Abstract for: Exploring the Dynamics of an Energy Service Venture for Energy Efficiency Policy

The development of a commercially viable and competitive market for energy performance contracting (EPC) services provided by energy service companies (ESCO) may contribute to realizing energy savings potential. In many countries, however, like Portugal, this market is still underdeveloped, far from its promised potential. This study provides new insight into this issue, focusing on how to develop a sustainable EPC industry from an energy service venture perspective. A system dynamics model representing an ESCO venture in the Portuguese market was created. The model simulation provides a helpful basis for accelerating learning regarding the policies and managerial processes that are critical for the success of the venture. The simulation of the base case produces an overall insignificant market value added and a low probability of success, mainly due to long sales cycles. The model is sensitive to the word-of-mouth (WOM) parameter, however, which suggests that effective policy interventions should consider initiatives that accelerate WOM among EPC adopters and prospects. Additionally, the model simulations indicate an efficient combination of incentive policies such as low interest rate, demonstration projects, and WOM initiatives as they significantly reduce the probability of failed ESCO ventures and consequently increase the widespread adoption of EPC.