Sweet Deals For High-Efficiency Retrofits In Sour Economy

While it may seem that people want to cut back on spending, companies that shape up inefficient buildings and get paid back via the energy savings are doing booming business.

What's the ideal economic environment to get a free high-efficiency upgrade worth tens of millions dollars? It's not when things are flush. "I think we're in it right now," says George Sakellaris, CEO of Ameresco, a company that installs high-efficiency energy infrastructure for institutional customers like governments or universities around the country. "The more concerned people get about their operating costs, the better we are."

With fuel prices soaring, and aging infrastructure that needs to be replaced, an idea that started small during the 1970s and 1980s--independent companies offering free high-efficiency retrofits paid for with energy savings--has finally hit its stride. They're called ESCOs, or energy service companies, and their multibillion dollar market has been growing more than 26% annually in recent years, according to the Lawrence Berkeley National Laboratory, and shows no sign of slowing.

"It's beginning to get more and more traction in the industry," says Sakellaris, whose companies' annual revenue has soared from $21 million in 2001 to half a billion today. It's a sweet deal for school districts, military bases, large companies and anyone stuck with drafty buildings, rusty boilers and decrepit ventilation shafts. Banks, after more than two decades of experience, have streamlined the financial arrangements to make such retrofits very profitable, and property owners are taking a longer view on operating costs, not just how much they have to spend to install today. The expectations that high fuel and energy costs are going to continue indefinitely make the economics that much more attractive.

Smaller companies and home owners have been slower to embrace the financial scheme, since many want a payoff period (the upfront investment is returned in the form of energy savings) of two to three years, instead of the five to 10 years acceptable to many institutional customers. Bank financing is also not quite as well established. 

But that could be changing soon. The White House has released its own "Recovery Through Retrofit" (PDF) plan that would help 130 million homes in the U.S. fund energy-saving projects like air-duct sealing, insulation and double-panned windows.  Although they've hit some snags as federal agencies grapple with a dysfunctional housing and mortgage market, private companies are getting into the game. Firms like The Grupe Company, Masco Corporation, and Princeton Air Conditioning have put idled construction workers back on on the job by making homes more efficient.

[Image: Flickr user Wonderlane]

Reach Michael J. Coren via Twitter or email.

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1 Comments

  • Raphael Rosen

    This article certainly rings true to my experience. There are a large number of companies in the private sector trying to expand the efficiency finance
    field, principally for commercial facilities (as this piece notes). Both for profit companies
    as well as organizations like the EDF are working on it. Carbon
    Lighthouse, the environmental company, wrote a summary of some of the
    issues in private-sector efficiency finance here: http://www.carbonlighthouse.co...

    Financing efficiency (http://financingefficiency.com..., the blog of two seasoned project finance professionals provides a great deal of depth and insight on the issue as well.