2017 was a positive year for the Italian energy efficiency industry, effectively in its “second wave” of major growth, according to The Italian Energy Efficiency Report 2018, published last June by the Politecnico di Milano Energy & Strategy Group. The data outlined in the report demonstrates increased market maturity, as evidenced by a significant increase in EE investment and the growing presence of ESCOs as major market players.
Increased Investment in Energy Efficiency
The investment realized in Italy in 2017 amounted to about €6.7 billion, a 10% increase from 2016, with 65% of the total investment towards residential homes and commercial buildings, 33% to industry and 2% to public buildings.
The technologies that have benefited from the investment’s grow rate above the market average, amounting to 10%, are heat pumps and lighting systems, mainly used in residential homes and commercial buildings, followed by condensing boilers and energy redevelopment of the production process and EMS (Energy Management Systems) in public buildings. As for the other technologies, the growth rate is in line with the market average, with the exception of electric motors and inverters, with a decrease of 17% and 30%, solar thermal, with decrease of 8%, and interventions in the field refrigeration, with a decrease of 29%.
Industrial Investors: The Energy & Strategy Group Survey’s results
Market demand for energy efficiency retrofit in the industrial sector remains strong, according to a survey conducted by the Federazione Italiana per l’uso Razionale dell’Energia (FIRE) carried out from January to May 2018 to over 700 Energy Managers from across Italy. The non-exhaustive market survey identified €100 million of investment in industrial energy efficiency retrofit in 2017. Survey respondents cited the willingness of industry to reduce their energy consumption as well as the need to replace obsolete assets as the principle reasons for the strong levels of investment in energy efficiency.
However, a key constraint to investment in industrial energy efficiency measures remains long payback times for certain energy conservation measures, followed by regulatory uncertainty; ESCOs have had difficulty correctly leveraging existing incentive schemes, while regulatory developments have been fragmented and disjointed over the years. Other minor barriers include critical interaction with the production process and the difficulty for ESCOs to access capital in terms of equity and third-party project finance.
A central role for ESCOs
By the end of 2017, Italy totaled 347 certified ESCOs - a 30% increase from 2016 – an increase higher than the combined market growth from 2012 to 2016. A corresponding increase of 10% in revenue from energy efficiency was recorded, totaling €3.4 billion. This increase is largely attributed to the price increase in white certificates, a key building block that initially accelerated the growth of the EE market.
The current scenario shows an increasingly dynamic market; numerous mergers and acquisitions highlight the growing interest of players from across the energy market in energy efficiency and energy services. New operators investing in energy efficiency include electricity and gas distributors, transmission operators, and private equity funds. In particular, there is a growing tendency of key market players - mainly utilities - to acquire large, specialized ESCOs, the objective being to integrate their resources and expertise into various energy efficiency technologies and markets.
Based on the data, it therefore appears that the Italian energy efficiency market is experiencing a wave of intense growth, where small and medium ESCOs have a central role and the energy service model is of growing interest to major energy market players. Given this increase in competition, SME ESCOs are shifting focus away from white certificate-based business models, and becoming increasingly strategic, looking to increase the scope of their sales, which requires Third Party Finance. This abundance of activity and competition shows an ESCO market that is ripe with opportunity for growth and investment in both the short and long term.
A market with great potential
The data presented in the 2018 Italian Energy Efficiency Report show that major strides in the Italian energy efficiency market have been made in past year, building on what was already one of the most robust energy efficiency markets in Europe. Rapid ESCO growth and an increasingly central role in the market for small and medium project developers has increased competition, leading to greater market stability. Consequently, the demand for third party finance is ever-present and will continue to grow; increased flow of equity capital and project finance will effectively make Italy a European leader in energy efficiency across both the private and public sectors.