Lawrence Berkeley National Laboratory

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 for 2017, which equates to an average annual growth rate of ~13% for the three years 2015-2017. • 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 for performance contracting reported in 2011 and 2008. Design-build projects contributed the next largest share of 2014 revenue (16% or ~$800 million), followed distantly 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. Accordingly, medium-sized ESCOs as a group (annual revenue between $100M and $299M) increased market share from 29% in 2011 to 33% in 2014. Small ESCOs (annual revenue <$100M) increased market share slightly, from 15% in 2011 to 16% in 2014. • Share of industry revenues by ESCO size varies in different regions across the U.S. For example, large ESCOs accounted for 60-80% of industry revenues in West North Central, Middle Atlantic and New England regions. However, small ESCOs garnered nearly as much of the total market revenue as large ESCOs in the East North Central region. • 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 discuss of a number of factors that may have contributed to the industry growth slowdown between 2011 and 2014.