BOULDER, Colo. — Consolidation in the energy service company (ESCO) market is expected to continue through the remainder of this decade, as highly competitive players aim to increase market share, resulting in an industry structure concentrated to a large extent in a group of very large companies focused on serving the federal government, according to a new report from Pike Research.

The ESCO market, which is comprised of companies that provide end-to-end efficiency measures through the use of performance contracts, exceeded $5 billion in revenues in 2011, noted Pike Research. Driven by public policies that encourage greater emphasis on energy efficiency, this market is forecast to grow faster than the domestic economy and reach at least $13 billion in sales by 2020.

“In some respects, the rapid rise of mergers and acquisitions in the ESCO industry over the past decade is similar to the intense consolidation of many smaller electric and gas utilities at the start of the 20th century,” said research analyst Brittany Gibson. “However, the utility mergers generally resulted in the creation of mid-to-large territorial monopolies, sanctioned and institutionalized by a regulatory structure meant to protect the public interest. In contrast, the consolidation of ESCOs has resulted in an unregulated but highly structured tier of companies pursuing business in national or regional markets.”

At the very top of this tier are the 16 ESCOs selected by the U.S. Department of Energy (DOE) for special consideration in contracting through the use of energy savings performance contracts (ESPCs). These ESCOs include Honeywell, Johnson Controls, McKinstry, NORESCO (a subsidiary of Carrier Corp.), Schneider Electric, Siemens, and Trane. Of particular importance for these top ESCOs is the 2009 executive order issued by President Obama that mandates that all federal agencies must achieve a 30 percent reduction in energy use by 2015.

While a select few utility affiliates remain among the largest ESCOs, Pike Research said that perhaps the biggest change in terms of the ESCO competitive landscape has been the rapid disappearance of many utility-affiliated companies.

Publication date: 7/23/2012