design-build projects contributed the next largest share of 2014 revenue (16% or ~$800 million), followed by consulting services (5%), onsite generation power purchase agreements (3%) and other activities (2%).
- The share of industry revenue contributed by large ESCOs (annual energy services revenue of $300M or greater) declined somewhat between 2011 and 2014 (56 vs 51% of total industry revenues). Medium-sized ESCOs (annual revenues between $100M and $299M) increased market share from 29% in 2011 to 33% in 2014. Small ESCOs (annual revenue <$100M) increased their share of total industry revenue from 15% in 2011 to 16% in 2014.
- Share of industry revenues by ESCO size varies in different regions across the U.S. Large ESCOs accounted for 60-80% of industry revenues in West North Central, Middle Atlantic and New England regions. However, in the West and South Central regions, medium and large ESCOs had nearly equal share of revenue (~40% and 45% respectively).
- New customers accounted for the majority of performance-based revenue during the years 2012-2014, with some variation by market segment.
- ESCOs incorporate at least one of six key types of non-energy benefit in performance-based projects across all market segments.
- More than half of the ESCOs serving each market segment reported leveraging local, state or federal tax benefits in projects.
- ESCOs reported use of various financing approaches for each market segment. Most federal projects were financed using term loans. Financed projects for state and local governments, universities, colleges and K-12 schools, and healthcare facilities made extensive use of leases and term loans. Bonds were used almost exclusively for state/local and K-12 schools projects.
The authors also discuss a number of factors that may have contributed to the industry growth slowdown between 2011 and 2014.