The economics of energy service contracts

By S. Sorrell. 2007

323 citations recorded by the source corpus.

Energy service contracting can provide a cost-effective route to overcoming barriers to energy efficiency. Energy service contracts allow the client to reduce operating costs, transfer risk and concentrate attention on core activities. However, the energy services model may only be appropriate for a subset of energy services and energy using organisations. A challenge for both business strategy and public policy is to identify those situations in which energy service contracting is most likely to be appropriate and the conditions under which it is most likely to succeed. Energy service contracting is a form of outsourcing. It will only be chosen where the expected reduction in the production cost of supplying energy services can more than offset the transaction cost of negotiating and managing the relationship with the energy service provider. Production costs will be determined by a combination of the physical characteristics of the energy system and the technical efficiency of the relevant organisational arrangements, including economies of scale and specialisation. Transaction costs, in turn, will be determined by the complexity of the energy service, the 'specificity' of the investments made by the contractor, the competitiveness of the energy services market and the relevant legal, financial and regulatory rules. This paper develops these ideas into a general framework that may be used to assess the feasibility of energy service contracting in different circumstances. The framework leads to a number of hypotheses that are suitable for empirical test.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/630834945357e3cd3b616df465a40cb9d1fdbcea

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. S. Hall
2. William F. Gale
3. M. Hannon
4. Mark Davis
5. Donal Brown
6. T. Foxon
7. Pierluigi Mancarella
8. Eva Schmid

In Renewable Energy, Sustainability and the Environment

1. S. Hall
2. M. Hannon
3. William F. Gale
4. T. Foxon
5. Mark Davis
6. Donal Brown
7. Pierluigi Mancarella
8. Nicholas Good

In Strategy and Management

1. S. Hall
2. Mark Davis
3. M. Hannon
4. Donal Brown
5. T. Foxon

Citations in the corpus

• Prosumers in the post subsidy era: an exploration of new prosumer business models in the UK (2019, background): “These models may even offer energy performance contracts for specified comfort, such levels or internal temperature, further incentivising efficiency in building fabric, lighting and appliances (Sorrell, 2007).”
• The co-evolutionary relationship between Energy Service Companies and the UK energy system: Implications for a low-carbon transition (2013, background): “…conversion, control and distribution technologies required to satisfy   its   customer’s   energy   needs,   enables   it   to   provide   certain   guarantees   relating to the standard of energy service it provides, such as lighting levels, room temperature or humidity (EU, 2006; Sorrell, 2007).”
• Putting an energy system transformation into practice: The case of the German Energiewende (2016, background): “This could be the widespread diffusion of energy management in firms [63], energy service contracts as business cases [68] or the societal shift from a consumerist towards a sharing economy [69].”
• Review and classification of barriers and enablers of demand response in the smart grid (2017, background): “A systemic way to achieve this, without degradation of control over final energy services and resultant comfort/convenience, is through implementation of energy-service based solutions [125].”