I have noticed in recent years, how the real estate and specifically the large construction companies sector is undergoing a reinvention process that extends from their own construction culture in the residential, civil works areas, etc … to their conversion into services companies, where although construction is still the cornerstone of their business, services offerings play an increasingly relevant role. Today the large construction companies have subsidiaries that manage airports, motorways and mainly what I will discuss today: “Energy”.
This week I attended the opening of the public street lighting in Soto del Real (Madrid) which has been wisely carried out by this municipality’s City Council under a project sponsored by the IDAE. A notable feature of the project is that it has been executed using 100% LED technology. The energy services company that was awarded the project guarantees them 80% savings on their electricity bill. That”s major words! I do not know what the rest of the government staff of the more than 8,000 municipalities in this country are thinking about… they may have more important things to do, than to save, in this case, 80% of the electricity bill for the municipal treasury thus benefiting from having street lighting (essential service) with the latest technologies and running like clockwork. But well, this is not what I wanted to talk about…
I today want to talk to you about this reinvention of the construction firms in services companies specifically in energy services. Ferroser, energy services company subsidiary of Ferrovial, the company that was awarded the project of Soto del Real, explained in their project presentation how revenues from services activities were virtually matched with the construction activity incomes (around 3,600 million euros). In turn Ortiz group that was invited to the conference to share their experience in the energy services world, you know what … they also presented very similar figures in both activities. Some may think, not without reason, that this parity is due in part to the drastic drop in this country’s construction sector, but let me first say that the figure included international activity, and on the second place not only are the parity figures striking but also how their business in the energy sector is increasing.
And that is that the real estate sector is reconverting into utilities (water, waste, cleaning, airports, highways, and now…..cities) and specifically in the construction industry and the cities sector, in energy services companies. Whoever controls the energy, controls the world! The strategy is that on top of being the promoters they also are the operators. What is happening in most cases is that the developer usually steps back once the installation is completed and sold. Therefore they tend to maximize profits by reducing construction costs without worrying about maintenance costs that subsequently will have to be borne by users. But this is changing. Because within promoters a culture of being builders while being operators or managers is extending, ie energy services companies (ESCO”s). This is already bringing sustainable construction criteria to maximize the profits from the operation, which lasts for years. They have noticed that an increase of 3 or 4% in construction budgets and 40% savings in the management for 30 years compensates. The key, as always, is the financial approach.
The ESCO”s provide energy services or energy efficiency improvement for the user’s facilities or premises, facing some financial risk in doing so. Besides, the payment for services delivered is based in whole or in part, on improving energy efficiency and obviously in complying with the other performance commitments agreed or contracted. These services provided by ESCO”s comprise carrying out intangible investments, works or supplies needed to optimize the quality and reducing the other agreed performance requirements.
The development of this type of business in the United States began in the 70s, as a possible solution to rising energy costs that hit the country at the time. Initially the service did not gain wide acceptance among the large energy consumers, mainly due to mistrust of these on the actual reduction of energy consumption proposed. Precisely this suspicion was the base of the Energy Services Companies (ESCOs) model, by ensuring and guaranteeing energy savings achievement, and funding the service from these savings. In subsequent years, the service took a major role in the 90s, with the development of new technologies for energy efficiency in lighting systems, HVAC, bioclimatic architecture, etc. Thus, ESCO”s found an important place in the energy market, having
developed in this country many significant projects, both in public and private facilities.
To me, the ESCO”s market seems vitally important because the implementation of the services provided by an ESCO contributes directly to community, national and regional objectives of energy savings and renewable energy promotion. By using their services, energy savings can be achieved in large facilities that can reach consumption savings levels between 25 and 40%, improving facilities without its environmental quality being adversely affected.
The ESCO”s services have also their great opportunity in the market due to their high financing ease for the customer in addition to the similarity of the model to “turnkey” projects. The scope of offering of an ESCO has the ability to bring together all the services necessary to achieve energy savings, resulting in an improvement and advantage over other companies that develop independent services, for example, only the design, the implementation or the operation and maintenance of a project. This integration of services enables customers to outsource all their energy requirements, allowing them to focus on the installation’s core activity, making it more energy and operationally efficient.