ENERGY SERVICE: overview of the world’s best practices and recommendations for Ukraine

Energy services, led by ESCOs, cut energy use, funded by their own or borrowed capital. Costs recover through savings.

Energy services encompass a range of initiatives designed to diminish energy consumption. These initiatives are executed by entities known as energy service companies (ESCOs), either utilizing their own resources or through borrowed capital. The incurred expenses are subsequently recouped through the realized energy savings. This prompts the question of how to initiate savings through an energy service, along with an exploration of its benefits and optimal practices, both in the context of Ukraine and globally.

Energy service companies (ESCOs) offer comprehensive energy solutions across various domains, spanning energy production, supply, efficiency, and modernization projects. ESCOs play a pivotal role in assisting consumers with project identification, financing, and implementation, thereby facilitating investments.

Notably, ESCOs contribute to alleviating the initial financial burden by reducing upfront capital expenditures and enabling access to commercial financing. In 2020, the global ESCO market witnessed a growth of approximately 6%, reaching a total value of USD 33 billion. This expansion was primarily fueled by significant investment growth in China, which saw a 12% increase despite the challenges posed by the pandemic.

Contrastingly, the size of other major ESCO markets, such as the United States, European markets, and emerging and developing markets, either remained stagnant or experienced a decline.

In 2020, the global ESCO market faced frequent disruptions due to physical restrictions imposed by lockdowns. ESCOs in the Middle East, particularly in Saudi Arabia and the United Arab Emirates, noted an increased awareness of the importance of efficient ventilation and cooling, along with the associated health and comfort benefits, which positively impacted their business.

Europe contributed 14% to the global ESCO market in 2020, while the United States accounted for 20%. Notably, Chinese energy service companies exhibited significant growth from 2015 to 2020, increasing their share of global ESCO sales from 52% to 59% over six years. According to the Energy Management Contracting Association (EMCA), a Chinese association of energy service companies, ESCOs swiftly adopted online tools and remote monitoring systems to enhance customer satisfaction and ensure business operations' reliability. In 2020, China's ESCOs seized the opportunity to upgrade their business models by embracing smart tools and technologies.

An additional contributing factor to the Chinese market's success was the introduction of extra tax incentives by the Chinese government in May 2020, aimed at fostering business development and innovation among energy service companies.

To gain insights into the global and national trends in ESCO development, refer to the Overview of ESCO Market Design Best Practices and Recommendations for Ukraine. This overview was crafted as part of the project "Removing Barriers to Promoting Energy Efficiency Investments in Public Buildings in Small Towns and Medium-Sized Cities in Ukraine through the ESCO Mechanism," funded by the Global Environment Facility and executed by the United Nations Development Programme (UNDP) in Ukraine.