ESCO Model Intensifies Street Light Bids in Taiwan

Taiwan has seen an uptick in LED street light replacement activity as of late. Last year, around 25,000 street lights were replaced during a street light replacement project across five major cities in Taiwan. An additional 30,000 street lights are anticipated to be replaced this year, according to the Industrial Technology Research Institute (ITRI). The domestic market will see a rise in competitive bidding as the Energy Service Company (ESCO) model is used rather than previous street light tenures, which relied on government subsidies. The ESCO model will put manufacturer’s technology, size, and financial strength to the test. 

The market scale for LEDs is estimated to reach US $30.5 billion  in 2014 and up to US $51.6 billion by 2018, according to a report by the Industrial Economics & Knowledge Center (IEK), under the government-backed ITRI. Equipment and material will benefit considerably from the increased market scale. 

In terms of the Taiwanese street light market, roughly 17 percent of all street lights have been replaced by LEDs. An additional 30,000 street lights will be replaced with LEDs in 2014. Through the ESCO model, manufacturers will be responsible for all initial construction costs. Once the project is completed, the amount of money saved each year in electricity will be given to the manufacturers. 

The quality and lifespan of LED street lights directly impacts cost recovery. Since manufacturers are reimbursed for initial construction costs through cost recovery, they are able to benefit far more by using better quality and stable products. 

Technology, scale, and financial strength is key to competition in the ESCO model. Manufacturers must give consideration to their financial strength, initial investment, and cost recovery period. Industry insiders therefore believe that size will be the biggest barrier in the ESCO model.  

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