The Energy Transition Sparks The Services Market Into Life

The Energy Transition Sparks The Services Market Into Life

Energy as a topic – its management, availability, type/mix – has gone from a monthly blip on the list of operational costs to a topic debated in boardrooms. Macro-level drivers such as volatile prices, an accelerating energy transition and concerns over energy security churned up by geopolitical turmoil have seen energy climb the agenda of businesses and building owners alike as they seek to secure a stable, secure and sustainable energy future. While much of the discussion around energy is centred on the technologies that will propel the industry to net zero – and provide coveted energy security – the reality is that people, their skills and services are the pillars on which the energy transition will be built.

The energy services market is in a race: recognizing customers’ changing attitudes, services providers are licking their lips at the prospect of capturing part of the mouthwatering $3.5 trillion that must be invested annually to transition the world to net zero. As such, the energy market is changing, welcoming in:

• New customers.
  The customer base for services firms is expanding. Large emitters of carbon and energy-intensive industries not previously concerned with their energy use when prices were cheap are now investing in consulting and services to reduce their operating costs and reduce their exposure to volatility. For example, gas manufacturer Air Liquide estimates that natural gas and electricity price rises impacted them to the value of approximately €400 million in Q1 of 2024 alone. Firms across Europe and North America, in particular, are facing similar cost rises, or facing up to the reality and complexity of their net zero commitments. Confronting these challenges, they are turning to services providers for support.

   

• New services.
  Traditional ESCO models of the 1970s operated by offering performance contracting and financing for basic technologies such as LEDs and HVAC equipment replacements. Now, with the advent of carbon consciousness, and innovations in technologies, there is a vast plethora of energy related services. Mature services such as energy audits, utility bill management and energy procurement services are now enriched by cloud software. Battery storage and microgrid solutions are becoming more financially palatable, opening up lucrative services for design installation, operation and maintenance services. Decarbonization strategy consulting is now a major market, expected to reach $15 billion by 2028. The push to retrofit buildings is also strengthening new services growth, moving from isolated projects to holistic, large-scale, CAPEX-heavy projects.

   

• New services providers.
  The expansion of these services has fragmented the market by enabling new players to enter the space. New entrants over the last decade – such as Budderfly and Redaptive – are offering clever and innovative delivery and financing models. Meanwhile, engineering consultancies like AECOM, Arup, Bernhard and WSP, along with software vendors like Allumia, Atrius, Gridium and METRON, are also bolstering their operational energy services lines. At the same time, incumbents have their elbows out as they look to capture as much market share as possible: ESCOs, equipment manufacturers – such as Johnson Controls, Schneider Electric and Siemens – and utility and energy suppliers are all expanding their already broad suite of services.

With masses of investment flowing into the sector, and an increasingly competitive landscape, customers are spoilt for choice. Organizations are picking up services to plug knowledge and skills gaps based on their energy strategies. For services providers, proving value and aligning with these evolving customer demands will be critical to claiming market share and avoiding being squeezed out by their competition. Moving forwards, the market is likely to see some consolidation as services providers gain clarity on their M&A and partnership strategies and look to build out more comprehensive offerings. The future looks bright for the energy services market – and we are just at the beginning of the energy transition. Expect more innovation, with new services, technologies and start-ups disrupting the space as the energy transition creates opportunity for those well-positioned to take advantage.

For more analysis of the developing energy services landscape, see Verdantix Future Of The Energy Services Landscape (Part 1).