Energy prices and EU legislation prompt growth in energy services
December 1st 2005

Recent and planned EU legislation will boost the energy services market, but its impact will vary across customer segments.

As the EU adopts even more extensive legislation on energy efficiency and energy services - with particular focus on the commercial sector - a new report from independent market analyst Datamonitor (Energy Services in Europe: Regulatory pressure to boost market development) highlights the high potential for growth in energy services in this market. Overall, there are three main factors driving the increase in energy services activity; the pending Directive on the Promotion of End-use Efficiency and Energy Services; the continued influence of the Directive On The Energy Performance Of Buildings from 2003 and the impact of higher gas and electric prices, says Datamonitor utilities analyst Salman Wasti.

Energy services providers - whether private contractors or a division of a utility company - are employed by both residential and commercial energy users to reduce the energy consumption of homes or places of business. This typically involves - but is not limited to - installing more energy efficient lighting or completely re-insulating the structure. The energy cost savings are then normally shared between the customer and energy service provider.

Providers of energy services will be naturally advantaged when approaching different types of customers according to their existing customer base. Utilities that already have contact with residential customers should be expected to have the greatest success when trying to sell them energy services, Wasti says. "In contrast, specialist energy services providers will be able to appeal to the larger multi site commercial customers on the back of their demonstrable independence. The more complicated technical solutions can be best sold by engineering firms and equipment manufacturers."

In the over-1GWh consumption segment, the market for outsourced energy management solutions is forecast to reach c.

+-870million in the UK, c. +-810m in Germany, and c. +-370m in France by the end of 2006. However by including the under-1GWh nonresidential users and additional EU countries, the region's energy management market could reach +-5billion per annum over the same period which is equivalent to an annual energy reduction of 90TWh.

While the new EU legislation will effect the energy purchasing decisions of building owners and other energy buyers for a long time into the future, the future status of the European Emissions Trading Scheme (ETS) will depend upon the political will of the governments involved. If the EU fails to meet its Kyoto targets for carbon reduction the cost of a unit of carbon may increase greatly in the future, Wasti says. "If this cost remains high there will be many profitable applications for energy services firms to explore. However if governments cannot convince their respective countries that high energy costs are justifiable then there is the risk that some may pull out of the scheme, reducing the value of the market for energy services."

More articles from Datamonitor plc: