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For Organizations and Social Entrepreneurs

Pre-launch Preparation

Research target segments and geography to define strategy and create business model best suited to skills and local conditions.

Entities interested in launching a PPESCO should allow time to ensure that the parent / sponsor organization is prepared for the cultural, operational, and other demands that this, like any new business, requires. Experience in both energy services and new business creation are strongly advised. Pre-launch research and analysis tasks include:

  • Target public purpose segment: Each market has unique attributes, opportunities, and challenges. Some have specialized resources in the form of tax credits or resources from state of federal agencies, including US Department of Housing and Urban Development and US Department of Energy.
  • Target geography: Organizations with a regional area of interest—whether a city, county, state, or multi-state region—would presumably initiate a PPESCO in some part (or all) of this area of interest.
  • Determine "parental support": Subject to its legal and organizational structure, the parent organization should consider services it is capable of providing to support the start- up. These services might be credit, accounting, or administration. Once the new entity is in a position to support its needs from its own resources, this support from the parent organization will not be necessary—or at least, less necessary. The parent or sponsoring organization might provide these back-office services to the PPESCO indefinitely, since the cost to the PPESCO might always be less than what the PPESCO would pay in the absence of parent organization support.
  • Research market size and competition: A new PPESCO needs to know the availability of potential qualifying projects in its target segment(s) and understand what is being provided by other service providers.
    • Size: The size of the addressable market a PPESCO chooses can be estimated by identifying: (1) the number of buildings within the target regions and markets; and (2) the energy use and prospective savings to ensure an average minimum of 30% energy savings to fund the deeper energy performance improvements.
    • Competition: The public-purpose market is an emerging one, with few service providers. Although there are ESCOs that might serve parts of the market, most traditional ESCOs have yet to move to projects valued significantly below $1 million and commit to installing all cost effective improvements to achieve deep energy savings.
    • Because of the opportunity for significant energy savings in these types of buildings, public-purpose structures represent an underserved market in which a PPESCO is well positioned to operate and serve. PPESCOs can expect to be among the first in their regional markets to offer comprehensive, integrated energy services to achieve deep savings targeted to this sector. At the early stage of this sub-segment’s evolution, new PPESCOs are unlikely to face meaningful head-to-head competition from existing energy services providers, but it is more likely that competition might occur from localized, single-solution providers and/or from equipment vendors—sales representatives for certain technologies that are not part of an integrated system of improvements.. However, in contrast to single purpose providers and vendors, the hallmark of a PPESCO is that it offers an integrated, whole-building approach. That is, the owner might have discrete work done when a system fails (for example, a furnace stops working) or a measure-specific utility incentive is offered (for example, lighting upgrades).
  • Understand strategy and economics: PPESCOs should match their interest in certain markets with their own strengths, and should be sure the match supports their own economics. Existing internal and external resources that support the PPESCO entity during start-up must be inventoried and built into the operating plan.

Though the competitive differentiation for PPESCOs is its bundle of services targeted at the low end of project size ($100,000 to $800,000), the operating economics of smaller projects require more discipline on spending and income expectations. Therefore, the ability of PPESCO to execute well – effectively, efficiently and economically – is very important. The PPESCO business model is designed to pursue all cost-effective energy improvement measures, for both economics and mission. Each PPESCO, as a condition of success, will need to select projects that represent significant energy savings—an average minimum of 30% to start.