Energy Efficiency 2018
Analysis and outlooks to 2040
IEA (2018), Energy Service Companies (ESCOs), IEA, Paris https://www.iea.org/reports/energy-service-companies-escos-2
Energy service companies (ESCOs) deliver energy efficiency projects that are financed based on energy savings. Given the need to rapidly and significantly increase financing for energy efficiency, interest in ESCO business models is growing.
The value of the global ESCO market grew 8% to USD 28.6 billion in 2017, up from USD 26.8 billion in 2016. China continues to underpin the global ESCO market, growing 11% to USD 16.8 billion in 2017. The market in the United States, where ESCOs have been operating for well over 30 years, grew to USD 7.6 billion in 2017. In Europe, the ESCO market remains somewhat underdeveloped compared to other major regions, representing 10% of the global total.
There are notable differences in ESCO markets between countries and regions. These include the definition of an energy performance contract (EPC), the policies ESCOs are subject to, and technical capability. However, on average, ESCO projects are delivering energy savings upwards of 25%. While ESCOs have the ability to implement projects in buildings, industry and transport in both the private and public sectors, the majority of ESCO projects takes place in the non-residential buildings sector, followed by industry, with virtually no projects in the transport sector.
In the majority of Asian markets, ESCO activity within the industry sector represents the largest share of market activity, as a result of favourable policy measures, which have incentivised ESCO engagement. In North America and Europe, industry plays a marginal role in the ESCO market, due to a mismatch between the contract durations on offer from ESCOs and the terms desired by companies, as well as a preference to use internal expertise to implement efficiency measures.
Government policy is a key driver of ESCO activity and can have an influence on whether ESCO projects are carried out in the private or public sector. In China, policy incentives have driven ESCO engagement in the private sector, while government procurement policies have been a barrier to ESCO market development in the public sector. In North America, on the other hand, public sector ESCO activity has flourished as public sector asset owners are able to obtain debt on favourable terms, which can be used to finance ESCO contracts.
Subsidiary ESCOs are typically a small branch of a larger engineering firm or technology provider, such as Honeywell, Siemens, or Schneider Electric operating in a mature market which allows for project aggregation. In this case, ESCO services may have access to equity to finance a project, or might have an easier time borrowing due to a high credit rating. Whereas a standalone ESCO company is generally 20-50 employees, solely focused on delivering energy savings measures. These companies often possess different financing capabilities due to their smaller size.
Annually, the IEA's Energy Efficiency Market Report tracks the global size of the ESCO market. In 2018, the Energy Efficiency Division conducted a survey of over 25 national ESCO associations to inform a more in depth analysis of the ESCO market. The survey covered ESCO financing models, energy performance contracting, and related policy measures.The majority of the information outlined on our country pages is derived from the global survey.
Overall, the survey covers 80% of the IEA E4 countries (Brazil, China, India, Indonesia, Mexico and South Africa), 80% of the G20, and 60% of IEA membership. The global ESCO association analysis and country pages will be regularly updated to reflect market growth and relevant policy changes.
In addition to the IEA ESCO survey – the ESCO pages cite data collected from additional local and regional resources, including the QualitEE work funded by the EU's Horizon 2020 programme, and the European Commission's Joint Research Centre.
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