ESCOs in the liberalised domestic UK energy markets - Barriers to establishing ESCOs and possibilities to overcome them in the UK energy markets

Andreas Biermann, Energy Saving Trust

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Abstract

Energy services are seen as a way for energy suppliers to break out of their unit-based sales model, by switching from selling a product to selling a service. In the process it is assumed that suppliers would become more interested in selling less electricity/energy, provided they can continue to generate sufficient returns.

It was hoped that the vertical disintegration, and introduction of supply competition would deliver on these expectations. But while energy suppliers have integrated their offerings to sell gas and electricity, they have not changed their approach to marketing which is predominantly undertaken on the basis of price. Levels of customer switching are still low. The restructuring of the industry has in fact become a barrier to energy services, because possibilities for integrated resource planning have disappeared.

The main barrier for energy services is that the price of energy has fallen, and that consumers expect this to continue. Although there appears to be little evidence that customers think in terms of payback, this is an issue for commercial development of energy services companies (ESCOs) because it affects the length of contract required.

A few small-scale energy services approaches have met with some success. These were the ones led by energy suppliers, often involving a partner as a trusted go-between, who offered services at low initial cost and high convenience.

There are approaches that look promising to overcome the barriers to ESCOs, e.g. changes in the regulatory framework, consumer education, new technology, and market transformation through programmes like the Energy Efficiency Commitment (EEC).