At the heart of innovative financing models for efficiency
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.
ESCO projects in Denmark are largely concentrated in the public sector, with many municipal level retrofits carried out by private ESCOs as opposed to utilities. This is due to favourable financing options through municipal loans with low interest rates. Due to the ability for municipalities to access low interest rate loans, there is not much demand for third party finance. In 2013, Schneider Electric accounted for 50% of Danish EPCs.
EPC projects have an average investment cost of €6.7 million with the largest projects averaging around €22 million. The typical contract for these projects is an Energy Performance Contract Guaranteed Savings which runs between 8 to 10 years. Energy Supply Contracts are rare.
In 2016, the number of new projects started to decrease, potentially indicating market saturation.
Energy services are not directly promoted by Danish legislation. The Danish law defines "energy services," but does not specify Energy Performance Contracting following the EED definition* – therefore ESCO market in Denmark is demand based.
A large portion of the remaining market potential lies in small-scale projects, which often come with high transaction costs. Simplifying energy service contracts, and enabling the ability to bundle and standardize projects (similar to how municipalities have been successful in including multiple buildings/projects in one contract) will facilitate growth.