Energy efficiency - are utilities falling short?

The heat is on in Europe to provide energy efficiency services, but how could utilities best enter the market?
Published: Thu 15 Feb 2018

Momentum is building in Europe for utilities and energy service companies (ESCOs) to meet ambitious energy efficiency targets set by the European Parliament.

With utilities facing the ongoing issues of decreasing revenue, the energy efficiency market may be an attractive alternative service. However, do utilities really understand the market and how to access it?

In February’s Engerati Quarterly, we approached leading market experts in energy efficiency, finance and analytics to discuss the potential gains and blockages of the burgeoning market, and found that there are various access points for utilities open to new ways of thinking.

Even so, there is significant competition from other suppliers, suggesting utilities must be adaptable and agile to enter this market.

The European energy efficiency market

Financing energy efficiency projects previously was a major blockage to European ESCOs, particularly for small and medium-sized companies.

In our quarterly market assessment, we discuss how that market landscape is changing with key participants in the Horizon 2020 Sustainable Energy and Asset Evaluation and Optimisation Framework (SEAF) project, which the European Commission funded for €1.7m in 2016.

The outcome of the two-year project was eQuad, an online tool that facilitates investment in European energy efficiency products by providing third-party valuation, project performance insurance, project certification, due diligence and introductions to pre-qualified capital sources.

Jessica Stromback, Senior Vice President and Chair of project leaders Joule Assets, expects €1-2bn worth of investment being injected into the market from the eQuad platform alone.

Another key factor in favour of ESCOs delivering energy efficiency services is access to insurance, which has effectively levelled the playing field with energy retailers that have the financial muscle to de-risk these energy efficiency projects.

With the new insurance support structure, smaller projects are bolstered, and the ESCO industry is allowed to build even more so. “There is a long arc to build trust in this industry”, says Stromback, which is why acquiring a stamp of approval from eQuad could help in this process.

Increasingly, utilities are also investing in mergers with ESCOs, such as with the ENGIE Group and Cofely, enabling them to offer regional expertise tailored more to local energy performance contract requirements.

So, with the growth of ESCOs, increased investor interest, and the European support for energy efficiency projects, utilities have a limited window of opportunity to participate, whether that be as a provider or investor.

To find out more about opportunities in energy efficiency and explore our analyses on further topics, access Engerati Quarterly.