How LED Lighting Retrofit Businesses Can Profit (Big) Through ESCO Partnerships

Derek Morsch | Sep 29, '21

How LED Lighting Retrofit Businesses Can Profit (Big) Through ESCO Partnerships

As an LED lighting retrofit business, the current economic and labor climate is ripe with opportunities. The demand for what you do is high…and the number of people who can claim your skill and experience is declining.

But for smaller firms, how can you insert yourself into larger projects that cover multiple sites, include a lot more than lighting and carry price tags in the tens of millions of dollars?

One way is to partner with one of the “big fish” in the energy efficiency pond: an Energy Service Company (ESCO).

Why Large Organizations Turn to ESCOs to Manage Their Retrofits

There’s not much certainty about today’s economy, much less where it’s going over the next few years. But one thing we can say is that interest—and investment—in large-scale energy efficiency projects is getting stronger every day.

Speaking during a session of the SnapCount Retrofit Showcase 2021 (more takeaways from the showcase here), Tim Unruh, Executive Director of the National Association of Energy Service Companies (NAESCO), pointed out that energy efficiency was once thought of as a matter of austerity, “making things uncomfortable” to promote energy savings.

No longer, Unruh said. Today, energy efficiency projects easily improve lighting, comfort, indoor air quality and the safety of the working environment.

“We talk about actually having an energy efficiency project improving the health of the occupant,” Unruh said.

Large corporations, school districts, and other large organizations want these benefits for their workers (not to mention the massive cost savings associated with energy efficiency). Still, the path to getting them is not always straightforward. Barriers include:

  • Lack of expertise to identify retrofit opportunities.
  • Limited capital.
  • Uncertainty about energy savings and cost savings.
  • Insufficient payback.

“The ESCO industry solves all of those items,” Unruh said. “We come in and turnkey all those items so that there are no longer those barriers moving forward.”

According to NAESCO’s official definition, ESCO services include:

  • Performing an investment-grade audit
  • Engineering projects
  • Arranging financing
  • Procuring and installing equipment
  • Monitoring and verifying energy savings
  • Ongoing maintenance
"The main differentiator between ESCOs and other energy efficiency contractors is the guarantee of energy savings—which is specified as part of the terms of an energy savings performance contract (ESPC)."
- Tim Unruh, National Association of Energy Service Companies (NAESCO)

In other words, ESCOs design their work to pay for itself over time.

As Unruh noted in his presentation, recent and pending federal government legislation includes billions of dollars in funding that can potentially be used for energy efficiency retrofit projects. He estimated that the three economic stimulus bills passed under the previous and current presidential administrations contain up to $25 billion that could go toward school renovation and operations improvements.

ESCOs are poised to help large organizations take advantage of this funding windfall, but they need contractors to help fill the labor gap. Even before the COVID-19 pandemic, the U.S. Bureau of Labor Statistics reported nearly a quarter-million unfilled construction jobs each month. The National Electrical Contracting Association said that, for every 10 electricians that left the field, only seven entered.

That’s where your LED lighting retrofit business comes in.

How ESCO Partnerships Can Help Your LED Lighting Retrofit Business Play a Part in Large Energy Projects

Large-scale, long term energy efficiency projects are rarely about efficient lighting alone. They’re often not even just about energy efficiency, which is why Johnson Controls has changed its ESCO division’s name from “Energy Solutions” to “Performance Infrastructure.”

“Renewable energy has become a big deal, and water efficiency has become substantial,” Charles McGinnis, Vice President of Performance Infrastructure for Johnson Controls, told Retrofit Showcase attendees.

"Many times, customers have much larger issues than energy efficiency around the deferred maintenance and resilience of their buildings."
- Charles McGinnis, Johnson Controls

The complexity of these huge projects is typically beyond the scope of what a single LED lighting retrofit business can handle. But lighting retrofitters that partner with ESCOs can offer invaluable contributions.

For example, organizations are crunching massive amounts of data to determine occupancy trends and make adjustments to optimize lighting, heating and cooling using internet of things (IoT)-connected controls.

“There’s a lot of advanced analysis taking place around data, and what’s better at transmitting data than lighting systems?” McGinnis asked.

LED lighting retrofit businesses can also help out on the service side of the ESCO’s contract. The standard ESCO model includes services such as continuously checking photometrics and monitoring the performance in a commercial building.

“We rely on many of our lighting partners to deliver those services for us, rather than self-perform that,” McGinnis explained.

Why Working with ESCOs Is Valuable to Lighting Subcontractors

So, we’ve covered why ESCOs need qualified LED lighting subcontractors. But the relationship can go both ways.

Here are a few ways LED lighting retrofit businesses can benefit from ESCO partnerships:

  • Extended geographic reach. ESCOs often undertake projects for organizations with nationwide footprints. One of the best ways to grow a business as a partner with an ESCO, McGinnis said, “is to be selected for a project in a particular region, overdeliver on expectations, and then use that as a proof source and case study to take to the next region.”
  • Increased complexity of projects. Working with an ESCO allows your business to get involved with more complex projects, leading to higher volume (and higher gross margin) work.
  • New business without the burden of prospecting. ESCOs handle “front end” functions within their own organizations, such as managing human resources, marketing, accounting and — most significantly for your business’s profitability — inside and outside sales.
  • Opportunities for upskilling on the job. Working with an ESCO can be a learning experience as you and your team gain exposure to the latest energy efficiency technology, lighting controls, and applications.
  • Help navigating state requirements. An ESCO will typically ensure compliance with state requirements governing procurement, contracting, the master contract and reporting.

What ESCOs Look for in an LED Lighting Subcontractor

McGinnis described his ideal lighting subcontractor as a “retrofit specialist” (as opposed to a company specializing in new construction) with proficiency in complex control systems. He said that the ability to provide ongoing service after the initial installation project is a must, because Johnson Controls offers infrastructure-as-a-service or energy-efficiency-as-a-service models.

A track record for safety is another critical feature the Johnson Controls team values in its partners.

“We look for people that have EMR (experience modification rate) safety ratings of 1.0 or higher,” McGinnis said.

LED lighting retrofit businesses should be prepared to pursue certification in common systems alongside their ESCO partners. McGinnis described how one of Johnson Control’s lighting partners and a team of internal personnel all recently became certified with a client’s chosen lighting manufacturer to “provide a level of excellence and quality on that installation.”

Finally, ESCOs prefer partners that use the same tools as the ESCO’s internal team. For example, Johnson Controls relies on SnapCount to perform lighting audits and manage retrofit projects.

“When you have an integrated toolset between the ESCO and the lighting partner, you can get economies of scale, [such as] downloading line-by-lines to tablets and being able to optimize the as-builts as a result,” McGinnis explained.

Leading ESCOs trust SnapCount to manage some of the nation’s largest lighting retrofit projects and will often specify its use for their valued project partners. SnapCount can help LED lighting retrofit businesses of all sizes conduct audits, create proposals, and implement projects up to 70% faster, saving money and boosting efficiency.

How much can your business save using SnapCount? Find out using the SnapCount Savings Calculator.

SnapCount Savings Calculator

Derek Morsch

Written by Derek Morsch

Derek is responsible for planning and implementing the digital and traditional marketing activities at StreamLinx. With experience in the latest and greatest digital marketing practices, he ensures that the SnapCount brand remains at the forefront of the retrofit industry. Derek has an all-encompassing role in combining digital marketing tactics with traditional marketing campaigns including print, design, and trade show management.

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