US-ESCO industry.pdf

8/11/2019 US-ESCO industry.pdf

1/33

Overview of U.S. ESCO Industry:Overview of U.S. ESCO Industry:Recent Trends and HistoricRecent Trends and Historic

PerformancePerformanceCharles Goldman

E. O. Lawrence Berkeley National [email protected]

International Workshop on EnergyEfficiency Services Industries

Shanghai, China

September 8, 2003


2/33

Overview of PresentationOverview of Presentation

U.S. ESCO Industry Overview

- Definition & History- Performance Contracting- U.S. ESCO Market: Size,Target Markets, and Major Industry

Players

Historic Performance of U.S. ESCOs- Results from NAESCO/LBNL Database Project:

typical costs & installed measures

energy savings & economics Enabling Policies

- Utility DSM programs, State and Federal Legislation

Lessons Learned


3/33

Definition of U.S. ESCODefinition of U.S. ESCO

Project developer in business of improving end-

use energy efficiency :- Combine engineering expertise with financial services

to extract untapped potential for energy efficiency atcustomers facility

- Integrates broad range of services: projectidentification, engineering & design, financing,construction, M&V of savings, maintenance, and billing

Performance contracting: ESCO's compensationis tied to project's performance (e.g., amount ofenergy and $$ saved in customers facility)


4/33

ESCO Industry RootsESCO Industry Roots Early 1980s - Firms attempt to establish energy

performance contracting as viable, self-sustaining business activity

ESCOs evolved from several sources:

- Engineering services companies (Design/Build firms,Efficiency consultants)

- Manufacturers of building controls/equipment

- Growth in utility DSM rebate and bidding programs(1988-1994)

Start-up ESCO ventures

Utility subsidiaries


5/33

U.S. ESCO Industry HistoryU.S. ESCO Industry History

Pre-1985: The beginning of UtilityDemand-side Management

1985-1993: Emergence of the ESCOs

1994-1999: Success and Consolidation 2000 - Present: Adapting to Electric

Restructuring and Increased Competition


6/33


7/33

19851985 -- 1993: Emergence of1993: Emergence of ESCOsESCOs

Utility DSM programs grow in size andscope; linked to Integrated ResourcePlanning

ESCOs develop functional capabilities insales, engineering (comprehensive auditand design), finance and construction

Control equipment manufacturers startESCO business units- Target institutional (and industrial) customers


8/33

19941994 --1999: Success and Consolidation1999: Success and Consolidation

Number of ESCOs (control companies)build large businesses

Federal legislation and regulations boostenergy efficiency

Utilities buy or start their own ESCOs todevelop comprehensive service offerings


9/33

2000 to Present: Adapting to Electric2000 to Present: Adapting to ElectricRestructuring and CompetitionRestructuring and Competition

Electricity sector restructuring- States experiment with retail competition

- FERC changing wholesale markets and regulation- No clear national policy: much confusion

ESCOs now compete with new entrants

(companies) to sell:- Energy efficiency technologies- Small-scale, onsite, electric generation- Load management

- Electric and gas Commodity- End use services (Chilled water, steam)- Other services (e.g., building maintenance and

operations)


10/33

Performance Contract: Guaranteed SavingsPerformance Contract: Guaranteed Savings

Lender/ Financier

Customer

ESCO

Fixed RepaymentSchedule

Savings Guarantee

Loan ContractEPC Contract (Guaranteed Savings)

Customer finances project & assumes debt obligation on balancesheet

ESCO assumes project performance risk & guarantees that savingswill be sufficient to cover customers annual debt obligation

Lender assumes credit risk


11/33

Performance Contract: Shared SavingsPerformance Contract: Shared Savings

Customer

ESCO

Loan ContractEPC Contract (Shared Savings)

Lender/Financier 100% funding

ESCOproject services &

savings guarantee

ESCO assumes performance and credit risk


12/33

Costs Associated with ESCO ProjectsCosts Associated with ESCO Projects

Source: Easton Consultants

Transaction Costs

20 to 40%

Project Costs

60 to 80%

Prospecting/Proposal Generation

Closing Fees (Legal)

Measurement & VerificationFunding Premium (Third Party)

Design

Capital Equipment & Installation

Project Identification


13/33

ESCO Industry has experiencedESCO Industry has experiencedstrong growthstrong growth

ESCO Market for energy-efficiency related services is ~$1.8-$2.1B in2000; 24% annual growth rate (1990-2000)

Performance contract revenues: $0.9-$1.0B in 2000

0

500

1000

1500

2000

2500

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

E S C O

R e v e n u e s

( $ M )

Revenue from other services (low estimate)Revenue from other services (high estimate)

Performance-contracting revenues (low estimate)Performance-contracting revenues (high estimate)

Total Market Estimate(1990-2000):

$16.5-20B

$1.8B

$2.1B


14/33

15%

44%6%

35%Building Equipment Mnfctrs

Engineering Services Companies

Other Energy Companies

Utility Affiliates

ESCO Industry Ownership StructureESCO Industry Ownership Structure

Quickly changing industry -- mergers and acquisitions very common;

Expect significant consolidation: fallout from CA, Enron and stalled retailmarket

About 12 companies consistently comprise ~70% of industry revenues

29%

9%

28%

34%

based on revenues based on number ofcompanies

Industry Ownership in 2000...


15/33

30%

14%

9%6%

12%

3%2%

5%

5%

3%1%

7%1%2% K-12 Schools

State/local governmentUniversity/college

Federal governmentHealth/hospitalPublic HousingHotel/hospitalityOffice, commercial - leased

Office, commercial - owner-occupiedRetail - single siteRetail - multi-siteIndustrialResidentialOther

ESCO Target Markets: Historic ActivityESCO Target Markets: Historic Activity

Results from NAESCO Database project: 1473 projectsrepresenting $2.3 Billion in investment

Institutional sector (schools, government, health/hospital)

represent ~74% of market activity


16/33

ESCO Industry: Key PlayersESCO Industry: Key Players

Equipment & controls manufacturers with ESCO

operations Utility-owned ESCOs Independent ESCOs - small to mid-size

performance contractors Retail energy suppliers

- Potential competitors to traditional ESCOs for someproducts (e.g, onsite generation, central energyplants for chilled water or steam)


17/33

Equipment & Controls ManufacturersEquipment & Controls Manufacturers

with ESCO Operationswith ESCO Operations Business strategy involves broadening market for

equipment and services of core business Major new entrants (e.g., Siemens) but some existing

companies shifting focus (e.g., Honeywell) Strategic alliances with Retail Energy Service

Companies were not very successful Renewed focus on energy & facility management

services- facility management- Onsite energy manager - Act as customers energy advisor strategic energy

planning, rate negotiation, energy information services


18/33

UtilityUtility

--ownedowned

ESCOsESCOs

Many utilities bought or started ESCOs as part of strategicresponse to Electricity Restructuring (~1995-1999)

- offer energy efficiency, onsite generation,- Some ESCOs also provide electricity commodity and risk

management services- targeted customers in local service territory and/or Federal

market with limited success (brand recognition)

Current situation- Retail competition stalled in U.S.- Some utility-owned ESCOs have grown, but many smaller

ESCOs have gone out of business or been sold- Some utilities selling off ESCOs because of financial troubles

because of losses in trading operations and/or merchantgeneration


19/33

Historic Performance of U.S.Historic Performance of U.S. ESCOsESCOs ::

Results from NAESCO Database ProjectResults from NAESCO Database Project

Typical Project Costs, Installed Measures,Savings, and Payback Times

Trends in Contracting Approaches


20/33

Cost of U.S. ESCO Projects:Cost of U.S. ESCO Projects:

Investment TrendsInvestment Trends

$2.55B of work completed by 51 companies

Significant activity in four states (44% in NY, NJ, CA, TX)

Median and average project costs: $0.7M and $1.8M, respectively

0

50

100

150

200

250

300

350

20M

Project Cost ($)

N u m

b e r o

f P r o

j e c t N=1426

Average = $1.8 M

Median = $0.7 M


21/33

Project Cost by Market SegmentProject Cost by Market Segment

Median project costs are higher in public/institutional marketscompared to private sector ($0.9M vs. $0.3M)

Typical projects are larger in Universities ($1.5M) and PublicHousing ($1.8M)

No. of Market Segment Projects

(N=1410)25 th

percentilemedian 75

th

percentileK-12 Schools 406 0.5 1.2 2.4State/local government 194 0.2 0.7 1.7University/college 132 0.5 1.5 2.9Federal government 83 0.5 0.9 1.8

Health/hospital 172 0.2 0.5 1.1Public Housing 39 1.0 1.8 6.0Private Sector 384 0.1 0.3 0.8

Project Cost ($M)


22/33

Project Investment Trends by MarketProject Investment Trends by Market

SegmentSegment

Median project investment levels are 1.8 times greater in institutionalthan private sector projects ($2.50 vs. $1.40/ft 2)

0

1

2

3

4

5

6

7

K-12 Schools(n=219)

State/localgov't (n=107)

Univ./College(n=66)

Federal gov't(n=56)

Health/hospital(n=65)

PublicHousing (n=8)

Private Sector (n=156)

Market Segment

P r o

j e c t I n v e s

t m e n t

( $ / f t 2 )

75th percentilemedian25th percentile N=678


23/33

Typical ESCO project consists of multiple measures and strategies

High-efficiency lighting installed in over 80% of projects

HVAC equipment (boilers, chillers, cooling towers, air handling units),energy management systems, or controls installed in 68% of projects

Frequency of Installed MeasuresFrequency of Installed Measures

0

200

400

600

800

1000

1200

Lighting ComfortConditioning

Motors/drives Water heaters Non-energyimprovements

Power supply Industrialprocess

improvements

Plumbing

Measure Category

N

o .

o f P r o

j e c

t s t h a t

I n s

t a l l e d

M e a s u r e

C a

t e g o r y

N=137982%

10%

2%6%3%8%

23%

68%


24/33

Project Savings obtained from EnergyProject Savings obtained from Energy

Efficiency MeasuresEfficiency Measures

Lighting-Only projects saved 47% of equipment targeted electricity

Projects with Lighting & Non-lighting measures typically saved 23% ofelectric utility bill consumption

0

10

20

30

40

50

60

0-15% 16-30% 31-45% 46-60% 61-75%

Electr icity Savings (% of baseline)

N u m

b e r o

f P r o

j e c

t sLighting Only (N=63)

Lighting & Non-Lighting (N=94)

LO Median:47% of targeted

equipment baseline

LNL Median:23% of utilitybill baseline


25/33

0%

5%

10%

15%

20%

25%

15

Simple Payback Time (years)

P e r c e n t o

f P r o

j e c

t s i n S

e c

t o r Private Sector (n=319)

Institutional Sector (n=788)

Economic Payback of ESCOEconomic Payback of ESCO

Projects to CustomersProjects to Customers

83% of Private Sector projects pay back in 6 years or less vs.44% of Institutional sector projects

Institutionalmedian: 7

years

Privatemedian: 3

years


26/33

Performance Contracting is aPerformance Contracting is a

Decreasing Share of ESCO BusinessDecreasing Share of ESCO Business

Market share of performance contracting is decreasing amongNAESCO members (92% to 76%)

Design/Build & Fee-for Service approaches account for ~30% ofESCO projects in 1996-2000

0%

20%

40%

60%

80%

100%

pre 1996 (N=182) 1996-2000 (N=594)

P e r c e n

t o

f P r o j e c

t s Non Performance-basedContractsOther Performance-basedContractsShared Savings

Guaranteed Savings

Time Period


27/33

Role of Enabling PoliciesRole of Enabling Policies

Utility DSM programs

State regulations for performancecontracting

Federal Energy Policy Act


28/33

U.S. Electric Utilities have investedU.S. Electric Utilit ies have invested

in Energy Efficiencyin Energy Efficiency

Utilities offer Energy Efficiency (EE) programs that providefinancial incentives, technical assistance and information tocustomers

Programs paid by utility ratepayers or by public benefit funds

Source of Data: York, Dan and Marty Kushler (2002), State Scorecard on Utility andPublic Benefits Energy Efficiency Programs: An Update, ACEEE Report Number U023.

0.000.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

1992 1994 1996 1998 2000 2002

$ U S

B i l l i o n

PBFunds

IRPEra


29/33

ESCO Reliance on DSM ProgramsESCO Reliance on DSM Programs

May Be DecliningMay Be Declining

38% of all projects participated in utility DSMprogram

Participation has decreased since 1995(50% vs. 34%)

yes50%

no32%

unknown18%

N = 438

yes34%

no51%

unknown

15%

N = 996

1996 - 2000pre 1996


30/33

Many U.S. States encourageMany U.S. States encourage

Performance ContractingPerformance Contracting

States adopt laws/procurement guidelines that remove barriers toperformance contracting for K-12 schools, universities andstate/local governments

46 states have legislation for at least one of these sectors State energy offices also promote performance contracting;

educate customers on working with ESCOs

39 38

31

4

05

1015202530

354045

K-12 Schools State/ local gov't Univ./ colleges No legislation

Scope of Legislation

N o .

o f S t a t e s

w i t h

P e r f o r m a n c e -

c o n

t r a c

t i n g

L e g

i s l a t i o n


31/33

U.S. Government promotes energyU.S. Government promotes energy

efficiency in Federal buildingsefficiency in Federal buildings Executive Orders (EO) signed by President

- Directs Federal Agencies to reduce building energy consumptionthrough installing cost-effective energy efficiency

- Goals: 30% reduction by 2005, 35% by 2010

Energy savings performance contracts (ESPCs)- Authorized in 1986 and 1992 as innovative contracting

mechanisms to finance and implement EE improvements- Indefinite-delivery, indefinite-quantity (IDIQ) contracts streamline

procurement

- ESCOs are pre-qualified for Federal agency programs

- $1.2 Billion in ESPC projects since 1988

Federal Energy Management Program (FEMP)- Champions energy efficiency among federal agencies

- Developed and implements DOE Super-ESPC program


32/33

Lessons LearnedLessons Learned

U.S. ESCO industry has been very successful ininstitutional markets

- private (e.g., industrial) sector has been more difficult Government policy support and market

development programs were critical to success:- Getting energy prices right is not enough

- State and Federal legislation facilitating performancecontracting

- Modifying government procurement practices (best value vs.low bid)

- Public facilities energy efficiency program

- Utility DSM programs

- Customer education/information


33/33

Lessons Learned (cont.)Lessons Learned (cont.)

Prerequisites for a successful ESCO industry- Well-established contract law

- Access to local financing: need reasonable interest rates andcontract terms

- Good relationships with customers

Bottom line each country is unique- different business, legal and financing practices and varying

technical opportunities mean the ESCO model will have to beadapted

Date post:	02-Jun-2018
Category:	Documents
Upload:	joechengsh
View:	227 times
Download:	0 times

US-ESCO industry.pdf

Documents