The co-evolutionary relationship between Energy Service Companies and the UK energy system: Implications for a low-carbon transition

Abstract

The Energy Service Company (ESCo) business model is designed to reward businesses by satisfying consumers' energy needs at less cost and with fewer carbon emissions via energy demand management and/or sustainable supply measures. In contrast, the revenue of the incumbent Energy Utility Company (EUCo) model is coupled with the sale of units of energy, which are predominantly sourced from fossil fuels. The latter is currently dominant in the UK. This paper addresses two questions. Firstly, why has the ESCo model traditionally been confined to niche applications? Secondly, what role is the ESCo model likely to play in the transition to a low-carbon UK energy system? To answer these, the paper examines the core characteristics of the ESCo model, relative to the EUCo model. The paper then examines how ESCos have co-evolved with the various dimensions of the energy system (i.e. ecosystems, institutions, user practices, technologies and business models) to provide insight into how ESCos might help to shape the future UK energy system. We suggest that institutional and technological changes within the UK energy system could result in a more favourable selection environment for ESCos, consequently enabling the ESCo model to proliferate at the expense of the EUCo model. Keywords Energy Service Companies (ESCos)Co-evolution UK energy system

UK Local Authority engagement with the Energy Service Company (ESCo) model: Key characteristics, benefits, limitations and considerations

“…Although not the subject of this particular study, we note that many of the interviewees expressed frustration at what they perceived to be a regulatory framework that offered relatively little support for decentralised energy (Interviews 3,15,17,18,(20)(21)40,47 (Hannon, 2012;Hannon et al, 2013). Clearly uncertainty over the long term future and direction of these policies may undermine ESCo revenue streams in the future.…”

“…1 A detailed breakdown of the core characteristics of the ESCo model can be found in both Hannon (2012) and Hannon et al (2013).…”

“…It is therefore characteristically distinct from companies who sell units of energy (e.g. gas, oil), where the customer is responsible for converting these into the energy services they desire, in turn bearing the costs of inefficient conversion (Hannon et al, 2013) 1 . Consequently, this model has been identified by various scholars as a potential means of fulfilling our energy needs in a more sustainable manner than at present (Vine, 2005;Fawkes, 2007;Hansen, 2009;Marino et al, 2011;Fang et al, 2012).…”

“…This situation has presented both customers and entrepreneurs alike with a compelling motive to identify more alternative energy solutions, which offer more attractive value propositions (Hannon, 2012;Hannon et al, 2013). This paper draws upon two in-depth empirical studies conducted by the authors (Bolton, 2011;Hannon, 2012), incorporating 52 expert interviews and extensive documentary evidence, to examine how and why some LAs have in recent years made attempts to play a more active energy governance role in the UK.…”

Local and regional energy companies offering energy services: Key activities and implications for the business model

“…Energy services provided by local and regional energy companies have several important macro drivers, ranging from national directives and policies, such as the European Energy so far often been limited; and many firms, including energy companies, offering energy services are struggling (Hannon et al, 2013;Pätäri and Sinkkonen, 2014;Suhonen and Okkonen, 2013). Recent findings by Cornelis et al (2015) reveal that some energy service markets are in fact shrinking, such as those in Belgium, Japan, and Sweden.…”