History of the U.S. ESCO Industry
1980s - 1990s
The U.S. Energy Service Company (ESCO) industry emerged in the early 1980s as organizations sought cost-effective ways to improve energy efficiency and reduce operating expenses. Initially, ESCOs primarily provided energy audits, project development, and consulting services for utilities, which were encouraged by federal policies to invest in energy conservation.
By the late 1980s and early 1990s, ESCOs expanded beyond consulting by implementing energy efficiency projects for industrial, commercial, and public-sector customers. During this period, many projects used a shared savings financing model, in which the ESCO financed the project and was repaid through a portion of the verified energy savings.
A major milestone came in 1992 with the passage of the Energy Policy Act (EPAct), which established Energy Savings Performance Contracts (ESPCs) as a federal procurement mechanism. The law authorized federal agencies to use private financing for energy efficiency and infrastructure improvements, with ESCOs guaranteeing that project savings would cover financing costs. This marked the beginning of the modern guaranteed savings model, which soon became the industry standard.
1990s - 2000s
As the industry matured throughout the 1990s, ESCOs consolidated through acquisitions by larger companies, and standardized measurement and verification practices—including the development of the International Performance Measurement and Verification Protocol (IPMVP)—increased confidence in project performance.
During this same period, states across the country began enacting their own performance contracting legislation, enabling state and local governments, schools, universities, and other public institutions to utilize ESPCs for infrastructure modernization.
Since the mid-2000s, the ESCO market has expanded significantly, driven by public-sector demand for infrastructure modernization, energy savings mandates, and aging building systems. In addition to traditional energy efficiency projects, ESCOs now deliver comprehensive infrastructure solutions that may include renewable energy, distributed generation, water conservation, lighting, building controls, resiliency improvements, electric vehicle charging infrastructure, and other facility upgrades. Today, the guaranteed savings ESPC model remains the foundation of the U.S. ESCO industry, helping organizations modernize facilities while reducing energy and operating costs without requiring significant upfront capital investment.
Since 1990 ESCOs have delivered: