January 2019Energy efficiency services in Europe Tapping into a powerful marketManagement summaryOngoing pressure from both the political and business worlds has led to the emergence of a market for energy efficiency services services aimed at helping compa-nies improve how they use primary energy, through in-troducing new technology and other actions. This fast-growing market is set to almost double in size in Europe to around EUnullnull billion in nullnull, in the process becoming a key market in the European industrial land-scape.nullt companies wishing to tap into this powerful market face a fundamental problemnullthe lack of transparency in the market. nullfferent analysts include different busi -nesses in their definition of the overall market, and hence calculate widely varying market volumes. nulle solve this problem by dividing the market into the five nullead marketsnullfor software, consulting, engineering, op -erations and contracting. This systematic approach al-lows us to calculate an accurate market size.nullving established a robust basis for discussion, we then turn to the options for companies. nullowth of the market in Europe is driven by five main factorsnullregula -tion, innovation, the energy transition, an increasing focus on sustainability, and digitalization. nullt challeng -es also abound for hopeful market entrants, including market fragmentation, strong competition and techni-cal complenullty. nulle enullmine the opportunities and chal -lenges in detail, looking at how different factors impact the lead markets and what the prospects are for new and established players.Ultimately, we believe that players can succeed by fol-lowing a few relatively straightforward principles. They must build a compelling business case for their custom-ers, using levers such as digitalization and cost of deliv-ery. They must pursue smart growth through mergers and acnulluisitions, taking great care not to kill off the en-trepreneurial spirit of their newly acnulluired firms. nulld they must ensure that they themselves have the right internal setup, with the renulluired flenullbility to accommo -date strong growth businesses.2 Roland Berger Focus Energy efficiency services Contents1. Defining the market . 4 Our systematic approach creates transparencyFive lead markets . 62. Challenges abound . 9The market is complex, dynamic and technically sophisticated3. Time for strategy . 13We identify three overriding success factorsEnergy efficiency services Roland Berger Focus 3Energy efficiency and climate protection are high on todaynull global political agenda. null nullnull nearly nullnullcoun -tries agreed to cut or curb their carbon emissions un- der the nullris nullreement. nullt besides its political impor -tance, energy efficiency is also a key enabler for busi-ness. nullndeed, while countries are trying to reduce their carbon footprint, companies are busy trying to reduce their energy costs.This combined pressure from politics and business has led to the emergence of a market for nullnergy effi -ciency servicesnullnullEnull. nulle can define EEnullas services provided on the basis of a contract that enable custom-ers to increase their energy efficiency using technology and actions designed to conserve or increase the effi-cient use of primary energy.null Europe, the market for EEnullis growing fast. nullc -cording to our calculations detailed further below the market in the European Union nullUnullnullwas worth EUnullnull.nullbillion in nullnull and is enullected to grow eight percent a year, reaching a market volume of EUnullnull.null billion by nullnull. That means that it is growing faster than nullnull. nulldeed, EEnullis very likely to become one of the key markets in the European industrial landscape.One of the problems with the market for EEnull, howev-er, is its lack of transparency. nullo universal consensus enullsts about what the market includes and hence on what basis to calculate its size. Our approach introduces five lead markets that make up the total marketnullenergy efficiency management softwarenullenergy efficiency au -ditnullonsultingnullengineering, procurement and construc -tion nullnullnull of energy efficiency technologynullefficient op -erationsnulland energy efficiency contracting. nullor short, we refer to these lead markets as nulloftwarenull nullonsult -ingnull nullngineeringnull nullperationsnulland nullontractingnullnullor each of these five lead markets we define market segments that are made up of various technology lines. Using international studies of use cases, marketing siz-ing, technology rating and statistical data from Europe-an countries we can then calculate the volume of each of the lead markets in each country, from there the volume of each lead market in Europe as a whole, and finally the total market for EEnull. nulle believe that the results of these systematic, bottom-up calculations form a solid basis for international discussion and analysis. nullgure nullpro -vides an overview of market volumes and forecast growth rates for each of the lead markets. nullll details of lead markets and their constituent parts appear in the bonullfeature on pages nullnull A GROWTH DRIVERSnullving established the dimensions of the market, we now turn to the factors driving market growth. nulle iden-tify five key driversnullregulation, innovation, the energy transition, the increasing focus on sustainability, and digitalization. The first driver is regulation. nullational and interna-tional agreements oblige companies to reduce their car-bon emissions. null the same time, increasing energy prices and import fees are creating new incentives for companies to improve their energy efficiency.The second market driver is innovation. This in-volves the development of new energy-saving technolo-gy, the nulleinventionnullof production processes for in -stance, electric steel production, gas phase condensation, electrolysis and the substitution of materials, such as bioplastics replacing conventional plastics. The third key driver is the energy transition. null this, we mean the shift away from carbon-based fuels toward locally generated renewable energy and the new focus on energy efficiency. nullactors such as flenullble load-shar -ing and energy consumption, the new market structure of power generation players and fluctuation of energy prices drive up the share of renewable energy in nation-al energy-production landscapes. The fourth driver is the increasing focus on sustain-ability at both a political and business level. nullrms are 1. Defining the market Our systematic approach creates transparency4 Roland Berger Focus Energy efficiency services * Compound annual growth rate Source: Roland BergerA: EES is set to become a key European marketVolume of lead markets EUR bn, EU2814% 4% 9% 8% 8%TOTAL EES M ARKET: 2017 26.7 2025 49.5 Software Consulting Engineering Operations ContractingEnterprise0.7Energy performance contracting1.4Building0.8Technical plant mgt. contracting2.4Industrial2.6Energy supply contracting8.0MARKET VOLUMES EUR BN CAGR* 2017-2025 (TOTAL 8%)201720254.11.40.90.30.2Checks0.4Improvement1.0Consulting1.8Audit2.1Planning1.91.21.41.70.60.30.70.75.00.27.25.27.14.0Other technology0.9Energy financing contracting0.4Production technology 2.2Mobility technology 5.5Load mgt.0.6Other 1.6Virtual power plant 0.9Energy procurement0.8Process technology5.6Operational energy mgt. 2.4Building technology4.6Energy sales/ marketing0.81.23.13.50.90.818.89.50.50.51.50.30.21.012.26.6Energy efficiency services Roland Berger Focus 5strengthening their internal procedures for climate pro-tection and setting themselves new sustainability goals in line with political enullectations.The fifth and final market driver is digitalization. nulll-though we have left this factor for last, it is in fact one of the main drivers of energy efficiency. The development of new technology such as the nullternet of Things nulloTnull blockchain and artificial intelligence nullnull allows EEnull providers to improve their solutions and offer custom-ers tailored optimization services. null this way, digitaliza -tion is a manullr enabler of further market growth. nullgitalization is enullected to enulland the market by an additional EUnullnull.nullbillion by nullnull. nulls biggest impact will be in the lead market for energy efficiency manage-ment software, where we enullect to see null percent addi -tional market volume by nullnull, and the lead market for Enullnullof energy efficient technology, where we enullect to see null percent additional market volume. B SOFTWARE2017: EUR 1.4 bn, 2025: EUR 4.1 bn, CAGR: 14%Energy efficiency management software maximizes the en-ergy efficiency of systems or single devices by means of data collection, reporting, monitoring and optimization. The mar-ket has the following segments: Enterprise energy management systems (EEMS): Solutions generally used in the commercial sector (2017: EUR 0.2 bn, 2025: EUR 0.7 bn, CAGR: 15%) Building energy management systems (BEMS): Tailored solutions for the real estate sector and building facility managers (2017: EUR 0.3 bn, 2025: EUR 0.8 bn, CAGR: 13%) Industrial energy management systems (IEMS): Solutions destined for industrial customers (2017: EUR 0.9 bn, 2025: EUR 2.6 bn, CAGR: 14%)Three types of players are active in this fragmented lead mar-ket. All of them have a high degree of expertise in data sci-ence, software-hardware integration, smart sensors and ar-tificial intelligence (AI), but each takes a different approach to the market. The first type, large players from the energy or electrical engineering segment, tie the software solutions they offer to sales of their own equipment. The second type, global software providers, offer energy management sys-tems that are integrated with their core solutions, such as enterprise resource planning (ERP) systems. And the third type, specialized or niche players of which there are a large number offer customized solutions often for specific mar-ket segments. Growth in this lead market is driven by the falling prices of the smart sensors used to monitor energy flows, combined with advances in AI, which enable further efficiency gains from data analysis and automation.Five lead marketsB: A major enabler of market growthAdditional market volume by 2025 due to digitalizationLEAD MARKETSADDITIONAL MARKET VOLUME 2025Source: Roland BergerSoftwareConsultingEngineeringOperationsContracting55%20%45%15%3%6 Roland Berger Focus Energy efficiency services CONSULTING2017: EUR 5.2 bn, 2025: EUR 7.2 bn, CAGR: 4% Energy efficiency audit/consulting refers to services that aim to evaluate the energy flows of consumers and subsequently devel-op energy efficiency optimization actions tailored to customers' specific situations. The market has the following segments: Energy efficiency checks: Services to ensure a specific level of efficiency and measure potential energy losses (2017: EUR 0.3 bn, 2025: EUR 0.4 bn, CAGR: 2%) Energy efficiency improvements: Actions to reduce the effective price of consumer energy services (2017: EUR 0.6 bn, 2025: EUR 1.0 bn, CAGR: 6%) Green energy consulting: Services helping companies meet their own corporate social responsibility (CSR) standards (2017: EUR 1.2 bn, 2025: EUR 1.8 bn, CAGR: 5%) Energy efficiency planning: The precise planning and dimensioning of energy efficiency solutions (2017: EUR 1.4 bn, 2025: EUR 1.9 bn, CAGR: 4%) Energy efficiency audits: Inspections or analyses of energy flows in a building, process or system with the aim of reducing the amount of energy input without negatively affecting the output (2017: EUR 1.7 bn, 2025: EUR 2.1 bn, CAGR: 3%)The lead market for consulting is dominated by small businesses, some of them sole traders. These companies usually serve a sin-gle customer along the whole production or value chain. The few larger companies on the market offer a broad portfolio of services and leverage energy consulting services to expand their services in other lead markets, such as engineering and operations. These larger companies have a broad network of certified staff and close customer relationships. Regulation is a key market driver. New international agreements will define the needs in this mar-ket and the shape of new product offerings. At a country level, energy pricing also drives the market for consulting, including the development of trading and tax optimization actions. Five lead marketsENGINEERING2017: EUR 9.5 bn, 2025: EUR 18.8 bn, CAGR: 9% Engineering, procurement and construction (EPC) is a particular form of contracting arrangement that obliges the contractor to hand over the completed construction or installation within a giv-en time and budget. The market for EPC of energy efficiency technology comprises the following segments: Production technology: Energy efficiency engineering strictly related to the production process (2017: EUR 0.9 bn, 2025: EUR 2.2 bn, CAGR: 12%) Mobility technologies: Charging infrastructure for electric vehicles, mobility robots and other transportation devices (2017: EUR 1.2 bn, 2025: EUR 5.5 bn, CAGR: 21%) Building technology: Engineering services directly influencing buildings and building envelopes (2017: EUR 3.1 bn, 2025: EUR 4.6 bn, CAGR: 5%) Process technology: Engineering services for the generation of power, heat and cooling that are directly required for support processes in production (2017: EUR 3.5 bn, 2025: EUR 5.6 bn, CAGR: 6%) Other technology: Technology used to produce support products such as compressed air or deionized water (2017: EUR 0.8 bn, 2025: EUR 0.9 bn, CAGR: 2%)The market is dominated by a number of highly specialized engi-neering companies that offer knowhow in high-tech areas such as energy efficiency optimized products, ultra-high efficiency build-ing technology and innovative production processes. In many cas-es these companies also hold stakes in small startups or spinoffs. Companies operating on the market have advanced capabilities for a wide range of technologies, alongside expertise in managing the implementation of complex projects. Innovation and technology are key market drivers. This includes developing new energy-sav-ing technologies and reinventing production processes for exam-ple, reducing the number of production steps by using new vac-uum mounting technologies, thereby avoiding th