By Mine Isik, Energy Efficiency Policy Analyst and Alexandre Langlois-Meurinne, Energy Analyst
The global annual ESCO market growth rate has more than doubled over the past five years
Energy efficiency is one of the most cost-effective tools for enhancing energy security, reducing household energy bills and supporting countries’ efforts to reduce emissions. Energy service companies (ESCOs) – firms that develop and implement energy efficiency projects typically financed through verified energy savings – are playing a growing role in delivering energy efficiency improvements across buildings, industry and transport infrastructure worldwide. By integrating project development, financing and performance guarantees, ESCOs can offer a proven way to reduce upfront investment barriers and shift technical and performance risks away from consumers.
As highlighted in the IEA’s Energy Efficiency 2025 report, global ESCO investments grew by 10 percent in 2024, reaching a record USD 42 billion. Over the past five years, the sector’s average annual growth has reached 5 percent – more than double the rate since 2020.
However, this growth remains highly concentrated and uneven. More than 75 percent of global ESCO investment occurs in just two countries — the United States and China – where strong policy and institutional frameworks have spearheaded recent growth.
In China, successive Five-Year Plans have provided sustained policy direction, driving project values from about USD 5.9 billion in the early 2010s to over USD 22 billion in 2024. Growth has been sustained by progressively tighter energy efficiency and emissions reduction requirements, alongside formal support for energy performance contracting.
In the United States, which already had one of the most well-established ESCO markets, the Energy Act of 2020 accelerated market growth by requiring federal agencies to implement at least half of identified efficiency measures through performance contracting. This created stable public sector demand for ESCO services and nearly doubled the market compared with pre-2020 levels.
Investment levels in Europe, meanwhile, experienced a modest contraction in 2024, remaining close to pre-2020 levels. However, some countries are showing renewed dynamism. In Poland, more than 130 energy cooperatives adopted ESCO business models in 2025 – double the previous year. In Italy, where 900 companies are certified as ESCOs, average market revenues increased by over 78% in the past three years.
Overall, ESCO markets scale up where policy frameworks are durable, procurement rules are aligned with performance contracting, and projects are implemented through standardised processes. In markets lacking these conditions, high transaction costs, contractual complexity and policy uncertainty continue to limit demand. These barriers are most visible in smaller-scale and residential building projects, where ESCO models based on energy savings are harder to implement.
ESCO projects achieve 25 percent energy savings on average
In 2024, ESCO projects achieved average reported energy savings of around 25 percent relative to baseline consumption. Established markets such as Europe, the United States and South Korea, meanwhile, report average energy savings between 20 percent and 30 percent.
Savings vary significantly by project scope, as outlined in the joint IEA-UNEP annual ESCO survey, building retrofits in Europe delivered savings between 25 percent and 30 percent, while reaching up to 80% for lighting or projects with integrated solutions and combined measures based on whole-building planning.
Buildings remain the largest ESCO market segment, driven by public building projects
Nearly 60 percent of the ESCO projects captured in the 2024 IEA-UNEP survey related to the buildings sector, with public buildings accounting for two-thirds of that segment.
In mature markets, public building ESCO projects are typically supported by structured, long-term programmes. For instance, in the United States, federal performance contracting frameworks such as the ENABLE program – which operated from 2014 to 2025 under the US Department of Energy’s Savings Performance Contract – enabled federal agencies to engage ESCOs to retrofit more than 1,600 federal buildings. In Germany and France, public development banks support large-scale energy retrofits through concessional loans. In the Balkans, credit lines from international financial institutions have enabled 18,000 households to invest around EUR 100 million in energy-saving technologies such as insulation. Comparable support mechanisms also operate in India, Malaysia, China and Argentina.
The distribution of ESCO projects across building types underscores the challenges related to residential energy efficiency. Individual housing projects, without being aggregated, are often too small to attract ESCOs, as the limited energy savings may not generate sufficient cash flow to cover investment and transaction costs. Fragmented ownership and split incentives between landlords and tenants can also slow down retrofit implementation.
Industry remains another key market segment, accounting for 34 percent of projects. This is particularly true in China, where strong industrial policy frameworks support ongoing ESCO activity.
The transport sector accounts for only around 9% of ESCO projects, largely due to its reliance on complex, capital-intensive solutions and specialised operational expertise. These tend to fall outside the traditional ESCO business model.
Private ESCO projects favour shorter paybacks while public projects support more comprehensive measures
Project design between public and private markets differs substantially. ESCO projects in the private sector generally exhibit shorter payback periods and contract terms compared with those in the public sector. In 2024, private sector projects had an average payback period of just over six years, with contract durations averaging eight years. Public sector projects, meanwhile, had an average payback period of nearly ten years and average contract duration of about twelve years.
This pattern can be observed in both Europe and the United States. While shorter contract durations enhance certainty for investors and their willingness to allocate capital, they frequently constrain project complexity and limit the scope of retrofits to measures with faster returns rather than deep renovation packages.
Public sector projects, by contrast, often offer contracts spanning up to 12 years or more, in part to accommodate multi-facility portfolios, integrated energy efficiency measures and alignment with long-term policy objectives.
These structural differences highlight how public procurement frameworks, access to long-term financing and approaches to risk-sharing shape not only market size but the ambition of efficiency projects. Public sector entities can use fiscal instruments and policy support to sustain longer contractual horizons, while private actors instead prioritise flexible, short-term investments that align with commercial financing conditions.
Policy remains key to market expansion and recent developments point to future growth
Recent policy developments in mature ESCO markets, especially in China and Europe, reinforce prospects for continued growth. In Europe, the European Commission’s 2025 Action Plan for Affordable Energy includes an objective to double the size of energy efficiency services in Europe. In China, renewed emphasis on energy savings and energy performance contracting under the Carbon Peaking and Carbon Neutrality Plans and Solutions provides a clear pathway for further expansion.
At the same time, emerging markets are strengthening enabling frameworks. Indonesia has introduced draft regulations that formally define ESCO operations and business models. Viet Nam’s amended Law on Energy Efficiency and Conservation establishes a national ESCO framework. Kenya’s new energy management regulations create a regulated ESCO market, while Morocco’s recently adopted decree provides legal clarity for energy performance contracts.
Across regions, policy and institutional frameworks remain the primary driver of ESCO market growth. Where governments establish clear efficiency targets, legally recognise ESCOs, standardise contracting approaches and ensure access to finance, ESCO activity has scaled up more rapidly and diversified into deeper and more complex projects. Conversely, markets lacking stable policy signals continue to experience fragmented deployment, underscoring the central role of policy support in unlocking the full potential of ESCOs as a delivery mechanism for energy efficiency.
