Energy Service Companies and Energy Performance ...

Energy Service Companies and Energy Performance Contracting: Is there a Need to Renew the Business Model? Insights from a Delphi Study Satu Pätäri a*, Kirsi Sinkkonen b School of Business, Lappeenranta University of Technology, P.O. Box 20, FI-53851 Lappeenranta, Finland a [email protected], Tel. +358 400 178 126. b [email protected], Tel. +358 40 718 9929. *Corresponding author. Abstract Energy Service Companies have faced strong expectations to capitalise on large but untapped energy-efficiency opportunities, but have fallen short in terms of diffusion. This paper focuses on the viability of a business model based on Energy Performance Contracting. Following a two-round Delphi study conducted in Finland, we analyse the insights provided by the experts through the Hamel business model framework. The main aim is to increase understanding of the model that Energy Service Companies use, and to identify the main factors that hinder their business development. The findings suggest that rather little is known about these companies and their service offerings. The uncertainty surrounding the business affects the customers’ readiness to invest their time and resources in the projects. One of the key development needs for the business is thus to put a strong emphasis on both the visible and the invisible benefits. Keywords: Energy Service Company, ESCO; Energy Performance Contracting; Business model; Delphi study. 1. Introduction Interest in improving energy efficiency (EE) has been increasing since the first oil crisis (e.g., Brown, 2001; Lovins, 1976; Okay and Akman, 2010). Efficiency has improved over the years, but there is still great potential for further energy savings in most sectors (Deng et al., 2012; European Commission, 2009; Wesselink et al., 2010; Worrell et al., 2009). Despite the heavy expectations placed on Energy Service Companies (ESCOs) to exploit untapped EE opportunities, progress has been limited. The key objective of this paper is to enhance understanding of the ESCO business model that is based on Energy Performance Contracting (EPC). We identify the main factors that hinder the development of ESCO business, and analyse the potential need for renewal. By way of theoretical background we refer to the literature on business models. Both academics and practitioners contend that the best performing firms in the new dynamic 1

environment are those that are able to capitalise on major changes and adjust their business models accordingly (Casadesus-Masanell and Ricart, 2010; Demil and Lecocq, 2010). Business models have thus become a useful unit of analysis through which to understand a company and its focal parts (Amit and Zott, 2001; Hamel, 2000; Stähler, 2002). The aim here is thus to analyse ESCOs and the viability of their business models. In order to achieve this, we conducted a two-round online Delphi study among Finnish energy experts, and analysed the data through Hamel’s (2000) business model framework. The focus is not restricted to any specific end-use market, the idea being to provide a comprehensive, structured view on ESCOs as providers of EPC. To our current knowledge, this is the first attempt to apply the business-model concept within the ESCO business. The findings reported in this paper could encourage managers of ESCOs to shape and modify their business models and thus to contribute to the market development. In a wider context, given that energy efficiency is a fundamental feature of Sustainable Energy (see Peura, 2013), such development in the ESCO industry could, in turn, promote successful interaction between society and the environment (see e.g., Enevoldsen et al., 2007). This has also been referred to as “the decoupling of economic growth from [the] consumption of energy and other resources” (Fiorito, 2013, p.467). The rest of the paper is organised as follows. The next section gives some background information about energy services and ESCOs. Then the focus shifts to business models, with a brief presentation of the Hamel framework. Section 4 gives an overview of the research design, and Section 5 presents the results. Section 6 discusses the main findings and Section 7 concludes the paper. 2. Energy services and ESCOs 2.1

Key definitions

Despite a rather a long history, energy services are still characterised by definitional confusion, the variety and complexity of the offerings and the diversity of suppliers. Bertoldi et al. (2006) define energy services as various activities such as energy audits, energy management, project design and implementation, maintenance and operation, the monitoring and evaluation of savings, and energy and equipment supply: this overlaps with the European Union (2006) definition. In line with Bertoldi et al. (2006), we define energy services in this study as services provided through activities such as project implementation. Energy Service Contracting is an umbrella term for diverse contractual relationships between energy-service providers and clients (see Table 1), and involves the outsourcing of one or more energy-related service to a third party. This contrasts with the conventional service model according to which an energy user makes a separate contract with a service provider for each energy commodity, and for the supply and maintenance of all energy conversion, distribution and control equipment. The terms employed in connection with Energy Service Contracts include, for example, Energy Performance Contracting and Energy Savings Performance Contracting, Facility Contracting, Chauffage and Contract Energy Management. The performance aspect is 2

the main distinguishing element between both Energy Performance Contracting (EPC) and Energy Supply Contracting (ESC), and “design and build” projects (Bertoldi et al., 2006; Mayer et al., 2010; Sorrell, 2005). In conventional “design and build” projects the contractor is paid on completion of the project, is rarely involved in operating the equipment and has no incentive to improve energy efficiency subsequent to the termination of the project (Sorrell, 2005). We use EPC in this paper to emphasise the performance aspect of the Energy Service Contract. Providers of energy services fall into two main groups based on the remuneration principle: Energy Service Provider Companies (ESPCs) and Energy Service Companies (ESCOs) (see Table 1) (Bertoldi and Rezessy, 2005; Goldman et al., 2005; Vine, 2005). ESCOs are understood in this study as providers of EPC. ***insert Table 1*** 2.2 ESCOs in brief The ESCO concept as understood today was introduced in North America at the beginning of the 1980s (Okay and Akman, 2010). Nowadays it has spread to most industrialised countries, to many economies in transition, and to the largest developing countries (Ürge-Vorsatz et al., 2007). There are variations in the ways ESCOs operate, but the key difference involves whether or not they provide financing for the project they are developing (Taylor et al., 2008). The choice of financing depends on various factors, notably the creditor’s knowledge of project financing, the credit ratings of the ESCO and the client, and public procurement and accounting rules (Sorrell, 2007). There are basically three different financing options: ESCO Financing, Third Party Financing (TPF) and Customer Financing. The first refers to the use of the ESCO’s funds, either its own capital or leasing arrangements. TPF refers to debt financing that is organised by the ESCO or the client. Customer financing involves the use of the customer’s funds covered by an energy-savings guarantee provided by the ESCO (Bertoldi et al., 2006). There are two basic ESCO contract models, Shared Savings and Guaranteed Savings (see Table 2), the distinguishing feature being the source of finance. In the Shared Savings model the ESCO provides the finance, and the client assumes no financial obligations other than to pay a given share of the materialised savings to the ESCO over a prescribed period of time. In the case of the Guaranteed Savings model it is the client who provides the financing: the ESCO guarantees sufficient energy savings to cover the client’s annual debt obligations and to give protection from any performance risk (Bertoldi and Rezessy, 2005; Okay and Akman, 2010). ***insert Table 2*** 2.3 Barriers limiting ESCO market growth

3

ESCO projects offer various benefits to the customer, both direct and indirect. Energy cost savings and lower operating and maintenance costs are the main direct benefits, whereas indirect or less tangible benefits may include improved productivity, higher comfort levels, deferred or avoided investments and environmental improvements. Outsourcing energy management also enables the firm to concentrate on its core activities. For many customers these indirect benefits constitute a key driver for launching an energy-efficiency project and improving customer satisfaction (Goldman et al., 2005). From a theoretical perspective ESCOs should be ubiquitous, given the huge potential for cost-effective energy-efficiency measures regardless of the country or industry (IEA, 2007; IPCC, 2007). This is not the case, however, in that diffusion differs notably by country and sector (Marino et al., 2011; Ürge-Vorsatz et al., 2007), and many cost-effective investment opportunities still remain unexploited (Brown, 2001; SOU, 2008). The energy-efficiency gap could be attributable to various market failures and barriers (Goldman et al., 2005), which are generally believed to be the main hindrances to the wider existence of ESCOs and EPC. Although each country and sector is different, several common barriers exist that could be classified as external or internal (see Table 3). ***insert Table 3*** Regardless of the abundant literature on the factors affecting ESCO business, little attention has been paid to evaluating strategic and managerial decisions, and evaluation of the ESCO business model is largely non-existent. Thus far the research has focused specifically on ESCO markets in different regions and countries (e.g., Bertoldi et al., 2006; Goldman et al., 2005; Okay and Akman, 2010; Okay et al., 2008; Soroye and Nilsson, 2010; Vine, 2005; Vine et al., 1998, 1999), ESCO project outcomes (e.g., Devine-Wright and Devine-Wright, 2009; Ellegård et al., 2004; Gustavsson, 2007; Gustavsson and Ellegård, 2004; Lee and Rajagopalan, 2008; Masopoga et al., 2009; Okkonen and Suhonen, 2010; van Rensburg et al., 2008; Sovacool, 2013; Wood and Rowley, 2011), and the measures taken to improve project feasibility (e.g., Bannai et al., 2007; Davies and Chan, 2001; Dongyan, 2009; Frosini and Anglani, 2006; Lee et al., 2003; Limaye and Limaye, 2011; Painuly et al., 2003; Patlitzianas et al., 2006; Patlitzianas and Psarras, 2007; Soratana and Marriott, 2010; Sorrell, 2007; Yik and Lee, 2004). 3. The Hamel framework for business-model evaluation The business model (BM) has grown into a useful unit of analysis as it provides an extensive framework within which to describe and understand a company and its focal parts (Amit and Zott, 2001; Hamel, 2000; Stähler, 2002). It can guide firms in creating a logical and coherent approach to activities and in identifying key variables in the creation of innovations. It can also provide parameters within which to evaluate the 4

appropriateness of different strategic and tactical actions that management is considering (Magretta, 2002; Morris et al., 2006). All in all, despite good governance and strong leadership, success is likely to remain modest if the wrong BM is applied (Teece, 2007). There is no universally adopted definition of the concept, however (Chesbrough and Rosenbloom, 2002; Montoro-Sánchez, 2009; Zott et al., 2011), and the use of terms such as BM, strategy, business concept, revenue model and economic model tend to confuse the issue. Chesbrough and Rosenbloom (2002) identified the value proposition, the target market, the value chain, revenue generation mechanism(s), the value network, and a competitive strategy as the key functions of a BM (see also Chesbrough, 2007). Kindström (2010), for example, also adopted this classification in order to identify and discuss key aspects of moving towards a service-based BM, and Shafer et al. (2005) categorised the often-cited BM components. Hamel’s (2000) framework, which is applied here, includes most of these general elements, and thus offers a holistic perspective from which to study the ESCO business (see Fig. 1). ***insert Fig. 1*** Hamel’s business concept comprises major components, bridge components and factors determining the profit potential. The first major component, a core strategy, describes the firm’s competitive decisions, whereas the sub-element, the business mission, encapsulates the overall objective of the strategy, or what the BM is intended to achieve or deliver. Product/market scope, for one, defines the firm’s competitive arena, in other words its customers, geographies and product segments. Finally, basis for differentiation depicts how the firm competes differently than its competitors. Strategic or unique firm-specific resources constitute a source of competitive advantage. They embody core competences, in other words what the firm knows, and comprise skills and unique capabilities. Strategic assets are what the firm owns, rare and valuable things other than know-how. Core processes illustrate what people in the firm do: they are activities used in transforming competences, assets and other inputs into value for customers. The customer interface comprises four elements: fulfilment and support is related to the way the firm reaches the market, and it includes decisions related to channels, customer support and the service level; information and insight cover the knowledge collected from customers and utilised for their benefit; relationship dynamics refers to the level of interaction between the firm and its customers; finally, the pricing structure specifies the options chosen from among the numerous charging principles. Surrounding the firm is its value network of suppliers, partners and coalitions that complement and strengthen its own resources. The configuration of activities is a bridge component that refers to combinations and linkages between competences, assets and processes, how they interrelate to support a chosen strategy, and how they are managed. Customer benefits comprise the packaged offering, and firm boundaries separate what the firm does internally from what it contracts out to the value network.

5

Four factors determine the wealth potential of a BM. Efficiency can guarantee that the value of benefits delivered exceeds their production costs. Uniqueness illustrates the level of convergence among BMs: the higher the level, the lower the potential for above-average profits. Fit means that the model comprises elements that are consistent, mutually reinforcing and have the same goal. Profit booster(s) include increasing returns, competitor lock out, and strategic economies and flexibility. In general, BMs have aroused substantial interest among both academics and business strategists. In the context of research on the energy business, Loock (2012) focused on which BMs might succeed in competition within the renewable energy industry. Okkonen and Suhonen (2010) also applied the BM concept to the field of renewable energies. Provance et al. (2011), in turn, analysed institutional influences on the choice of BM in the micro-generated energy industry, whereas Richter (2012) reviewed the current state of the literature on BMs in the context of utilities for renewable energies, and applied the concept as a structural framework for analysis. Finally, Casertano (2013) analysed the strategic responses of oil companies that might jeopardise the sustainability of their BMs. Thus, it seems that BM concepts have been applied within the field of renewable energy, but not within the ESCO industry. 4. Research design Today the Delphi method is probably the best-known forecasting mechanism carrying its own name. It is a qualitative research method that is applied widely to a variety of problems in different domains 1. Four key features tend to define something as a ‘Delphi’ procedure: iteration, anonymity, controlled feedback and a group statistical response (see e.g., Landeta, 2006; Rowe and Wright, 1999; Schwarz, 2008). Traditionally the main objective of the technique was to obtain the most reliable consensus of opinion from a panel of experts by conducting a series of questionnaires with controlled opinion feedback. Many later Delphi applications discarded this search for consensus, however, and rather emphasise the range of quality ideas the process generates (Landeta, 2006; Nielsen and Thangadurai, 2007). Our analysis is based on data from a two-round dissensus-based Delphi study that was conducted at the beginning of 2013 (from January to March). The key objective was to elicit expert opinions on the viability of the ESCO business model, and to identify the main hindrance factors in terms of developing the business as well as potential development needs. The main focus in the analysis was on identifying the key and divergent issues that invoked the widest differences of opinion. The questionnaires served as the medium of interaction, and both included closed and open-ended questions. The panellists evaluated the statements on a scale ranging from totally agree to totally disagree. The open-ended questions allowed the panellists to comment relatively freely on the ESCO business. They were thus encouraged to give arguments supporting their views and opinions, and their comments were valued over 1

For a thorough presentation of the Delphi method see, e.g., Linstone and Turoff (1975), and for a brief review of energy-related Delphi studies see, e.g., Makkonen et al. (2012).

6

the mean values of the responses. Thus, overall the study could be classified as qualitative, although there were quantitative elements in it. The questions that invoked the most comments and opinions among the panellists in the first round served as a basis for the second-round questionnaire. The questionnaires were pre-tested and the panellists were given feedback after the first round informing them of their anonymous colleagues’ opinions. The panellists were selected based on their expertise on the subject matter. The experts were categorised in three groups: business managers and executives; authorities; and other stakeholders in the field (i.e. researchers and consultants). The panellists represented Finland, thus the perspective was primarily that of Finland, although global trends were also acknowledged. Sixteen experts responded to the first inquiry, and the panellists in the second round numbered 11. The responses were anonymous. The empirical findings are analysed in the following section in line with Hamel’s (2000) framework. 5. Results The first major component in the BM framework is the core strategy. In simple terms, the overall aim of an ESCO is to be a supplier of cost-effective energy-efficiency services. However, when the panellists were asked in the course of the Delphi study to comment on the ESCO business many of them expressed concern about its clarity and attractiveness. They suggested that this could have stemmed from the fact that the ESCO concept is not so well known, and potential customers may not be aware of all the possibilities related to various services. One panellist put it as follows: “I must also say that the ESCO service is not a simple concept.” Some panellists also questioned the use of the term ‘ESCO’, describing it as outdated. As one of them pointed out: “The service models need to be developed further and, in my opinion, we should get rid of the word “ESCO” bit by bit. To me the ring of the term hasn’t sounded positive for years and when I worked in the industry I avoided using the term in any brochures, slides or sales pitches.” When it came to the firm’s competitive arena, in other words its customers, geographies and product segments, the panellists’ comments highlight the importance of the public sector, but also reveal many challenges related to the acceptance procedures covering investments in energy efficiency: “Carrying out ESCO projects in the public sector is challenging. How can projects be put out to tender in a way that the law on public procurement is obeyed?” Another panellist put it as follows: “It must be kept in mind that firms (and perhaps municipalities as well) have different procedures in acquiring a service and making an investment.” On the other hand, the respondents underlined in their comments the significance of increasing the presence of ESCOs in the private sector, but at the same time questioned

7

the success of energy-efficiency investments in the overall corporate investment portfolio. A Delphi representative summarised this well: “In every industrial enterprise there are plenty of profitable investments but one cannot invest in all of them. An energy-efficiency investment is realised only by coincidence.” It is often stated in the literature on ESCOs that the basis for differentiation is their unique performance-based financing model. The Delphi experts did not see this financing issue as so straightforward, however, and questioned whether financing really was the key divider between ESCOs and other providers of energy services: “How do you define an ESCO and what singles it out from the rest of the service business that is related to energy savings? If the difference is financing, the stakes and communications should be directed accordingly. If it is the overall project, one must ponder what the current problem in it is.” Another respondent reinforced this viewpoint: “Financing is not at all the most essential part of the service. In a guaranteed savings model the end customer manages the financing by him-/herself and an ESCO doesn’t take any part in it.” We now switch focus to the second BM element, strategic resources. These unique, firm-specific competences and assets are the sources of competitive advantage (see Table 4). ***insert Table 4*** The relevant statement concerned the adequacy of knowledge and skills to carry out ESCO projects successfully. The panellists were quite divided in their opinions, but still their comments indicate that the slow diffusion of the ESCO market was not due to a lack of knowledge. Instead, they suggested reasons such as instability in the financial situation in general and the low demand for energy-efficiency investments. Some of them were also of the opinion that people still had reservations about ESCOs: “There are still suspicions about ESCOs: “It is too good to be true”. Jealousy could also have a role: “Why should someone else benefit from our energy savings?”” With regard to the core skills and capabilities that ESCOs should have, the panellists highlighted the importance of market and customer-related knowledge: “There is poor understanding of our own market and customers, and the development does not stem from the customer’s needs sufficiently often.” Other necessary skills relate to design and risk management. The comments also brought out the fact that ESCOs typically have solid technical knowledge, but that skills related to sales promotion and management as well as financial skills should be targets for development. As one representative put it: “Strengthening the financial skills of the engineering culture would be helpful from the ESCO’s perspective. On the opposing [customer’s] side the decisions are typically made by the finance department.” Overall, the comments thus indicate that ESCOs are expected to have multiple skills. The panellists in particular highlighted the fact that ESCOs should play a big role 8

in analysing the overall needs of the customer, and should make recommendations casespecifically. Customers typically have established practices, and often have too limited resources to properly delve into potential energy-efficiency investments. The results thus suggest that ESCOs need to invest in developing their business skills and diversifying their core competence and process base in order to correspond to the needs of diverse customers. In sum, the combination and linkages between strategic resources, in other words the configuration of activities, needs to be carefully considered in order for it to support the chosen strategy. Table 5 summarises the responses to the statements concerning the third BM element, the customer interface. ***insert Table 5*** The first statement dealt with the companies’ willingness to invest in energy efficiency. Slightly over half of the panellists agreed with the statement that companies are not willing enough to make such investments, many of them commenting that companies had to choose from several investment projects, and energy-efficiency investments tended not to be at the top of the list. As one Delphi expert summarised the situation: “Some companies have really strict payback periods (for example one or two years maximum), and some do not have the money. Investment budgets are fixed and other investments get top priority. Members of staff do not have time due to their other work, and management is not involved. The future is uncertain and if you are not sure if [the firm] is still alive after a couple of years then no-one makes investments that have four-or-five-year payback periods in that situation.” The panellists were divided in their opinions on the question of whether raising funding for ESCO projects was straightforward. Overall, the comments indicate that a lack of trust and the potential credit risk were general factors that caused concern among the parties involved in the projects. Other suggested reasons for the funding problems included the strict rules and practices among the companies: “Companies may have strict rules covering external funding, in which case the financing method suggested by the actor will not suit.” None of the panellists fully agreed with the third statement, but over half of the respondents partly agreed that customers regarded the calculations made by the ESCOs with suspicion. However, the comments brought out the fact that it was also in the ESCOs’ interests to provide calculations that were as accurate and reliable as possible. Some panellists added that the estimates might be too conservative because ESCOs do not necessarily account for all the potential side effects of the investments and this could undermine the overall benefits of the projects. One of the specialists commented further that: “One may rely on the calculations, but in reality making them is not trouble-free when energy consumption fluctuates and the investment can have an impact on something other than the accounting unit.”

9

In sum, the results indicate that ESCOs need to clarify and concretise both direct and indirect customer benefits. This is particularly important given the continuing reservations about them, and the fact that investing in ESCO projects is not typically a top priority in companies’ investment portfolios. The responses to the statement relating to the fourth BM element, the value network, are shown in Table 6. ***insert Table 6*** The panellists were asked to comment on the combination of know-how among different actors. The majority of the experts were of the opinion that the most successful projects are implemented in collaboration. Their comments also imply, however, that it is challenging to bring actors from different fields to one table to discuss issues that are sometimes considered trade secrets. Naturally, the nature and size of the project are also key factors in that small and simple projects do not need input from several actors. As one panellist put it: “The whole package can sometimes be found in a big company.” It also became evident that the ESCO itself should have most of the required knowledge: “An ESCO needs to have wide enough knowledge in order for subcontracting to be efficient and for the overall project management to stay in its own hands.” This indicates that ESCOs need to consider case-specifically what they do internally and what they contract out to the value network. Building solid supplier and partner networks and expanding the firm boundaries are of importance in order to respond rapidly to customer needs and to carry out the projects smoothly. Finally, when it comes to the factors determining the business model’s profit potential, in other words its wealth potential, and strengthening the presence of the ESCO, there seems to be a need to actively raise the awareness of customers and other stakeholders about ESCOs and their unique benefits. There is also a need to highlight the unique financing model they could offer in a way that customers value. 6. Discussion This study focuses on the viability of ESCOs based on EPC, and draws on data from a dissensus-based Delphi study that could be classified as qualitative, although there are also quantitative elements. Previous ESCO research gives numerous reasons for the slow market diffusion, but none of it draws on the BM approach. The findings of this study indicate that the generally weak knowledge about ESCOs and their offerings is among the key reasons for the immaterialised volume of activity. Some of the panellists argued that customers may regard the ESCO concept with suspicion, and there may also be jealousy over having an outsider benefit from the savings. This is all influenced by the uncertainty surrounding the business. The results also suggest that customers may regard ESCO projects as complicated and time-consuming, and potentially not ‘worth 10

the trouble’. This may stem from the companies’ investment procedures and the difficulty in justifying ESCO investments with their typically quite long payback periods. Thus, investing in such projects must be facilitated, and ESCOs must clearly demonstrate the measureable and observable benefits of their projects. This, in turn, requires a strong understanding of the customer and the industry, which could be realised by combining resources with those of other actors in the field. In sum, the ESCO BM is supported by a strong core strategy with an attractive, relevant and distinguishable business mission, and a unique financing model as a basis for differentiation, although efforts are needed to make them better known and understood. This calls, for example, for the formulation and standardisation of common procedures. Furthermore, partnering could strengthen the strategic resources of ESCOs, and give them better access to industry- or customer-specific capabilities and knowledge. This would also help in making the customer benefits more visible. The key contributions of this study are as follows. First, it clarifies the terminology that falls under energy services and performance-based Energy Service Contracting. In doing so it sheds light on the current state and understanding of ESCOs. By way of theoretical background, this paper combines the ESCO concept and the BM concept in analysing data from the Delphi study through Hamel’s framework. The BM framework proved valuable in structuring the analysis and identifying the key factors that are hindering the development of the ESCO business. With the help of the Delphi study we were able to systematically gather empirical data on a phenomenon that lacks comprehensive historical data. We were also able to avoid time and place constraints, and the panel of experts were able to freely express their opinions given that anonymity was assured. Furthermore, the iterative Delphi rounds enabled us to analyse the research topic from many perspectives. As a key managerial contribution this paper identifies factors that are important for ESCO managers to consider in the development of BMs: any improvements will contribute to the market development and growth of the ESCO, which have thus far been slow. In sum, there is novelty value in this explorative study, which may be a first step in analysing the ESCO BM from more of a business perspective. 7. Conclusions The key objective of this paper was to increase understanding of ESCOs as providers of EPC. The Delphi system proved to be a successful research method in this context. The two-round Delphi process was helpful in focusing the discussion and providing a rather comprehensive view of the ESCO business. The insights from the study were then analysed through the BM approach, which is a novel contribution within the ESCO context. The study sheds light on a topical issue given that great expectations have been placed on ESCOs to capitalise on these large but untapped energy-efficiency opportunities. It appears from the findings of the Delphi study that ESCOs are little known and poorly understood. This ignorance surrounding the business affects 11

customers’ readiness to invest their time and resources in ESCO projects. One of the key development needs is thus to emphasise heavily both the visible and the invisible benefits on offer. This research, like any other, is subject to potential limitations. One could question whether the chosen BM framework covered all aspects of the ESCO business. Moreover, all the Delphi panellists were of Finnish extraction, which may affect the generalisation of the findings. One could also question whether the number of panellists was adequate, especially in the second round. Nevertheless, a relatively small Delphi panel was considered preferable given that the objectives were not to analyse the responses statistically, and to select experts with solid expertise on the subject matter. There is a need for future, longitudinal studies to examine the performance of ESCOs and to document in detail both success and failure in order to increase understanding of the key success factors within this emerging business field. Finally, it would be interesting to compare the ESCO business with other industrial sectors that are moving towards a service-based business model. References Amit, R., Zott, C., 2001. Value creation in e-business. Strategic Management Journal 22(6/7), 493–520. Bannai, M., Tomita, Y., Ishida, Y., Miyazaki, T., Akisawa, A., Kashiwagi, T., 2007. Risk hedging against the fuel price fluctuation in energy service business. Energy 32(11), 2051–2060. Bertoldi, P., Rezessy, S., 2005. Energy service companies in Europe – status report 2005. European Commission. http://re.jrc.ec.europa.eu/energyefficiency/. Bertoldi, P., Rezessy, S., Vine, E., 2006. Energy service companies in European countries: current status and a strategy to foster their development. Energy Policy 34(14), 1818–1832. Brown, M.A., 2001. Market failures and barriers as a basis for clean energy policies. Energy Policy 29(14), 1197–1207. Casadesus-Masanell, R., Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning 43(2-3), 195–215. Casertano, S., 2013. International oil companies in the post-studio era: Strategic responses of energy majors to the 2003–2008 price boom. Energy Strategy Reviews 1(3), 211–217. Chesbrough, H., 2007. Business model innovation: it’s not just about technology anymore. Strategy & Leadership 35(6), 12–17. Chesbrough, H., Rosenbloom, R.S., 2002. The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology spin-off companies. Industrial and Corporate Change 11(3), 529–555. Davies, H.A., Chan, E.K.S., 2001. Experience of energy performance contracting in Hong Kong. Facilities 19 (7/8), 261–268.

12

Demil, B., Lecocq, X., 2010. Business model evolution: in search of dynamic consistency. Long Range Planning 43(2-3), 227–246. Deng, Y.Y., Blok, K., van der Leun, K., 2012. Transition to a fully sustainable global energy system. Energy Strategy Reviews 1(2), 109–121. Devine-Wright, P., Devine-Wright, H., 2009. Public engagement with community-based energy service provision: an exploratory case study. Energy & Environment 20(3), 303–317. Dongyan, L., 2009. Fiscal and tax policy support for energy efficiency retrofit for existing residential buildings in China’s northern heating region. Energy Policy 37(6), 2113– 2118. Ellegård, A., Arvidson, A., Nordström, M., Kalumiana, O.S., Mwanza, C., 2004. Rural people pay for solar: experiences from the Zambia PV-ESCO project. Renewable Energy 29(8), 1251–1263. Enevoldsen, M.K., Ryelund, A.V., Andersen, M.S., 2007. Decoupling of industrial energy consumption and CO2-emissions in energy-intensive industries in Scandinavia. Energy Economics 29(4), 665–692. European Commission, 2009. Reference document on best available techniques for energy efficiency. http://eippcb.jrc.es/. European Union, 2006. Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006. Official Journal of the European Union, 27.4.2006. http://eur-lex.europa.eu/. Fiorito, G., 2013. Can we use the energy intensity indicator to study “decoupling” in modern economies? Journal of Cleaner Production 47, 465–473. Frosini, L., Anglani, N., 2006. Linear and neural dynamic models: shared benefits between the industrial customer and the ESCo from the energy services’ perspective. IEEE Transactions on Systems, Man, and Cybernetics – Part C: Applications and Reviews 36(4), 524–530. Goldman, C.A., Hopper, N.C., Osborn, J.G., 2005. Review of US ESCO industry market trends: an empirical analysis of project data. Energy Policy 33(3), 387–405. Gustavsson, M., 2007. With time comes increased loads – an analysis of solar home system use in Lundazi, Zambia. Renewable Energy 32(5), 796–813. Gustavsson, M., Ellegård, A., 2004. The impact of solar home systems on rural livelihoods. Experiences from the Nyimba Energy Service Company in Zambia. Renewable Energy 29(7), 1059–1072. Hamel, G., 2000. Leading the revolution, first ed. Harvard Business School Press, Boston. Hansen, S., 2003. Performance contracting models and risk management. Workshop on Developing the Business of Energy Efficiency Performance Contracting, Rio de Janeiro. Hansen, S.J., 2011. ESCOs around the world. Strategic Planning for Energy and the Environment 30(3), 9–15. IEA, International Energy Agency, 2007. Tracking industrial energy efficiency and CO 2 emissions. Paris. http://www.iea.org/.

13

IPCC, 2007. Summary for policymakers, in: Metz, B., Davidson, O.R., Bosch, P.R., Dave, R., Meyer, L.A. (Eds.), Climate Change 2007: Mitigation of Climate Change. Cambridge University Press, Cambridge and New York. http://www.ipcc.ch/. Kindström, D., 2010. Towards a service-based business model – Key aspects for future competitive advantage. European Management Journal 28(6), 479–490. Kissock, J.K., Eger, C., 2008. Measuring industrial energy savings. Applied Energy 85(5), 347–361. Landeta, J., 2006. Current validity of the Delphi method in social sciences. Technological Forecasting & Social Change 73(5), 467–482. Lee, M.-K., Park, H., Noh, J., Painuly, J.P., 2003. Promoting energy efficiency and ESCOs in developing countries: experiences from Korean ESCO business. Journal of Cleaner Production 11(6), 651–657. Lee, S.E., Rajagopalan, P., 2008. Building energy efficiency labeling programme in Singapore. Energy Policy 36(10), 3982–3992. Limaye, D.R., Limaye, E.S., 2011. Scaling up energy efficiency: the case for a Super ESCO. Energy Efficiency 4(2), 133–144. Linstone, H.A., Turoff, M. (Eds.), 1975. The Delphi method – techniques and applications. Addison-Wesley, Reading, MA. Loock, M., 2012. Going beyond best technology and lowest price: on renewable energy investors' preference for service-driven business models. Energy Policy 40, 21–27. Lovins, A.B., 1976. Energy strategy: the road not taken? Foreign Affairs 55(1), 65–96. Magretta, J., 2002. Why business models matter? Harvard Business Review 80(5), 86– 92. Makkonen, M., Pätäri, S., Jantunen, A., Viljainen, S., 2012. Competition in the European Electricity Markets – Outcomes of a Delphi study. Energy Policy 44(1), 431–440. Marino, A., Bertoldi, P., Rezessy, S., 2010. Energy service companies market in Europe – status report 2010. European Commission. http://publications.jrc.ec.europa.eu/. Marino, A., Bertoldi, P., Rezessy, S., Boza-Kiss, B., 2011. A snapshot of the European energy service market in 2010 and policy recommendations to foster a further market development. Energy Policy 39(10), 6190–6198. Masopoga, I., van der Merwe, C., Grobler, L.J., 2009. Measurement and verification of a lighting load reduction project through energy efficiency. Journal of Energy in Southern Africa 20(3), 11–13. Mayer, A., Supple, D., Kuhn, V., Lines, S., 2010. Energy performance contracting in the European Union: creating common “model” definitions, processes and contracts. Institute for Building Efficiency, an Initiative of Johnson Controls. http://www.institutebe.com/. Mills, E., Kromer, S., Weiss, G., Mathew, P.A., 2006. From volatility to value: analysing and managing financial and performance risk in energy savings projects. Energy Policy 34(2), 188–199. Montoro-Sánchez, Á., 2009. Competitive dynamics and business models in service business: a promising research subject. Service Business 3(4), 311–318.

14

Morris, M., Schindehutte, M., Richardson, J., Allen, J., 2006. Is the business model a useful strategic concept? Conceptual, theoretical, and empirical insights. Journal of Small Business Strategy 17 (1), 27–50. Nielsen, C., Thangadurai, M., 2007. Janus and the Delphi Oracle: entering the new world of international business research. Journal of International Management 13(2), 147– 163. Okay, N., Akman, U., 2010. Analysis of ESCO activities using country indicators. Renewable & Sustainable Energy Reviews 14(9), 2760–2771. Okay, E., Okay, N., Konukman, A.E.S., Akman, U., 2008. Views on Turkey’s impending ESCO market: is it promising? Energy Policy 36(6), 1821–1825. Okkonen, L., Suhonen, N., 2010. Business models of heat entrepreneurship in Finland. Energy Policy 38(7), 3443–3452. Painuly, J.P., Park, H., Lee, M.-K., Noh, J., 2003. Promoting energy efficiency financing and ESCOs in developing countries: mechanisms and barriers. Journal of Cleaner Production 11(6), 659–665. Patlitzianas, K.D., Doukas, H., Psarras, J., 2006. Designing an appropriate ESCOs’ environment in the Mediterranean. Management of Environmental Quality: An International Journal 17(5), 538–554. Patlitzianas, K.D., Psarras, J., 2007. Formulating a modern energy companies’ environment in the EU accession member states through a decision support methodology. Energy Policy 35(4), 2231–2238. Peura, P., 2013. From Malthus to sustainable energy – Theoretical orientations to reforming the energy sector. Renewable and Sustainable Energy Reviews, Volume 19, 309–327. Poole, A.D., Stoner, T.H., 2003. Alternative financing models for energy efficiency performance contracting. Workshop on Developing the business of energy efficiency performance contracting, Rio de Janeiro. Price, L.K., McKane, A.T., 2008. Policies and measures to realise industrial energy efficiency and mitigate climate change. UN-Energy, Energy Efficiency Cluster. Provance, M., Donnelly, R.G., Carayannis, E.G., 2011. Institutional influences on business model choice by new ventures in the microgenerated energy industry. Energy Policy 39(9), 5630–5637. van Rensburg, J.F., Geyser, M.F., Kleingeld, M., Mathews, E.H., 2008. Developing ESCo procedures for large telecommunication facilities using novel simulation techniques. Journal of Energy in Southern Africa 19(1), 43–54. Richter, M., 2012. Utilities’ business models for renewable energy: a review. Renewable and Sustainable Energy Reviews 16(5), 2483–2493. Rowe, G., Wright, G., 1999. The Delphi technique as a forecasting tool: issues and analysis. International Journal of Forecasting 15(4), 353–375. Schwarz, J.O., 2008. Assessing the future of futures studies in management. Futures 40(3), 237–246. Shafer, S.M., Smith, H. J., Linder, J.C. 2005. The power of business models. Business Horizons 48(3), 199–207.

15

Soratana, K., Marriott, J., 2010. Increasing innovation in home energy efficiency: Monte Carlo simulation of potential improvements. Energy and Buildings 42(6), 828–833. Soroye, K.L., Nilsson, L.J., 2010. Building a business to close the efficiency gap: the Swedish ESCO experience. Energy Efficiency 3(3), 237–256. Sorrell, S., 2005. The contribution of energy service contracting to a low carbon economy. Tyndall Centre for Climate Change Research. Technical Report 37. http://www.tyndall.ac.uk/sites/default/files/t3_21.pdf. Sorrell, S., 2007. The economics of energy service contracts. Energy Policy 35(1), 507– 521. SOU, 2008. Vägen till ett energieffektivare Sverige. Slutbetänkande av Energieffektiviseringsutredningen. Stockholm: Statens Offentliga Utredningar (SOU) 2008:110. Sovacool, B.K., 2013. Expanding renewable energy access with pro-poor public private partnerships in the developing world. Energy Strategy Reviews 1(3), 181–192. Stähler, P., 2002. Business models as an unit of analysis for strategizing. In International Workshop on Business Models, Lausanne, Switzerland. Taylor, R.P., Govindarajalu, C., Levin, J., Meyer, A.S., Ward, W.A., 2008. Financing energy efficiency: lessons from Brazil, China, India, and beyond. The International Bank for Reconstruction and Development/The World Bank. http://wwwwds.worldbank.org/. Teece, D.J., 2007. Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal 28(13), 1319– 1350. Ürge-Vorsatz, D., Köppel, S., Liang, C., Kiss, B., Nair, G.G., Celikyilmaz, G., 2007. An assessment of on energy service companies (ESCOs) worldwide. World Energy Council. http://www.worldenergy.org/documents/esco_synthesis.pdf. Vine, E., 2005. An international survey of the energy service company (ESCO) industry. Energy Policy 33(5), 691–704. Vine, E.L., Murakoshi, C., Nakagami, H., 1998. International ESCO business opportunities and challenges: A Japanese case study. Energy 23(6), 439–447. Vine, E., Nakagami, H., Murakoshi, C., 1999. The evolution of the US energy service company (ESCO) industry: from ESCO to Super ESCO. Energy 24(6), 479–492. Wesselink, B., Harmsen, R., Eichhammer, W., 2010. Energy savings 2010: how to triple the impact of energy saving policies in Europe. Ecofys and Fraunhofer ISI. Westling, H., 2003. Performance contracting – summary report. International Energy Agency (IEA) DSM Implementing Agreement/Swedish Energy Agency. Stockholm. http://www.ieadsm.org/. Wood, S.R., Rowley, P.N., 2011. A techno-economic analysis of small-scale, biomassfuelled heat and power for community housing. Biomass and Bioenergy 35(9), 3849– 3858. Worrell, E., Bernstein, L., Roy, J., Price, L., Harnisch, J., 2009. Industrial energy efficiency and climate change mitigation. Energy Efficiency 2(2), 109–123. Yik, F.W.H., Lee, W.L., 2004. Partnership in building energy performance contracting. Building Research & Information 32(3), 235–243. 16

Zott, C., Amit, R., Massa, L., 2011. The business model: recent developments and future research. Journal of Management 37(4), 1019–1042.

17