Lackluster commodity margins make energy services shine

By Dana Bacciocco, Associate Editor

In response to thinning commodity margins and mild residential customer interest, energy suppliers are looking to the commercial and industrial energy services market for opportunities to offset losses and add value. A range of supplier offerings appeals to key customers and offers suppliers a means to increase revenues.

Suppliers are aggressively selling energy management services, and customer interest in new services is growing. “Beyond Commodity,” the latest study in XENERGY’s Retail Energy Markets 2000 series, said that energy asset outsourcing and energy information services lead the trend in diversified services, where energy performance contracting and energy facility management contracting follow.

In the active marketing environment, between 25 percent and 43 percent of large customers have received recent offers for these services. And, nearly 20 percent are familiar with the newest energy services such as energy asset outsourcing. Actual adoption of these products, however, is low, with market penetration rates ranging between 1.5 to 5 percent.

XENERGY noted that some providers have offered bundled services as the chief business activity, and the commodity was loss leader. Another strategy is integration of commodity and services opportunities in order to hedge risks and increase total value-added potential. As nonresidential markets continue to evolve, energy providers are entering the field; though some have chosen to make the move away from the commodity energy market and stick with services.

“With major customers becoming more aware of innovative energy service options, and with uncertainty in future energy bills rising, newer services are poised for significant increases,” said Michael Rufo, XENERGY vice president. “As large companies are exposed to volatile wholesale prices, for example, we’re projecting energy information services to achieve annual revenues of more than $300 million over the long term. In the same time frame, energy asset outsourcing could grow to $20 billion in annual revenues. Delivering these services profitably will not be easy, however, since sales cycles are long and competition among service providers fierce.”

According to XENERGY, monitoring how well the market leaders deliver will be critical to the business decision making of latter entrants. Currently, endeavors in energy services at the local level are working; national aspirations are high cost and high risk; and software vendors will focus on retail energy services companies, who will offer solutions directly to user-customers, the study said.

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