Is the energy efficiency service markets still MUSH?

By Elisa Wood
June 8, 2011

We hear a lot about energy efficiency these days, but who is actually pursuing it?

In recent years most of the big players that install efficiency measures, the energy service companies (ESCos), have found work largely in the MUSH market: municipal and state governments, universities, schools and hospitals. In fact, a report in June 2010 by Lawrence Berkeley National Laboratory and the National Association of Energy Service Companies found that MUSH made up 70% of the work done by ESCos.

Private businesses, on the other hand, were backing away from making energy efficiency improvements when the report was written. A year has passed. Is the market still MUSH?

I looked at the projects announced by the big players in recent months. Here’s a sampling of a few.

• Ameresco struck deals with the Greensboro Housing Authority, Boston Housing Authority, state of Alaska for public university buildings, New York State School District, Penn State University and City of Portland, Maine.
• Chevron Energy Services is bringing efficiency to East Side Union High School District in San Jose, California; North Carolina Central University; the city of Victoria, Texas; as well as Orange County, California and Santa Monica College.
• Noresco is working with the state of Hawaii, Fort Worth Naval Air Station, the Allendale County Schools in South Carolina, Capitol Hill and Elkhart County, Indiana.
• And on and on as I made way down the list of large ESCos.

My very unscientific survey indicated that MUSH still predominates. And that’s not a bad thing. The MUSH market certainly has a lot of room for energy savings. And federal-stimulus dollars and state clean energy funds are available now particularly for government-backed institutions.

Fewer financial incentives are available for businesses. But even when money is offered, small to medium-size businesses are harder to sell on energy efficiency, especially now. Even if an energy efficiency project offers a quick payback, businesses are reticent to make any initial capital investment. Or in a lot of cases, it’s hard for energy efficiency companies to even get a meeting with busy business people, especially in an economy that has left so many paddling furiously to stay above water.

The state of New York is attempting to crack the business market. One program, funded by the New York State Energy Research and Development Authority (NYSERDA), tries to make it easier for small businesses to analyze building energy usage.

Few best-of-class monitoring technologies exist for the small business market. But the project uses a combination of inexpensive Onset data loggers and NorthWrite’s Energy Expert Plus, an information management software and service that gathers, analyzes and displays data about a building’s energy performance. The monitoring systems feed the information into NorthWrite software, where it is modeled with inputs, such as utility rates, weather and building characteristics. An analyst studies the report and provides the building manager with recommendations on energy upgrades that will achieve 10% to 15% annual energy savings. Next, NorthWrite connects building managers with NYSERDA-approved contractors that can make the energy improvements.

“What we are providing with NorthWrite MBCx is a service,” said Terrence McManus,NorthWrite’s chief marketing officer. “Building managers could attempt to use these tools independently, but they do not have the time to learn what all the data means. They are already short-handed and responding to tenants needs. This turn-key service makes it easier for them to move forward with energy efficiency measures that provide a quick pay back.”

So that’s one example of an attempt to make it easier for businesses to pursue energy efficiency. I’m guessing there are many similar stories out there. Do you have one? If so, please post it in the comment section here, or email me at elisa@realenergywriters.com. I’d like to use this blog at a future date to highlight non-MUSHY innovations that are drawing the elusive business market toward energy efficiency. Look forward to hearing from you.

Elisa Wood is a long-time energy business writer. See more of her work atwww.RealEnergyWriters.com

Export opportunity for US energy efficiency?

By Elisa Wood

August 12, 2010

For a long time the energy efficiency industry operated largely under the two-guys-and-a-truck-model: local businesses made up of small contractors.

Then the ‘super’ energy efficiency service companies (ESCOs) emerged, big operations taking on big contracts often for government, schools or hospitals, like the $35 million deal that Pepco Energy Services signed with the Prince George’s County Maryland Public Schools this week. http://www.pepcoenergy.com/

The US energy efficiency industry has continued to expand. Is it ready, now, to make serious headway exporting goods and services into international markets?

The International Trade Administration seems to think so. Anna Chittum, research associate for the American Council for an Energy Efficiency Economy, says in her blog that the ITA has been seeking comment on a national export strategy for both renewable energy and energy efficiency. http://www.aceee.org/blog.

Part of a federal goal to double exports by 2015, the strategy is due to the Obama administration in September.

What might US energy efficiency companies export?

Possibilities are discussed in the 2010 Energy Industry Assessment, posted on the ITA Energy Team Home page. http://www.ita.doc.gov/td/energy/

The report points out that little export of energy services has occurred so far, although some US companies have established a foothold in international markets, such as Rockwell Automation, Honeywell, and Johnson Controls. But the potential is large for US ESCOs, especially in parts of the world where demand for energy is rising and reliability questionable. China and India are obvious candidates.

Export opportunity also may exist for companies that develop district energy and combined heat and power, according to industry assessment report. China, the Middle East, and India are prime markets. For example, China plans to invest $360 billion over the next decade in district energy and US companies could capture at least $8.2 billion in sales, the report says. The Middle East is expected to invest $7 billion in district energy over the next decade and $15 billion over 20 years.

Of course, obstacles exist for U.S. companies in these markets. The report points out lack of protection for intellectual property, particularly in India and China, and demands for unconditional guarantees on letters of credit, and in some cases, no cap on economic losses in contract guarantees.

Should the export strategy work, large ESCOs may find a wealth of new prospects. Of course, at home we will still need two-guys-and-a-truck, much like the HVAC contractor (one guy and a truck) who installed the new efficient heat pump in my home — and to whom, I must say, I am deeply grateful when I open my electric bill now and see it has dropped by half.

More information about the ITA’s export strategy is available at this US Department of Commerce page http://www.ita.doc.gov/td/energy/. Insight into the global energy efficiency market can be found here:http://www.globalbusinessinsights.com/content/rben0238m.pdf.

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Energy efficiency service companies missed the memo

By Elisa Wood

June 24, 2010

The folks who install insulated windows, efficient factory motors and energy saving lights apparently missed the memo about the economic meltdown.

As US gross domestic product slipped to under 1% in 2008, the $4.1 billion energy service industry grew 7%. Jealous? Just wait. That was nothing compared to the expansion predicted over the next couple of years, according to a new report by the Lawrence Berkeley National Laboratory. http://eetd.lbl.gov/ea/emp/ee-pubs.html.

Energy service companies, or ESCOs, will see 26% annual growth from 2009-2011 with revenue reaching $7.1 to $7.3 billion, the report estimates. ESCOs are private companies that typically offer energy savings improvements under long-term performance contracts.

How are they getting so much business in this depressed real estate market? A lot of it – nearly 70% — comes from what the industry fondly calls its MUSH market — municipal and state governments, universities, schools and hospitals. These institutions do not experience the boom and bust of private business, so were less hard hit by the economic downturn. Equally important, they have federal stimulus dollars to spend on energy efficiency.

Efficiency also has begun to catch the attention of the hard-to-persuade homeowner. The residential market in 2008 accounted for 6% of ESCO business, still small, but double what it was two years earlier. It helped that electric utilities increased their efficiency spending and subcontracted some of this work out to the private ESCOs.

State clean energy policies also aid the boom in ESCO activity. Massachusetts, Connecticut and Rhode Island, for example, have made energy efficiency a ‘first fuel,’ meaning utilities must secure all cost-effective energy savings before buying or building electric power. In addition, 18 states have created energy efficiency portfolio standards. They require that utilities achieve annual energy savings targets.

Not all of the news is good. Interest in energy efficiency ebbed among big businesses, not surprising given the economy. They accounted for 15% of market share in 2006, but only 7% in 2008. Uncertainty about the future makes them hesitant to commit to long-term performance contracts, according to the report.

“The traditional ESCO business model based on long-term performance contracts has always been a tough sell to private sector customers and the economic downturn further crimped its attractiveness,” the report said.

Where is the ESCO business heading? It appears the MUSH market will remain strong for quite some time. The report identified about $35 billion in potential business remaining from MUSH. The federal building market, which accounted for 15% of ESCO business in 2008, also continues to offer promise. The US Department of Energy invested $440 million in federal efficiency projects in 2009 and $498 million in 2010.

LNBL prepared the study with the help of the National Association of Energy Services Companies, whose news release on the study is here:http://www.naesco.org/ The US Environmental Protection Agency provides an explanation of energy performance contracting here:http://www.energystar.gov/ia/partners/spp_res/Introduction_to_Performance_Contracting.pdf

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