LOS ANGELES (Reuters) - President Barack Obama’s promise to attack climate change is likely to light a fire under federal agencies slow to comply with a mandate to cut energy use - which could be very good news for companies that specialize in systems that save power.
Waiting in the wings are the likes of Honeywell International Inc (HON.N), Johnson Controls Inc (JCI.N) and Ameresco Inc (AMRC.N) that are ready to carry out heating and cooling system upgrades, lighting retrofits and similar projects in some of the government’s 500,000 buildings.
Efficiency projects, according to many, are a key way the government can reduce its own energy consumption and greenhouse gas emissions without seeking additional funds from Congress.
Many of these projects are implemented under so-called energy savings performance contracts in which a company develops, installs and arranges financing for improvements to boost energy efficiency and lower costs. The energy service company guarantees the project’s energy savings and services are repaid through those savings.
In late 2009, Obama mandated that federal agencies make significant reductions in energy consumption. The aim was for the government to “lead by example” by upgrading many of its facilities. Two years later, the administration tried to jumpstart that work by setting a goal for federal agencies to enter into at least $2 billion of energy efficiency projects within two years.
“There is a lot more potential in the program than what’s been done today,” said Adam Procell, executive vice president at Lime Energy Co LIME.O, which works with larger companies such as Johnson Controls to design and install energy efficiency projects for federal customers.
With Obama renewing his commitment to combat climate change in his second inaugural address this week, some expect to see more pressure on agencies to get going on those projects.
“If President Obama was to let all of his administrators know that this was an important priority of his, you could see reacceleration of this market in a relatively short period of time,” said Wedbush Securities analyst Craig Irwin, who follows energy efficiency companies.
With less than a year left to reach the $2 billion goal, major efficiency companies have been working to develop project proposals and expect a string of contracts to be awarded this year.
“In the last six months, federal government activity has heated up,” Paul Orzeske, president of Honeywell Building Solutions (HON.N), said in an interview. “That’s going to step up as the year goes on.”
In October, Honeywell won an $80.6 million project to improve energy efficiency at Tinker Air Force Base in Oklahoma, the largest such project ever awarded by the federal government, according to Orzeske. Most such projects are in the $10 million to $15 million range, he added.
The upgrades are expected to save more than $170 million over 20 years, guaranteed by Honeywell through the contract.
Other energy service companies poised to benefit from federal project awards include Ameresco and United Technologies Corp’s (UTX.N) Noresco unit, both of which have been active in the federal market in recent years. Other companies that have done federal projects in the past include Clark Energy Group LLC, Siemens AG (SIEGn.DE) and Schneider Electric SA (SCHN.PA).
The U.S. market for energy efficiency and services topped $5.1 billion in 2011, according to Pike Research, and is expected to reach $16 billion in sales by 2020. The market is dominated by municipal, university, school and hospital projects, but demand from federal agencies has increased because of the Obama administration’s mandate and economic stimulus programs, the report said.
Johnson Controls Building Efficiency’s vice president of government relations, Mark Wagner, said the government has not yet addressed what will happen once it meets its $2 billion goal, but he was encouraged by Obama’s renewed pledge to address climate change.
“The budget is going to be tight in the federal government for the foreseeable future,” Wagner said. “If government agencies want to make their facilities more efficient, performance contracting is the way to address their needs and to address climate change.”
Johnson Controls won a $16 million contract in late 2011 to put in a solar energy installation and make other efficiency improvements at Fort Bliss, the nation’s largest military installation.
Smaller companies that supply equipment or software to the project developers could also see a boost from federal projects, according to Aditya Ranade, who leads the sustainable building materials team at technology research firm Lux Research.
Specifically, Ranade called out LED and lighting systems companies Acuity Brands Inc (AYI.N) and Digital Lumens and Optimum Energy LLC, which uses software and cloud computing to optimize heating, ventilation and air conditioning systems, as companies that could see a boost in orders from federal contracts.
Acuity Brands’ stock is already up 2.4 percent since Obama’s speech on Monday and Ameresco’s shares have gained about 3 percent.
Reporting by Nichola Groom.; Additional reporting by Tej Sapru in Bangalore; Editing by Patricia Kranz