A newly developed energy renormalization-group method for electronic structure of large systems with small Fermi gaps within a tight-binding framework is presented in detail. A telescopic series of nested Hilbert spaces is constructed, having exponentially decreasing dimensions and electrons, for which the Hamiltonian matrices have exponentially converging energy ranges focusing to the Fermi level and in which the contribution to the density matrix is a sparse contribution. The computational effort scales near linearly with system size even when the density matrix is highly nonlocal. This is illustrated by calculations on a model metal, a small radius carbon-nanotube and a two-dimensional puckered sheet polysilane semiconductor.