%0 Book %1 Sorrell2005 %A Sorrell, Steve %D 2005 %I Tyndall Centre for Climate Change Research %K economics esco prj-sustainability %T Working Paper 81: The economics of energy service contracts %U http://www.tyndall.ac.uk/publications/working_papers/wp81.pdf %X 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.

@book{Sorrell2005, abstract = {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. }, added-at = {2010-08-10T21:42:45.000+0200}, author = {Sorrell, Steve}, biburl = {https://www.bibsonomy.org/bibtex/29d7a34dadf1378666dcc49c2ae465e71/nicoj}, interhash = {df4bbb580bb3eac3d14ec385e3249751}, intrahash = {9d7a34dadf1378666dcc49c2ae465e71}, keywords = {economics esco prj-sustainability}, publisher = {Tyndall Centre for Climate Change Research}, timestamp = {2012-08-06T22:08:36.000+0200}, title = {Working Paper 81: The economics of energy service contracts}, url = {http://www.tyndall.ac.uk/publications/working_papers/wp81.pdf}, year = 2005 }