Vendors as Industrial Energy Service Providers

Over the past twenty years, we have seen a transformation in U.S. energy markets, in part brought about by the energy crises of the 1970s and in part by a deregulation of energy markets begun in the late 1980s. With increasing energy prices, a new industry also emerged—energy services companies (ESCOs), with the business model of managing customers’ energy use by utilizing specialized skills at a lower cost than the customers could achieve. This business model was predicated upon the assumptions that significant energy efficiency opportunities existed and that through the application of new technologies and expertise these energy savings could be realized. The savings would then be shared between the customers and the ESCOs (Elliott, Pye, and Nadel 1996).

During this same period, another business trend emerged—“outsourcing” non-core activities to allow industrial companies to focus on their main area of competence. These two trends appeared to set the stage for the emergence of ESCOs, with a promising target market of large, industrial energy-users. Unfortunately, the market has not evolved as many would have hoped.

This white paper discusses the reasons for the failure of ESCOs in the industrial market, and also describes an alternate business model that has emerged in the marketplace. These developments could affect what the methods are chosen to influence the industrial energy marketplace.

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