Energy efficiency - Balancing business opportunities with threats to revenue

The energy services industry is growing rapidly, spurred on by both rising energy prices and energy market liberalization. Energy services offerings, which offer the prospect of improved energy efficiency, reduce potential energy sales revenue. Yet the inevitability of these offerings in a liberalized market make it imperative for utilities to capture this revenue before competitors do.



Report Highlights
At least 13 utilities around Europe explicitly offer energy reduction tariffs, which are predicated upon active supplier involvement in reducing energy consumption. Most of these tariffs require a stable customer relationship to provide a return on investment for utilities, such as on the installation of home wall insulation or smart meters. Amongst those utilities who report on the financial performance of energy services as a separate business unit, Suez is a clear leader, capturing just over 5% of the estimated EUR207 billion European energy services market. Many suppliers now market energy services not simply as a route for improved energy efficiency, but as a form of outsourcing thataside from cost controlallows clients to focus resources and attention on their core business.


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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Increased competition, higher energy prices and tighter regulation make an energy services offering an imperative for utilities 2
Utilities should now focus on how to structure an energy services offering 2
Energy efficiency is both a client service and a utility cost-saving activity 3
In both competitive and concentrated markets, an energy services offering makes strong business sense for utilities 4
Increased loyalty, product differentiation and closer business relationships flow directly from energy services activities 5
B2C energy services, even without supportive tariff regimes, can deliver customer loyalty 6
Energy services can be marketed as a part of outsourced energy management 7
The requisite conditions for a boom in energy management outsourcing are emerging across European markets 7
Energy services can be marketed as business outsourcing, not simply a vehicle for energy efficiency improvement 8
The energy services market is growing quickly across Europe 9
Energy liberalization and rising prices mean the energy services market will grow faster than GDP and power demand growth 9
By 2008, Europe's potential energy services market will be over €240 billion 10
For some utilities, revenue from energy services is far outpacing overall growth revenue 12
Suez is a market leader in terms of decoupling a large portion of its revenues from energy sales 13
No utilities have yet emerged to dominate the European energy services market 14
The EU's Energy Efficiency Directive imposes an obligation on member states to implement energy efficiency measures by 2008 15
The EU's Energy Efficiency Directive imposes an obligation on member states to implement energy efficiency measures by 2008 15
Most EU countries have failed to submit EEAPs to the EC by the agreed deadline of June 30, 2007 16
Successful energy services offerings must carefully track switching rates and rules 17
Energy reduction tariffs are still not commonplace in European utility markets 17
Utilities launching energy services offers must beware of the customer switching rules of regulators 18
High rates of switching by non-residential power customers will impact upon the viability of energy service offers in some markets 19
High rates of switching by non-residential gas customers will impact upon the viability of energy service offers in some markets 20
APPENDIX 21
Definitions 21
Further reading 21
Ask the analyst 21
Datamonitor consulting 21
Disclaimer 21

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Figure 1: Energy services offerings reduce energy sales but increase customer loyalty, and may increase overall utility revenue 5
Figure 2: Suez's full range energy services offering for industrial clients 8
Figure 3: Power demand, GDP and energy services market growth, 2006-08 9
Figure 4: Forecast energy services market size in 2008 10
Figure 5: Increase in energy services market, 2006-08 11
Figure 6: Utility revenue growth 2005-06: corporate versus energy services revenue 12
Figure 7: Utility revenue versus revenue from energy services in 2006 13
Figure 8: Energy services market shares in 2006 14
Figure 9: EEAP submission status across the EU 16
Figure 10: Energy reduction tariffs offered by European utilities 17
Figure 11: Forecast electricity customer switching rates, 2008 19
Figure 12: Forecast gas customer switching rates, 2008 20

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