Competitive Energy Services (Energy-Contracting, ESCo Services) File Library/Key... ·...

100608_T16-ExCo_Final Task Report (2006-2009) with financing partners_08.06.2010 1/73

IEA DSM TASK XVI

Competitive Energy Services (Energy-Contracting, ESCo Services)

Final Task Report (Phase 1: 2006 – 2009)

Graz, February 2010

100608_T16-ExCo_Final Task Report (2006-2009) with financing partners_08.06.2010 2/73 © Grazer Energieagentur GmbH + Authors. For requests: [email protected]

This publication was developed within Task XVI “Competitive Energy Services (Energy-Contracting, ESCo Services)” of the IEA’s Demand Side Management Implementing Agreement.

International Energy Agency IA Demand Side Management (DSM) Task XVI “Competitive Energy Services” http://www.ieadsm.org

Synopsis:

Final task report of Task XVI „Competitive Energy Services (Energy-Contracting, ESCo services)“ - Phase 1 (July 2006 – June 2009) with a focus on the key results of the task work: “Integrated Energy-Contracting” model, “Comparison of Financing Options”, “Comprehensive Building Refurbishment through EPC”, “Energy-Contracting in the Residential Sector” and “Opportunity Cost Tool”, overview of National Implementation Activities performed by country experts as well as conclusions and outlook on future work. Activities are summarized in a separate “Final Activity Report”.

Authors:

DDI Jan W. Bleyl-Androschin IEA DSM Task XVI „Competitive Energy Services“ Operating Agent

With support from DI (FH) Daniel Schinnerl

c/o: Grazer Energieagentur Ges.m.b.H. Kaiserfeldgasse 13/I 8010 Graz, Austria Tel.: +43-316-811848-0 Fax: +43-316-811848-9 Email: [email protected] http://www.grazer-ea.at

With contributions from Task XVI country experts (contact details on back cover).

100608_T16-ExCo_Final Task Report (2006-2009) with financing partners_08.06.2010 3/73

Financing partners

Austria Federal Ministry of Transport, Innovation and Technology http://www.bmvit.gv.at http://www.energytech.at

Belgium Federal Public Service Economy, S.M.E.s, Self-Employed and Energy DG Energy – External relations http://economie.fgov.be/

Finland Tekes – the Finnish Funding Agency for Technology and Innovation www.tekes.fi

India Bureau of Energy Efficiency Ministry of Power, New Delhi www.bee-india.nic.in

Japan TOKYO ELECTRIC POWER COMPANY http://www.tepco.co.jp/en/index-e.html

Netherlands Agentschap NL Ministerie van Economische Zaken www.agentschapnl.nl

The project partners wish to thank the ExCo members of the participating countries and their financing partners for their support.

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) Table of Content

© Grazer Energieagentur GmbH + Authors. For requests: [email protected] 4/73

Table of Content

1 Executive Summary ........................................................... 6

2 Introduction .................................................................... 10

3 Structure and Methodologies of Task XVI ........................ 12

4 What is Energy-Contracting (ESCo Service).................... 14

4.1 Definition and Concept .................................................................. 14

4.2 Two Basic Business Models ............................................................. 15

4.3 Modular Scope of Services ............................................................. 16

5 Think Tank Key Results ................................................... 18

5.1 “Integrated Energy-Contracting. A new ESCo Model to Combine Energy Efficiency and (Renewable) Supply in large Buildings and Industry” (Abstract) ...................................................................... 18

5.2 “Calculation Tool for Estimation and Visualization of Monetary Saving Potentials” (Abstract) .......................................................... 22

5.3 “Financing Options for ESCo Projects” (Abstract) ............................... 24

5.4 “Comprehensive Refurbishment of Buildings through EPC” (Abstract) .................................................................................... 26

5.5 “Energy-Contracting: How much can it Contribute to Energy Efficiency in the Residential Sector? Transaction and Life Cycle Cost Analyses, Market Survey and Statistical Potential” (Abstract) ....... 27

6 National Implementation Activities ................................. 30

6.1 National Implementation Austria (Selection) ..................................... 30

6.1.1 Landesimmobiliengesellschaft Steiermark: Integrated Energy-Contracting ............................................................... 30

6.1.2 “Good Practice” Example ....................................................... 31

6.2 National Implementation Belgium (Selection) ................................... 34

6.2.1 EPC and ESCO development in Belgium ................................... 34

6.2.2 Best practice example: Reducing cooling and heating needs in the National Archives through spectrum selective sputtered window film ........................................................... 37

6.3 National Implementation Finland (Selection) ..................................... 41

6.4 National Implementation India (Selection) ........................................ 45

6.4.1 Overview of Energy Efficiency Investment Market: .................... 45

6.4.2 Target Sectors for energy efficiency through ESCo route ............ 45

6.4.3 Efforts so far: ...................................................................... 46

6.4.4 Way forward ........................................................................ 49

6.5 National Implementation Japan (Selection) ....................................... 51

6.5.1 JFS’s ESCO and Related Business in Japan ............................... 51

6.5.2 Issues in ESCO business in Japan ........................................... 52

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) Table of Content


6.5.3 Good Practice Example Double-Guarantee ESCO Service ............ 53

6.6 National Implementation Netherlands (Selection) .............................. 55

6.6.1 Essent Energy Services, Energy Performance Contracting ........... 55

6.6.2 Development in the Netherlands ............................................. 55

6.6.3 “Good Practice” Example: EPC with Financial Lease at the City Hall in the city Sittard ..................................................... 56

7 Task X Energy Performance Contracting Review (Finland) ......................................................................... 59

8 Summary, Conclusions and Outlook ................................ 62

9 Figures ............................................................................ 66

10 References and Literature (Selection) ............................. 67

11 Appendix ......................................................................... 70

11.1 Think Tank .................................................................................. 70

11.1.1 Integrated Energy-Contracting – a new ESCo business model ................................................................................. 70

11.1.2 Financing Options for ESCo Projects ........................................ 70

11.1.3 Opportunity Cost Tool ........................................................... 70

11.1.4 Comprehensive Refurbishment of Buildings .............................. 70

11.1.5 Energy-Contracting: How much can it Contribute to Energy Efficiency in the Residential Sector? ........................................ 70

11.2 Task X Review .............................................................................. 70

11.3 IEA Demand Side Management Program (short description) ................ 71

11.4 Notes .......................................................................................... 72

IEA DSM Task XVI Participating Countries and Contacts ....... 73

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 1 Executive Summary


1 Executive Summary

This is the final task report of Task XVI „Competitive Energy Services (Energy-Contracting, ESCo services)“ with a focus on the key results. The Task was carried out in the framework of the research cooperation of the International Energy Agency Demand Side Management implementing agreement (www.ieadsm.org) with experts participating from Austria, Belgium, Finland, India, Japan and the Netherlands.

Introduction

One of the most urgent energy policy and energy economics challenges continues to be the search for suitable “tools” to execute energy conservation potentials. The level of success is far from satisfactory as the continuous increase in final energy consumption reveals. Since the mid of this decade, Energy Services (Energy-Contracting, ESCo services) have climbed high on political agendas and have even reached the headline of energy legislation [2006/32/EC].

Energy-Contracting (EC) is cited many times as a smart multi-purpose-instrument, which will help to overcome market barriers for Energy Efficiency. While a number of obstacles can be overcome with the EC concept, the realistic potentials, the pros and cons, the limits and added values of ESCo products in comparison to in-house implementation need further elaboration and unbiased discussions amongst stakeholders and (potential) customers.

The ESCo industry is an expanding business in various parts of the world contributing to the improvement of energy efficiency, control of energy costs and reduction of greenhouse gas and other emissions. At the same time, many end-use market segments are still in a developing stage or have not reached their full potential.

Structure and Methodologies

In order to contribute to the future market development of Energy-Contracting, the general objectives of Task XVI are to establish an IEA dsm energy services expert platform; to design, document and test innovative ESCo and financing models; to support and follow up country specific national implementation activities and to disseminate results nationally and internationally.

The underlying goal is to increase understanding of Energy-Contracting as a flexile and high potential tool to implement energy efficiency projects. And to unbiasedly discuss policy recommendations, advantages and disadvantages, limitations and realistic potentials of outsourcing energy service packages to ESCos in comparison to in-house implementation.

Task XVI (phase 1) brought together Energy-Contracting experts from six countries (Austria, Belgium, Finland, India, Japan, Netherlands), who joined forces to advance energy service markets and competitive ESCo models.



Results

Most existing energy service definitions fall short with regard to important properties of “real” Energy-Contracting projects, such as outsourcing of risks to the ESCo, guarantees for “all inclusive” cost and performance of the measures implemented or optimization according to project cycle cost. The Task’s view including a definition of “real” ESCo services is argued in chapter 4.

The Think Tank has worked on a variety of topics which have led to five key publications:

A new ESCo business model labeled as “Integrated Energy-Contracting” (IEC), which combines energy efficiency and (renewable) energy supply in an integrated product,

“Financing Options for Energy-Contracting”,

“Calculation Tool for Estimation and Visualization of Monetary Saving Potentials”,

“Comprehensive Refurbishment of Buildings through EPC”,

“How much can Energy-Contracting contribute to Energy Efficiency in the Residential Sector?”.

For a summary and conclusions on these topics we refer you to the conclusions of the respective publications in the annex of this report.

National implementation activities (NIAs) were carried out by the country experts in order to support capacity building, market development, policy recommendations or initiation of model projects according to the individual needs of the participating countries. Some selected highlights were:

Austria: Development and procurement of concrete model projects as an independent market facilitator, who mediates between ESCos and their (potential) customers; implementing and testing the new Integrated Energy-Contracting and developing comprehensive building refurbishment,

Belgium: Know How development within FedESCo and transfer to other public entities; initiation of a Belgium ESCo association (BelESCo); testing, procuring and installing “spectrum selective” window film to reduce cooling and heating loads,

Finland: Issuing of a municipal ESCo guide; interaction between Voluntary Energy Efficiency Agreements, energy auditing and (ESCo) implementation of measures; link to implementation of EU Energy Service Directive and maintenance of an ESCo project register,

India: General market development activities; identification of ESCo target sectors (government offices, municipal facilities and agriculture); certification of ESCos; design of a standard performance contract and development of a payment security mechanism,

Japan: Japan Facility Solutions’ main target group for services was non-industrial buildings, e.g. commercial buildings, hospitals or universities with mostly shared savings contracts. JFS has developed and introduced a “Double-Guarantee” ESCo service for cost and CO2 reductions,



The Netherlands: Developing “Trias Synergetica” with integration of EPC and ESC; solutions for cooling demand in elderly homes or healthy indoor climate in schools; internal company restructuring processes. Essent’s ESCo department has implemented about 50 projects.

The results of the Task were presented and discussed with various stakeholders in altogether more than 50 regional, national and international events. In addition, six Task XVI stakeholder workshops were organized in conjunction with each meeting of the Energy Services Expert Platform. In total an estimated audience of some 1.200 stakeholders could be reached (cf. separate Task XVI Final Activity Report).

Conclusions and Outlook

ESCo models offer integrated solutions for the project life cycle, encompassing planning, construction and operation&maintenance. Energy-Contracting is an interdisciplinary approach, which takes care of technical, economical, financial, organizational and legal aspects of the implementation process in order to achieve guaranteed performance and results of the efficiency technology deployed. This highly integrated and multidimensional approach opens up solutions, which are not achievable through a standard, disintegrated implementation process, e.g. life cycle cost optimization across investment and operation budgets or integrated planning or performance guarantees over the complete project cycle, all summarized in one ESCo contract.

At the same time this requires well educated stakeholders on the customer and the ESCo side with an understanding and resources of all the disciplines involved. And it requires new organizational routines, in particular on the customer side, e.g. with regard to procurement practices, interdisciplinary co-operations between different departments and project engineers or long-term cross-budgetary financial management. Last but not least: The decision of the building or business owner to tap into energy efficiency resources (either voluntarily or forced by regulations) remains a basic requirement – independent of the implementation model.

Energy-Contracting still is a complex product, which can not be procured or sold easily as it is the case with energy efficiency in general. On the way towards better developed energy service markets work remains to be done. Some general lessons, which we have learned are:

1. Successful market development - in particular for EPC - was demand side driven, meaning ESCo customers defined their needs and goals for energy service packages and put out request for proposals on the market.

2. To foster market development, the role of independent market facilitators as mediators between ESCos and their (potential) clients has proved to be of great value. This role requires more active players and deserves better support!

3. Financing is not necessarily the core business of ESCos. Their core competence usually lies in technical, economic, and organizational matters of an energy service package ESCos should serve as finance vehicle, not necessarily as financiers.



4. Energy-Contracting is a flexible and modular energy service package. This also implies the ESCo customer may define – depending on his or her own resources – what components of the energy service will be outsourced and which components he carries out himself.

5. Energy efficiency improvements are not the driving force for many of the projects but rather a (beneficial) side effect. Project developers need to listen better to the needs expressed by the customer side and to build strategic alliances to incorporate energy efficiency goals or minimum performance standards early on in the project development process.

6. High priority should be placed on the development of concrete projects in the end-use sectors of public institutions, tertiary sector, trade and industry as well as housing. It is important to optimize investment decisions according to project (or better life) cycle cost and to ensure the results of the energy efficiency measures on a long-term basis. In this regard, ESCo models inherently have substantial advantages to offer.

Many obstacles root in the scattered nature and small units of end-use energy conservation potentials and must not be attributed to Energy-Contracting models.

This list does not claim to be exhaustive and country specific additions and adaptations to these proposals for National Implementations Activities are suggested, off course.

The IEA DSM Executive Committee has decided to extend Task XVI for a 2nd three year period until June 2012. Work is being continued within its established structure. Some of the ongoing phase 2-work is already reflected in this report.

On the way to better developed energy service markets and to more competitive energy service products strong efforts on all levels of policy framework, capacity building and concrete market development remain to be done. In case of questions or ideas for further co-operation, your feedback is highly welcome. You can reach the authors at [email protected] or [email protected].

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 2 Introduction


2 Introduction This is the final task report of Task XVI „Competitive Energy Services (Energy-Contracting, ESCo services)“ - Phase 1 (July 2006 – June 2009), subtasks 1-7. The task is carried out in the framework of the International Energy Agency Demand Side Management program. An overview of the IEA and the DSM program can be found in chapter 11.2 or www.ieadsm.org.

This international co-operative project was started on 01. July 2006 and completed on 31. June 2009. The following six countries participated in the task: Austria, Belgium, Finland, India, Japan and Netherlands. Contact information for each country can be found on the back cover of this report.

The success of further increasing energy efficiency in all sectors of consumption plays a vital role in coping with the challenges of our common energy future. Avoiding energy consumption by increasing end-use efficiency is a highly effective way to meet all three key targets of energy policies: Security of supply, affordable costs of energy services and environmental soundness.

Energy Efficiency has finally found its way up on the political agendas over the course of the last few years. Worldwide, concrete saving targets have been declared (like the EU strategy “20-20-20 by 2020” concluded by the EU heads of state at their 2007 summit). The level of success is far from satisfactory though, as the continuous increase in final energy consumption reveals.

But what are the appropriate instruments to bring energy efficiency to the end-user? Now and for the foreseeable future there is an urgent need to conclude and support all suitable political, regulatory and market based instruments for the implementation of Energy Efficiency and Renewables.

Since the mid of this decade, Energy Services (Energy-Contracting, ESCo services) have climbed high on political agendas and have even reached the headline of energy legislation [2006/32/EC]. Energy-Contracting (EC) is cited many times as a smart multi-purpose-instrument, which will help to overcome market barriers for Energy Efficiency. While a number of obstacles can be overcome with the EC concept, the realistic potentials, the pros and cons, the limits and added values of ESCo products in comparison to in-house implementation need further elaboration and unbiased discussions amongst stakeholders and (potential) customers.

Energy-Contracting - also labeled as ESCo or Energy Service (ES) – is a many times proven DSM instrument to implement energy efficiency measures for lighting, heating, ventilation and air-conditioning (HVAC-technologies) or even comprehensive refurbishment of buildings. An Energy Service Company (ESCo) takes over the technical and commercial implementation and operation risks and has to guarantee for its cost and results. ESCo services are also well suited to implement innovative energy technologies and renewable energy systems.

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 2 Introduction


The ESCo industry is an expanding business in various parts of the world contributing to the improvement of energy efficiency, control of energy costs and reduction of greenhouse gas and other emissions. At the same time, many end-use market segments are still in a developing stage or have not reached their full potential. Nevertheless, Energy-Contracting still is a complex product, which can not be procured or sold easily. As it is the case with energy efficiency in general: Many obstacles root in the scattered nature and small units of end-use energy conservation potentials and must not be attributed to Energy-Contracting models.

In order to contribute to the future market development of “real” energy services, the objectives of Task XVI are:

1. To establish an IEA dsm energy services expert platform

2. To design, elaborate and test innovative Energy-Contracting and financing models and publish them

3. To support and follow up country specific activities to disseminate and implement energy services in the market

4. To position the expert platform as a competence centre for energy services for international and national dissemination and assistance services (e.g. coaching, training courses, publications) and to contribute to an “IEA DSM Centre of Excellence”

The underlying goal is to increase understanding of Energy-Contracting as a flexile and high potential tool to implement energy efficiency projects. And to unbiasedly discuss advantages and disadvantages, limitations and realistic potentials of outsourcing energy service packages to ESCos in comparison to in-house implementation.

This report focuses on the key results of Task XVI. The report is structured as follows: The structure of Task XVI and the methodologies applied are described in Chapter 3. Chapter 4 provides our view of the basic features of “real” Energy-Contracting projects including a definition, the two basic business models and features of “real” energy service (ESCo, Energy-Contracting) projects. The key publications are described in chapter 5, followed by summaries of National Implementation Activities in chapter 6 and conclusions and outlook in chapter 8.

Dissemination activities, organizational and management issues of Task XVI are summarized in a separate final activity report.

The author wishes to thank the IEA participating countries and their respective financiers and the Austrian Federal Ministry of Transport, Innovation and Technology for their financial support within the framework of the IEA research co-operation.

On the way to better developed energy service markets and to more competitive energy service products strong efforts on all levels of policy framework, capacity building and concrete market development remain to be done. In case of questions or ideas for further co-operation, your feedback is highly welcome. You can reach the authors at [email protected] or [email protected].

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 3 Structure and Methodologies of Task XVI


3 Structure and Methodologies of Task XVI This work is carried out in the framework of the research cooperation of the International Energy Agency demand side management implementing agreement. It’s Task XVI on “Competitive Energy Services (Energy Contacting, ESCo Services)” brings together Energy-Contracting experts from currently six countries around the world, who join forces to advance ESCo models and markets [IEAdsm 2009].

To achieve the project goals, the Task XVI Work Plan consists of four main components:

1. IEA DSM energy services expert platform (ES-platform, subtask 3)

2. Innovative and competitive energy services think tank (Think Tank, subtask 4)

3. National implementing activities (NIAs, subtask 5)

4. International dissemination activities (subtask 6)

The following scheme illustrates the general structure and workflow of the task:

1. Review + evaluation of previous Task X work1. Review + evaluation of previous Task X work

2. NIAs – first drafts2. NIAs – first drafts

3. IEA DSM ES-platform kick off + WS4.Think Tank

(Innovative schemes):

• Financing• Comprehen-sive refur-bishment

• Quality Standards

• …

5. NIAs:• Capacity building

• market development

• national target groups

• model projects

• …3. IEA DSM ES-platformSummary Conference

3. IEA DSM ES–platformmeetings + WS

6. Int. Dissemination•Coop. with REEP, CTI•conferences, WS•project coaching•…

Figure 1 IEA dsm Task XVI: Structure and work packages

In the right pillar, the national implementing activities (NIAs), market development and capacity building activities take place according to the individual needs and resources of the participating country. In the left pillar, the “Think Tank”, the experts will follow new developments and elaborate innovative energy service models according to the requirements of the participating countries.

The IEA DSM Energy Services Expert Platform (ES platform) serves as the link

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 3 Structure and Methodologies of Task XVI


between the two pillars, as the communication tool internally and externally and as a stage for developing services like coaching and training for the outside world (towards a “Centre of Excellence”).

A wide variety of methodologies is applied: Modeling of ESCo services, desk and internet research, analyses of implemented projects and expert interviews with stakeholders. In addition, the task cooperates with financial sector institutions as well as ESCo and (potential) client business associations.

Of particular importance to understand and advance ESCo services is an interdisciplinary approach: Besides technical issues, economic, financial, organizational and legal aspects of energy service packages are investigated and accounted for.

The background of the participating experts is a combination of either ESCos representatives (3) or energy agencies (who serve as market facilitators and researchers) (3).

The results of Task XVI are discussed and disseminated in a series of stakeholder workshops, publications and presentations at conferences and workshops.

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 4 What is Energy-Contracting (ESCo Service)?


4 What is Energy-Contracting

(ESCo Service)?

4.1 Definition and Concept We focus on some key features here, assuming that the reader has a basic knowledge of the Energy-Contracting (EC) concept and building energy efficiency.1 In a narrow sense we define2 EC as:

„Energy-Contracting - also labeled as ESCo or Energy Service - is a comprehensive energy service concept to execute energy efficiency projects in buildings or production facilities according to minimized project cycle cost.

An Energy Service Company (ESCo) implements a customized energy service package (consisting of planning, building, operation&maintenance, optimization, fuel purchase, (co-)financing, user behavior …). The ESCo

provides guarantees for all inclusive cost and results and takes over commercial and technical implementation and operation risks over the whole

project term of typically 10 to 15 years (after [Bleyl+Schinnerl 2008])

The Energy-Contracting concept shifts the focus away from selling units of final energy (like fuel oil, gas or electricity) towards the desired benefits and services derived from the use of the energy, e.g. the lowest cost of keeping a room warm, air-conditioned or lit.

Energy-Contracting (EC) is not about any particular technology or energy carrier. Instead EC is a flexible and modular “efficiency tool” to execute energy efficiency projects, according to the goals of the facility owner. It is an instrument to minimize life- or project cycle cost3, including the operation phase of the building. The ESCo acts as coordinator and manager of interfaces towards the customer and has to deliver the commissioned energy service to the customer at “all inclusive” prices as displayed in Figure 2.

ESCo products provide either useful energy (Energy Supply Contracting - ESC) or energy savings (Energy Performance Contracting - EPC) to the end user. And they achieve environmental benefits due to the associated energy and emission savings as well as non-energetic benefits such as increase in comfort or image gains.

1 For further basics on Energy-Contracting you may refer to e.g. www.grazer-ea.at, www.contracting-

portal.at, [SenStad+BE 2002], [dena 2004], [Bleyl+Schinnerl 2008 u. 2008a], [dena 2009], [Eikmeier et.al. 2009] (this list is not exhaustive).

2 Most existing energy service definitions fall short with regard to important properties of “real” Energy-Contracting projects, such as outsourcing of risks to the ESCo, guarantees for “all inclusive” cost and results of the measures implemented or optimization according to project cycle cost (cf. [2006/32/EC], [Bertholdi et.al. 2007], [CEN/CLC/TF 189], [DIN 8930-5], [GEFMA 540], [UZ 50], [VDMA 24198] - this list is not exhaustive)

3 Here the sum of investment, operation and maintenance cost over the project term, also labeled as total or life cycle cost. E.g. capital-, consumption- and operation cost according to [VDI 2067] or [ÖNORM M 7140]



At Energy Supply Contracting efficient supply of useful energy such as heat, steam or compressed air is contracted and measured in Megawatt hours (MWh) delivered. The model usually includes purchasing of fuels and is comparable to district heating or cogeneration supply contracts. The scope of energy efficiency measures is limited to the energy supply side, e.g. the boiler house (cf. chapter 4.2).

Know-HowEngineers, architects,

consultants, innovation …

EnergyGas, fuel oil,

solar, woodchips …

MoneyEquity capital, banks,

TPF, subsidies ...

TechnologySuppliers, construction,

operation & maintenance …Energy Service Com

pany (ESCo)Supply (MWh) orSavings (NWh)incl. function, performance +

price guarantees

Energy Service Company (ESCo)

Energy Service Company (ESCo)Supply (MWh) orSavings (NWh)incl. function, performance +

price guarantees

Legislation Laws, procurement,

technical rules …

ESCo Client

Figure 2 Energy-Contracting: Components of service package and outsourcing of interfaces and guarantees to an ESCo

As for Energy Performance Contracting, the focus is on reducing final energy consumption through demand side energy efficiency measures. The scope is extended to the entire building including measures such as technical building equipment (e.g. HVAC), user behavior or the building envelope insulation as indicated in Figure 3. The business model is based on delivering savings compared to a predefined baseline, also labeled as Negawatt hours (NWh).

4.2 Two Basic Business Models Two basic business models can be distinguished, cf. Figure 3

1. At Energy Supply Contracting (ESC) efficient supply of useful energy such as heat, steam or compressed air is contracted and measured in Megawatt hours (MWh) delivered. The business model usually includes purchasing of fuels and is comparable to district heating or cogeneration supply contracts. The scope of energy end-use efficiency measures is usually limited to the energy supply side of the building or enterprise, e.g. the boiler room. It can also be applied to energy supply from renewable sources, e.g. solar ESC.

2. As for Energy Performance Contracting (EPC), the focus is on reducing final energy consumption through demand side energy efficiency measures. The scope is extended to the entire building or enterprise including measures such as technical building equipment, user behavior or the



building envelope insulation as indicated in Figure 3. The business model is based on delivering savings compared to a predefined baseline, also labeled as Negawatt hours (NWh).

Figure 3 illustrates the typical scope of services of the above mentioned Energy-Contracting models.

Source: after [Bleyl 2008]

Fuel

Energy SupplyContracting (ESC)

=> MWh

Meter

BoilerFuelFuelFuel


=> MWh

Meter

Boiler


=> MWh


=> MWh

MeterMeter

BoilerBoiler

Solar Supply-Contracting(Solar ESC) => M WhSolar

Solar Supply-Contracting(Solar ESC) => M WhSolar

Energy Performance Contracting (EPC)

=> NWh

Energy Performance Contracting (EPC)

=> NWh

Figure 3 Scope of services of two basic ESCo models

Most ESCo products are based on either one of the above business models.

4.3 Modular Scope of Services Most energy efficiency projects differ in their contents and general conditions. Therefore, it has proved to be necessary and sensible to adapt the scope of services specifically to the individual project. This also means the building owner can – depending on his own resources – define what components of the energy service will be outsourced and which components he or she carries out in-house (e.g. financing4 or ongoing on-site maintenance provided by a caretaker).

The necessary components for implementing energy (efficiency) projects are summarized in an energy service package with result guarantees given to the client as displayed in Figure 4.

4 In contrast to widespread opinions, the ESCo service package does not automatically need to include

financing. Financing can be provided by the building owner, the ESCo or a third financing partner, depending on who can offer the better conditions. In any case, the ESCo can be used as a vehicle and facilitator for financing. This topic has been elaborated in more detail in [Bleyl+Suer 2006] or [Bleyl+Schinnerl 2008a].



(Co-)Financing, Subsidies

Operat.&mainten., Troubleshooting, Optimization, User motivation,Quality assurance

Project development, Rough planning

Detailed planning, Construction,Initial start up

„Ener gy-Contr act ing“ –

a modul ar Ser vice

Package wit hguar ant ees Outsourcing of

commercial and technical risks

Function-, performance and price guarantees

Added value through

outsourcing:

Outsourcing of commercial and technical risks

Function-, performance and price guarantees

Added value through

outsourcing:

Fuel purchase

Source: after [Bleyl+Schinnerl 2008]

Figure 4 Energy-Contracting: A modular energy service package with guaranteed results for the client

All the tasks shown in the figure, such as planning, construction and financing, as well as all the ongoing components of the service, such as operation and maintenance, optimization, purchasing of fuel and quality assurance, have to be covered by the building owner or the ESCo throughout the contractual period.

In the ESCo’s prices, all the expenditure items for the defined scope of services throughout the contractual period must be included (“all inclusive prices”). Correspondingly, project or life cycle costs (LCC) are calculated at the Energy-Contracting model.

The functional, performance and price guarantees provided by the ESCo and the outsourcing of technical and economic risks to the ESCo constitute an added value for the client, which should be considered at the comparison with an in-house implementation.

Energy Supply Contracting projects usually achieve 15-20 % efficiency improvements in the conversion from final to useful energy. Energy performance contracting projects typically realize efficiency gains of 20-30 %. With the Integrated Contracting approach (cf. chapter 5.1) or a Comprehensive Building Refurbishment model (cf. chapter 5.4) even higher potentials can be unlocked. CO2-Emission reductions are in many cases above 50 % because of a change to energy carriers with lower carbon content or renewables.

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 5 Think Tank Key Results


5 Think Tank Key Results The Think Tank has worked on a variety of topics, which have led to publications and presentations at various national and international events (cf. chapter 4 of Final Activity Report for a list of publications and presentations). The following subchapters include abstracts of the publications of the Think Tank topics. For more details on the topics you may refer to the publications in the attachment of this report.

Other topics worked on (e.g. Definition and standardization, cooperation with Tasks XIX and XXI, smart meters, implementation of [2006/32/EC], Industrial ESCo customers …), which have not led to a publication so far are not mentioned here.

5.1 “Integrated Energy-Contracting. A new ESCo

Model to Combine Energy Efficiency and

(Renewable) Supply in large Buildings and

Industry” (Abstract)

One of the most urgent energy policy and energy economics challenges continues to be the search for suitable “tools” to execute energy conservation potentials. The level of success is far from satisfactory as the continuous increase in final energy consumption reveals. Since the mid of this decade, Energy Services have climbed high on political agendas and have even reached the headline of energy legislation [2006/32/EC].

“Energy-Contracting” (EC) is cited many times as a smart multi-purpose-instrument, which will help to overcome market barriers for Energy Efficiency (EE). While a number of obstacles can be overcome with the EC concept, the realistic potentials, the pros and cons, the limits and added values of ESCo products in comparison to in-house implementation need further clarification.

Energy Performance Contracting (EPC) projects, if implemented properly, have successfully delivered guaranteed energy savings of 20 % and above since they were first introduced in Europe around 1995. Nevertheless, their share in the ESCo market is around 10 % only and market diffusion is essentially limited to the public sector and spread very unevenly throughout Europe.

Besides requiring dedicated and persevering project developers, the EPC model itself imposes obstacles from a methodological point of view, especially if the cost baseline is difficult to determine or if adjustments of the baseline are necessary due to changes in utilization of the building or enterprise. As a consequence, transaction cost of EPC projects are particularly high, resulting in minimum energy cost baselines of 100.000 €/a and above. Also the ESCo’s risks associated with the EPC savings guarantee may imply considerable safety surcharges.



The latter problems are not encountered with the Energy Supply Contracting (ESC) model, because no baseline is needed to measure savings. Further on, the ESC-model is also common in other end-use sectors such as industry or housing. The short fall is that the scope of ESC measures is typically limited to the energy supply side, not covering demand reductions in the building or the production process itself.

This contribution is on advancements of the ESC model. The objective is to enhance the scope of services by integrating demand side conservation measures in the fields of building technologies, building envelope and user behavior.

An important issue is the discussion of suitable quality assurance and performance verification instruments for the EE-measures implemented as a substitute for the EPC-savings guarantee. As a result we propose an Integrated Energy-Contracting (IEC) model to unite energy conservation and (renewable) energy supply into an integrated approach. The concept of the IEC business model including quality assurance is displayed in Figure 5.

Contract term (e.g. 15 years) time

Ener

gy e

ffici

ency

+ su

pply

mea

sure

s

Total

ener

gyco

st(€

/a)

Handover(e.g. DIN 50320)

Control of detail planing

Performance measurement

Proof of function

Quality assurance für EE measures (examples)

AnualAudit

„Accep-tance“ …




Proof of function


AnualAudit


Figure 5 Integrated Energy-Contracting Model with quality assurance instruments (examples) to combine energy efficiency and supply

Besides discussing the new IEC model, we present experiences from pilot projects procured by Landesimmobiliengesellschaft Steiermark (Real Estate Company of the State of Styria), Austria. The building owners retrofit goals, the procurement and awarding criteria applied and first project results.

Experience from up to now eight projects has proven the feasibility of the IEC model. In addition to competitive energy prices, energy end-use savings of up to 30 % heat, 12 % electricity and 20 % water consumption have been achieved by integrating demand side measures (e.g. controls, hydraulic adjustment, solar, top floor insulation and user behavior) into the ESC scheme. CO2 reductions are above 90 %, mainly due to switching to a combination geothermal and biomass energy sources.

The value of the future cash flow change reaches up to € - 250,000 (net savings, including all cost of the EE measures), which could be used to co-finance comprehensive refurbishment of the building shell.

Also for Integrated Energy-Contracting (IEC), the decision of the building or business owner to want to invest in energy efficiency remains a basic



requirement. We conclude that the proposed Integrated Energy-Contracting model achieves to combine the simpler approach of the ESC business model whilst extending the scope of the energy conservation measures to the complete building or enterprises and to all consumption media, e.g. heat, electricity or water.

The EPC savings guarantee is replaced by individual quality assurance instruments, which secure the functionality and performance of the efficiency measures implemented, but not it’s exact quantitative outcome over the project cycle, which largely depends on factors external to the ESCo’s influence such as changes in ambient climate conditions or utilization of the facility.

Work remains to be done to increase electricity savings and to achieve comprehensive refurbishment including the building shell. Furthermore, fiscal and balance sheet related implications of the IEC Model will have to be reviewed in comparison to EPC.

Subject to further experiences, the IEC model might be a solution, which is more widely applicable to combine energy supply and delivery of EE potentials in large volume buildings and enterprises. Perhaps energy efficiency will achieve higher market diffusion in combination with energy supply (from renewables)?

The German version was published in cooperation with the Landesimmobiliengesellschaft Steiermark (Real Estate Company of Styria) who has implemented the model projects (cf. chapter 6).5

Amongst others, this topic was presented at the following conferences and workshops:

Date and location

Title and type of the event

Author/presenter and title of the presentation/publication

Focus

May 10th 2007, Graz

Expert meeting and stakeholder workshop in cooperation with city of Graz and Ministry of Transportation, Innovation and Technology

2 expert presentations by Jan Bleyl were followed by a discussion: - Integration of Energy Efficiency

Measures into Energy Supply Contracting Models

- Opportunity Cost Tool

International

January 31st 2008 Vienna

Envietech ‘08, Vienna Demand Reduction First! Integrating Demand Side Measures into Energy Supply Contracting Models

International

April 7th 2008, Vienna

ARS-Akademie Energie-Contracting Seminar

Bleyl, Jan W.; Auer, Monika: Energieeffizienzprojekte umsetzten: Energie-Contracting oder Eigenregie – eine Einführung

National

5 Contractually, this Think Tank contribution is a deliverable of Task XVI extension, but is included here

for wider dissemination



Date and location



Focus

October 1st 2008, Graz

NOEST Energy Lunch (Netzwerk Ökoenergie Steiermark)

Bleyl, Jan W.: Neues Contracting Modell: Energielieferung + verbrauchsseitige Einsparmaßnahmen

Regional

October 30th 2008

Netzwerktreffen “Österreichische Aktivitäten im Technologieprogramm der IEA”

Bleyl, Jan W.: Verbrauchsminimierung zuerst! Energieliefer-Contracting mit verbrauchsseitigen Einsparmaßnahmen (Integriertes Energie-Contracting)

National

November 10th 2008


Bleyl, Jan W.: Energieeffizienzprojekte umsetzten: Energie-Contracting oder Eigenregie – eine Einführung

National

20. November 2008, Vienna

building workshop, Austrian Energy Agency

Bleyl, Jan W.: Integrated Energy-Contracting Landesimmobiliengesellschaft Steiermark. Goals, Implementation Model and First Results

National

November 20th 2008 Vienna

Fachworkshop “Nutzung von Energiedaten in der Bestandsbewirtschaftung“

Bleyl, Jan W.: Integriertes Energie Contracting bei der LIG Steiermark. Ziele, Umsetzungsmodell und erste Ergebnisse

National

February 26th 2009 Vienna

ÖEKV-Seminar „Energiemanagement und Energieeffizienz“

Bleyl, Jan W.: Energie Effizienz durch Integriertes Energie Contracting (IEC) in der Praxis. Ziele, Umsetzungsmodell und erste Ergebnisse

National

May 8th 2009, Vienna



National

June 9th 2009, Vienna

DECA (Austrian Association of ESCOs) Workshop, Ausschreibung von Energielieferung und Einsparmaßnahmen

Bleyl, Jan W.: Energieeffizienz umsetzen! Integriertes Energie-Contracting am Beispiel LIG Steiermark

National



5.2 “Calculation Tool for Estimation and Visualization

of Monetary Saving Potentials” (Abstract)

The calculation tool aims at a rough calculation and a graphical visualization of monetary energy saving potentials as well as the opportunity costs, which occurs if no energy saving measures are taken. The Graz Energy Agency has developed this calculation tool on the basis of Microsoft Excel and made the groundwork of the development in the framework project called “Innovative Energy-Contracting-models for trade and industry”, which was financed by an Austrian subsidy program.

The calculation tool is a appropriate instrument for energy consultants for the motivation of key actors (of trade and industry enterprises, public institutions, real estate owners …) in the first consulting phase as well as for further consulting actions.

Input data and graphical results:

There are only a few input data necessary for a first rough calculation on the basis of estimated saving potentials. The results are graphical shown in some diagrams and additional summarized with some explanations at the input data sheet:

Visualization of the development of the energy costs at present state without the realization of saving measures (calculated with the average yearly cost increase factors);

Accumulated energy savings potentials at cost categories between minimum and maximum margins as well as an average value, over the planning term – also called opportunity costs; and

Figure 6 OpCo-Tool: Accumulated Saving Potentials (example)



Comparison of the energy cost development without a realization of saving measures and with the realization of minimum and maximum saving potentials; the net present values of the minimum and maximum potentials over the planning term are also shown in this diagram.

0

10.000

20.000

30.000

40.000

50.000

60.000

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Energy Cost Development, Saving Potentials and Present Values(net present values equals investment potential)

accumulatedsavings min.

accumulatedsavings max.

energy cost withsavings max.

energy cost withsavings min.

energy costwithout measures

implementationof measures

net present value

annual energy cost €/anet present

values of savings €

min. max.

Figure 7 OpCo-Tool: Energy Cost Development, Saving Potentials and Present Values (example)

The publication of these results is combined with the financing manual: The Manual “Opportunity Cost Tool, Comparison and Evaluation of Financing Options for Energy-Contracting Projects” does also include the description of the “Calculation Tool for Estimation and Visualization of Monetary Saving Potentials”.


Date and location



Focus

May 10th 2007, Graz

Expert meeting and stakeholder workshop in cooperation with city of Graz and Ministry of Transportation, Innovation and Technology

2 presentations by Jan Bleyl were followed by a discussion: - Integration of Energy Efficiency

Measures into Energy Supply Contracting Models

- Opportunity Cost Tool

International

November 20th, 2007, by phone

Call Seminar, UNEP-SEFI Public Finance Alliance

Bleyl, Jan W.: Comparison and Evaluation of Finance Options for Energy-Contracting Projects

International



Date and location



Focus

April 7th 2008, Vienna


Bleyl, Jan W.; Auer, Monika: Energieeffizienzprojekte umsetzten: Energie-Contracting oder Eigenregie – eine Einführung

National

November 10th 2008



National

November 14th, 2008, Brussels

Energy Forum Brussels

Bleyl, Jan W.: 1. Opportunity Cost Tool 2. Comparison and Evaluation of Finance Options for ESCo Projects

International

May 8th 2009, Vienna



National

5.3 “Financing Options for ESCo Projects” (Abstract)

Availability of financial resources is one of the key success factors for the implementation of Energy-Contracting projects. (Pre-) Financing energy efficiency investments has become increasingly burdensome for ESCo’s as well as their customers, because they reach their credit lines, credit liabilities and fixed assets burden balance sheets and Basel II and international accounting guidelines like US GAP cast their shadows.

Consequently, innovative finance options like operate or finance lease or “pure” Forfeiting options have to be considered (and developed further!) and compared to classical finance instruments like credits. Also the question of who is best capable of providing financing – customer, ESCo or a finance institution (FI) as a third party has to be considered. ESCo’s are not necessarily the best source for finance themselves. But they can certainly help to arrange for financing.

The approach of this manual is to start from the perspective of ESCo’s and their customers (companies, real estate owners or public institutions), who wish to lend money for project financing (demand side). We introduce a comprehensive customer demand profile to describe the customers financing requirements and specific framework. The customer demand profile encompasses criteria such as

1. Direct financing cost

2. Legal aspects

3. Securities/collateral required

4. Taxation implications



5. Balance sheet & accounting implications

6. Business Management expenditures

On the financial supply side, we describe properties of different finance offers (credit financing, operate and finance leasing and forfeiting) with regard to the criteria introduced in the customer demand profile. The properties are also summarized in a comprehensive matrix in the appendix.

To conclude, we compare the above financing offers with the customer demand, discuss their advantages and disadvantages and give recommendations for the finance preparation. We consider factors such as financing cost and fees, tax aspects, balance sheet effects, credit lines, Maastricht criteria, applicability of subsidies as well as suitable project sizes.

As a result we advocate a comprehensive look at the sum of all business implications of any finance option. A sole look at direct financing cost as expressed in interest rates or fees will not deliver your optimal financing solution. The best finance package depends on the borrower’s background, subsidies as well as the specific project cash flow. And it requires the integration of bookkeeping and tax consultancy into the financing decision.

The proposed customer demand profile offers this comprehensive perspective and may serve as a checklist to be adapted to the specific situation of the customer. Likewise, the attached comparison and evaluation matrix of the different finance options allows taking a comprehensive look at the variety of implications, which can be individually adapted to compare concrete finance offers.

Finally we propose to take advantage of innovative financing options, which in return require knowledgeable (leasing) Finance Institutions. For future development, e.g. a “pure” Forfeiting finance option based on selling the future project cash flow to an FI would be a very desirable from the customer perspective. This kind of finance model would also help to overcome some of the current balance sheet problems and share project risks according to the project partner’s strength and capabilities.

Another goal of this manual is to bring the complex landscape and language of financing closer to those professionals, whose business is to develop and implement energy efficiency projects. We want to support the education of project developers and multipliers such as energy agencies or others to become more knowledgeable partners to financing institutions and real estate owners. And vice versa.

The Manual “Opportunity Cost Tool, Comparison and Evaluation of Financing Options for Energy-Contracting Projects” does also include the description of the “Calculation Tool for Estimation and Visualization of Monetary Saving Potentials” as well as practical examples of financial and operate leasing financing and forfeiting financing.




Date and location



Focus

November 20th, 2007, by phone

Call Seminar, UNEP-SEFI Public Finance Alliance

Bleyl, Jan W.: Comparison and Evaluation of Finance Options for Energy-Contracting Projects

International

November 14th, 2008, Brussels

Energy Forum Brussels

Bleyl, Jan W.: 1. Opportunity Cost Tool 2. Comparison and Evaluation of Finance Options for ESCo Projects

International

5.4 “Comprehensive Refurbishment of Buildings

through EPC” (Abstract)

Energy Performance Contracting (EPC) Projects, if implemented properly, have successfully delivered guaranteed savings since they were first established in Europe about 1995. Consequently the new EU Directive on Energy End-use Efficiency and Energy Services supports EPC and views it as an important instrument to implement energy efficiency based on market instruments.

EPC-projects realize demand reduction measures which typically encompass building technologies like HVAC, electrical applications and control systems. In most cases, building envelope refurbishment measures are excluded. As a consequence, large saving potentials are neglected in the refurbishment process and they are lost until the next comprehensive refurbishment cycle of the building some 30 years later. Obstacles like no integrated planning approach, too long pay back periods of the energy efficiency investment measures, procurement problems or a lack of knowledge on implementation models and various others are some of the reasons behind.

In this paper, we propose and describe models how to integrate building refurbishment measures into EPC-models, in order to achieve a comprehensive refurbishment (CR) of buildings as indicated above (CR-EPC-models). We propose three different basic models for the implementation of Comprehensive Refurbishment projects: a “General Contractor” (GC), a “General Planner” (GP) and a “CR-Light” -EPC–model. The decision for an implementation model can be taken after completion of preliminary project planning.

Factors for applicability of the models (especially for the public sector) are described out of which the most important ones are 1. Share in building construction measures from project total, 2. Whether functional or detailed specifications for the awarding of the CR-works and services are applied and 3. Who the building owner wants to put in charge of detailed planning, overall optimization and supervision of the project: a GC or a GP?



General Contractor

- EPC

CR-Light -EPC

1. Share of building construction

measuresfrom project total?

General Planner -

EPC

2. Functional or detailed specifications?

3. Who does the building owner entrust with optimization

and detailed planning?

ad 1. => Constructionmeasures > 50 %

ad 1. => Technologymeasures > 50 %

ad 2.: => Detailed andfunctional specifications

ad 3.: => General Planner

Buildingowner +

Consultant

=> Building owner defines functional specs.

ESCo

Construction company

ESCo(+ Sub-Contr.)

GC (Constr.+ESCo+ Sub-Contr.)

0. Preliminaryplanning

Figure 8 Comprehensive Refurbishment-EP-Model selection flow chart

To sum up, the paper gives conclusions and recommendations for the implementation of CR-projects and a short outlook on future activities and research.


Date and location



Focus

May 2007, Nice

ECEEE 2007 summer study

Bleyl, Jan W.: Comprehensive Refurbishment of Buildings with Energy Services

International

October 24th 2007 Nice

ESCO Europe 2007 Bleyl, Jan W.: Comprehensive Refurbishment of Buildings with Energy Performance Contracting

International

5.5 “Energy-Contracting: How much can it Contribute

to Energy Efficiency in the Residential Sector?

Transaction and Life Cycle Cost Analyses, Market

Survey and Statistical Potential” (Abstract)

German statistics count 39,3 Mio apartments in the residential sector with a rental share of 59,4 %. Energy use for space heating and warm water in residential buildings accounts for more than a quarter of the final energy consumed in Germany. Yet, energy efficiency (EE) is not a priority for most building owners. At the same time Energy-Contracting (EC) as a market based instrument to access



saving potentials has climbed high on political agendas and has even reached the headlines of EE-legislation [2006/32/EC]. But the realistic potential, the limits and obstacles of Energy Service Company (ESCo) products in the residential sector are not well enough understood yet, as the limited market success and repeated statements by different stakeholders tell us.

Answers to these questions are thought in a recently completed research study for the German government. We have undertaken a conceptual analysis of Energy Supply Contracting (ESC) as the market prevailing product as well as an economic analysis of transaction cost and a life cycle cost comparison between in-house and ESCo implementation. The results are compared with the empirical data of a comprehensive market query, interviews and workshops with stakeholders and case studies. Last but not least, we studied statistical housing data to estimate suitable ESCo market potentials in the residential sector.

In this paper, we do not address legal obstacles and the split incentive dilemma, constituted by the lack of a reliable legal framework for the implementation of ESCo projects (for more details, please refer to [Eikmeier et al., 2009]).

Over the range of 30-1,000 kWtherm installations, the life cycle cost comparison reveals no significant cost advantage for ESCo compared to in-house projects. We found a cost effective minimum project size of 100 kWtherm for ESC-projects, derived from transaction cost accrued to implement ESC projects. This figure is confirmed by the market query.

The market query has further revealed around 250 ESCos, whose dominant product in the residential sector is Energy Supply Contracting. Based on their specialized know how, competent ESCos achieve an average efficiency gain of around 5 %. They are more likely to implement innovative and renewable technologies. Although there is still a lack of market data, it can be implicitly derived from other market data and results of our query that the actual market coverage for ESC in the residential sector is between 10 and 20 %.

In the German residential sector, a market potential of 12.3 TWh/a is considered “preferentially suitable” for ESC: This accounts for only 5.6 % of the total statistical demand. An additional, “conditionally suitable” potential amounts to 102.0 TWh/a, mainly limited by small size of the buildings.

We conclude that the Energy-Contracting potential for the residential sector is confined by three major restrictions (in addition to the lack of a suitable legal framework):

1. Due to transaction costs the EC market potential is restricted to project exceeding about 100 kWth in the residential sector.

2. Furthermore, with ESC as the prevailing ESCo product in the residential sector, efficiency gains are restricted to the boiler room. Thus savings are limited to around 20 % compared to existing (or 5 % compared to new in-house) installations, whereas the .energetic saving potential of the typical building is typically twofold.

3. The case for EC can not be built on cheaper cost primarily or other classical outsourcing arguments. Advantages of Energy-Contracting can rather be found in the field of outsourcing of technical and commercial implementation and operating risks to the ESCo as well as takeover of function, performance and



price guarantees by the ESCo. And if innovative technologies are on demand. Only if these features are perceived as added value by the customers, more EC-products will be able to penetrate the market.

We recommend EC product standardization to access the “conditionally suitable” market. Additional efficiency potentials of typically 20 - 50 % can only be tapped, if demand side building technologies, building envelope (e.g. building insulation, improved glazing) and targeting user behavior are integrated into energy service schemes. This could be achieved either by in-house implementation and/or innovative energy service models such as the Integrated Energy-Contracting model [Bleyl 2008]. And off course the legal barriers need to be addressed.

This development requires „educated“ customers to demand qualified energy services in the market. Residential building owners or more likely independent facilitators need to learn how to procure ESCo services with guaranteed results. And there is a need to finance this project development process through public money or energy efficiency funds.

This publication was produced in cooperation with Energetic Solutions, building on a project for the German Government [Eikmeier et al. 2009].


Date and location



Focus

June 2009, Nice

ECEEE 09 summer study

Bleyl, Jan W.; Seefeldt, Friedrich: Energy-Contracting: How much can it Contribute to Energy Efficiency in the Residential Sector?

International

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 6 National Implementation Activities


6 National Implementation Activities

6.1 National Implementation Austria (Selection) In addition to the publication, presentation and discussion of the task results, Austrian national implementation activities were designed to execute concrete model projects. The results of the latter implementation activities are described in the next two sub-chapters.

6.1.1 Landesimmobiliengesellschaft Steiermark: Integrated Energy-

Contracting

The Landesimmobiliengesellschaft Steiermark (State Real Estate Company, Styria) LIG administers and manages more than 420 buildings in Styria, about 200 objects with an overall area of more than 700,000 m² being owned by LIG. LIG is a 100% subsidiary of the State Government of Styria, Austria [LIG 2009].To our knowledge, LIG is the first institutional building owner that has systematically applied the concept of Integrated Energy-Contracting.

The original motivation of LIG was to substitute heating oil with energy carriers that are renewable as far as possible. In the course of project development, the objectives of LIG’s IEC call for tenders were extended and concretized as follows:

1. Implementing demand side saving measures with pay back times of less than 15 years in the fields of building technology, building shell and user motivation and increasing the energy indicators of the buildings;

2. Comprehensive refurbishment of all oil fired heating plants;

3. Reducing CO2 emissions (which implies a change of energy carriers) and minimizing the overall energy cost.

In 2007/08, the first Europe-wide IEC call for tenders was executed for five buildings with a net floor area of approx. 11,000 m2. In 2009 Pool 2, which consisted of three real estates with altogether 20.000 m2, was procured and is currently is being implemented. Commissioning is planned for autumn 2009. Still another pool of buildings is under preparation.

The call for tenders was designed as a competition of prices and solutions, based on functional specifications. It was procured in the framework of a negotiated procedure according to public procurement law. To evaluate the ESCo proposals, the following criteria were applied: 1. Lowest project cycle cost for energy supply; 2. Lowest CO2 emissions and 3. Highest energy cost savings through demand side saving measures proposed by the ESCo.

For all short- to medium-term EE measures with a pay back period of less than 15 years, the bidders could make proposals while stating investment costs, energy cost savings and proposals for quality assurance instruments. These quotations were assessed by a commission entrusted by the client.



Up to now, two pools of buildings have been tendered for, resulting in competitive energy prices for heat supply, almost exclusively from renewable sources. On the demand side an increasing number of saving measures could be procured. In Pool 2, the following energy savings compared to the baseline resulted from the negotiated procurement procedures, subject to monitoring and verification after implementation of the measures in the buildings:

Thermal energy: 16.8 – 30.8 %

Thermal power: 0 – 27.6 %

Electric energy: 4.8 – 11.8 %

Water: 0 – 20 %

CO2: 92 % (primarily due to the change of the energy source (geothermal and biomass))

Value of future cash flow change: € -15,000 up to € -250,000 including all cost of the EE measures. The negative values represent net savings over the project term.

Quality assurance instruments (selection): review of detailed planning, “acceptance” after construction phase, computational saving verifications, adjustment protocols, thermographic recordings, measurement of solar thermal output …

Upon completion of the construction works, the ESCo has to verify compliance with quality standards defined in the functional specifications and the QAI for the energy efficiency measures implemented, in the course of “acceptance”.

The ESCo will control and operate the building technology primarily in a web based manner, also allowing access to the building owner to inquire the operating state of the installations, possible failures and consumption data. Furthermore, the ESCo will take over operation, maintenance and replacement of the installations specified in the contract.

The fact that the electricity saving rates are relatively low might indicate the necessity for better preliminary work done by the party preparing the tender specifications and, on the whole, more attention paid to the topic of electric end-use efficiency.

From the upper limit of thermal saving of approx. 30 % achieved, it is quite obvious that thermal overall refurbishment of the building shell within the specified pay back period of 15 years (this corresponds to the contractual period) cannot be implemented without additional subsidies or co-financing (from the negative savings cash flow). For future projects, it is thought about extending the amortization period in order to enable comprehensive refurbishment of the building shell and thus to implement additional energy efficiency measures.

6.1.2 “Good Practice” Example

The Retzhof of LIG (Landesimmobiliengesellschaft Steiermark – State Real Estate Company Styria) is a complex of buildings consisting of a castle from the 16th century as well as two seminar and guest houses from 1960 and 2009 with an



overall useful area of approx. 4,000 m2, which are used as hotel and seminar house.

Figure 9 “Schloss Retzhof”: Seminar House of the Province of Styria

The energy related initial situation before refurbishment and the new building can be summarized as follows: high energy costs, inefficient natural gas boiler, no insulation of the castle building (protection of a historic monument) as well as demolition of the old boiler house to make room for the new guest house, including the new heating centre. The consumption indicator amounted to approx. 185 kWh/m2/year.

From the building owner’s perspective, the following goals were in the centre of interest:

1. Replacing the old boiler installation due to demolition;

2. Outsourcing of energy supply and financing of the investments;

3. Reduction of energy demand and costs through demand side saving measures as well as CO2 reduction

The project was implemented with the support of Grazer Energieagentur GmbH within an Integrated Energy-Contracting Model. Central issues are: Combination of energy efficiency measures and supply of useful energy, measure specific quality assurance instruments substituting the EPC savings guarantee. The ESCo contract was awarded in a combined competition of prices and solutions in the course of a two-phase negotiating procedure. The business model is summarized in Figure 5 in the Abstract.

Contract term (e.g. 15 years) time

Ener

gy e

ffici

ency

+su

pply

mea

sure

s

Total

ener

gyco

st(€

/a)




Proof of function


AnualAudit





Proof of function


AnualAudit


Figure 10 Integrated Energy-Contracting Model with quality assurance instruments (examples) to combine energy efficiency and supply



The most important contractual relationships and cash flows are summarized in the following two charts:

FIN ESCO CLIENTCREDIT USERIEC Contract

Rentalagreement

UTILITY

Gas

FIN ESCO CLIENTRepayment

USER

UTILITY

Invest. ca. €110.000

Gas cost

Co-financing: €38.000

Rent +operating cost

- Basic cost- Heat (minus gas)- Electricity (CHP)- Capital cost

Figure 11 Retzhof: Contractual relationships and cash flows (overview)

From the building owner’s perspective, some important experiences and innovative approaches of the project can be summarized as follows:

1. The combination of energy efficiency and supply of useful energy within the IEC Model basically works.

2. From the building owner’s perspective, a coordinating and controlling function is even necessary for an ESCo acting as a general contractor. Especially if other building construction projects are simultaneously been carried out as in-house implementation (here: newly building the guest house).

3. The development of comprehensive energy (efficiency) projects requires committed facilitators and a long breath.

4. As for the castle, which is subject to protection of a historic monument, only the insulation of the top floor is possible without problems. The solution with cellulose blown up in an open way is cheap and functional, provided that the loft is not utilized.

5. Thanks to co-financing of the investments by using funds provided by the user of the building, the ongoing capital costs could be reduced by approx. 30 %.

6. The ESCo invests in the CHP plant upon its own risk. Re-financing will be done by selling electric current to the building owner during the contractual period.

These results apply subject to a systematic monitoring and verification in the course of annual auditing of the buildings. Furthermore, experience from ongoing operation needs to be expected.

Amongst others, this topic was presented at the conferences and workshops which are listed in chapter 5.1.



6.2 National Implementation Belgium (Selection)

The Belgian participant in the Task is Fedesco, the federal public energy services company and third party investor, in charge of energy efficiency projects in 1 800 public buildings. It acts as the exclusive integrator for federal public services (administrations) and other federal entities, working closely with the federal Building Agency. It also acts as a competence center on energy efficiency, renewable energy, energy services and third party financing in public buildings.

Fedesco is implementing a multiyear investment plan for energy savings for an amount of € 152 million of which about 40% is to be realized through EPC-contracts.

6.2.1 EPC and ESCO development in Belgium

Besides contributing to the overall Task objectives the national implementation activities in Belgium were focused around:

• Developing and applying know-how on energy services in general and Energy Performance Contracting in particular within Fedesco

• Transferring this know-how to other regional, provincial and local public authorities

• Stimulating the development of an emerging EPC and ESCO market in Belgium

• The use of an innovative technology for energy savings on cooling and heating and its possible application in EPC-projects

1. Development and application of know-how on EPC within Fedesco

In addition to its participation in Task XVI Fedesco signed a contract for international know-how transfer with the Berlin Energy Agency. Within the scope of the Task, Fedesco built upon this basic transfer to enhance its expertise. This lead to the development of standard EPC tendering documents (contract, technical specifications and its annexes). The original English documents were translated into French and will be translated into Dutch. Time and resource constraints pushed the practical implementation of the first tender to 2010, but valuable expertise was developed to support future EPC-projects.



Figure 12 EPC model used by Fedesco

In 2009 Fedesco organized a cross-sector workshop on the legal aspects of EPC in Belgium, with various private ESCO’s and other stakeholders, which lead to a report which was shared with all parties involved.

Fedesco developed an innovative approach based on so-called “transversal services” based contractual conditions offering “budgetary guarantees”. Unlike for its EPC projects, they are not absolute performance guarantees, but do allow customers to manage yearly expenses related to real energy savings.

2. Know-how transfer to other public authorities

In 2008 Fedesco developed a service for know-how transfer and accompaniment of other public authorities, focused around the expertise in energy services and third party financing.

Following the “Environmental Spring” initiative of the federal Minister for Energy and Climate and the Regional Ministers in charge of Energy and Environmental issues, it was decided to create a national “Competence Center on Energy Services and Third Party Financing”.



Figure 13 – National Competence Centre

Since then Fedesco signed 3 contracts with the City of Ostend, the City of Antwerp and the National Bank of Belgium. Fedesco assists the City of Ostend with an EPC pilot project. The City of Antwerp uses Fedesco’s expertise in implementing its own multiyear investment plan in 1500 municipal buildings. Fedesco assists the NBB with a project for the concession of roofs for installing PV solar panels.

This lead to other ongoing discussions and offers to other public entities like 2 province (one in Flanders, one in Wallony), a large airport, 2 regional network distribution companies developing ESCO services and the Brussels Regional Authorities.

Finally Fedesco’s Managing Director, cofounder of the Energy Managers Association of Belgium (EMAB) provides training on the financial aspects of energy efficiency with the “Expert Class Energy Management” co-developed by and for EMAB members. This has lead to the training of about 35 energy managers on financing issues, including many of the deliverables of Task XVI.

3. Stimulation of the Development of the Belgian market for energy services, third party financing and EPC/ESC

A big achievement within the scope of Task XVI was the initiation and creation of a Belgian ESCO association, called BELESCO. Together with EnergyMag, editor of the magazine with the same name and co-organizer of the annual conference and trade faire EnergyForum, Fedesco managed to assemble most of the major ESCO’s, third party investors, banks, engineering companies and other stakeholders around the project of this ESCO Association, one of the only ones being created in Europe since many years. As such BELESCO covers the entire eco-system of EPC and ESC projects in Belgium. After having already organized many activities since its inception in 2008, BELESCO is officially created on the 5th of March 2010. This public-private association will develop common points of view



among its members towards political decision makers on federal and regional levels, stimulate the development of energy services in Belgium through training and seminars, accelerate the implementation of IP MVP in Belgium and contribute to the implementation of the EU Energy Services Directive.

Fedesco also stimulated the development of the Belgian EPC market through by connecting various market players and organizing or participating in numerous seminars and conferences on these topics. These are mentioned in the Final Activity report of Task XVI.

4. The use of an innovative technology for energy savings on cooling and heating and its possible application in EPC-projects

In addition to being innovative in terms of services, Fedesco also tries to implement innovative technologies for energy savings in buildings. In 2008 Fedesco started looking at new solar window film technology and identified the existence of new innovative technology. This leads to the implementation of so-called “spectrum selective sputtering” window film technology. This combines maximum transparency (avoiding additional energy consumption by artificial lighting), maximum solar heat reflecting capabilities (in spring, summer and autumn and additional isolation capacities (lowering emissivity in the winter). After additional research an engineering company was chosen to write technical specifications and after a public tender a 3 year framework agreement was signed with the European market leader in this innovative technology. Since 2009, more than 5000 m² of this energy saving spectrum selective window film has been installed in 9 buildings, equipped with cooling, with at least another 10 000 m² planned.

A report ordered from an independent engineering company confirmed significant energy savings potential on cooling (25 to 30%) and heating (10 to 20%).

Fedesco subsequently studied the use of this technology in EPC projects, improving ESCO’s energy saving performance and guarantee capabilities.

The following paragraph provides a best practice example using this technology in the National Archives Building in Brussels.

6.2.2 Best practice example: Reducing cooling and heating needs in the National Archives through spectrum selective sputtered window film

The National Archives are part of one of the largest federal public building sites, covering a total of 210.000 m² in the heart of Brussels’ historical centre. Other buildings of this “Mont des Arts/Kunstberg” complex, where the window film was also applied, include the Royal Museums for Fine Arts and the Royal Library.



Figure 14 Pictures of National Archives in Belgium

The key numbers for the National Archives building are:

• Surface: 49 331 m² • Electricity consumption: 4 911 732 + 1 789 523 = 6 701 255 kWh/yr • Electricity bill: 555 713 + 208 292 = € 764 005 (VAT incl.) • Gas consumption: 2 000 429 + 3 280 035 = € 5 280 464 kWh/yr (2009) • Gas bill: 96 667 + 172 079 = € 268 746/year (VAT incl.) • Total energy consumption ratio: 243 kWh/m²

The drivers for applying the spectrum selective sputtered window film were:

• Important cooling and heating consumption due to the requirement for constant temperatures and humidity all year round for conservation purposes

• The need to preserve natural light for comfort reasons • Ease of installation (on the inside) without the use of scaffolding or height

workers • Long term guarantees on the installation of the product • Good quality of service to satisfy the end customer and create no

disturbance in existing activities of conservation and office work • Avoid risk for glass breaking (requiring low absorption)

The film was installed on 960 m² of double glazing with the following characteristics (typical for glazing installed in the ‘70’s to ‘90’s), which covers only part of the building, namely for an equivalent of 825 453 kWh/yr of gas and 1 047 554 kWh/yr of electricity.

• Glaverbel 4/14/4 • U = 2,9 W/m²K • G = 0.75 • VLT (visible light transmission) = 0.8



The calculations made by the engineering company prior to the installation showed an expected pay back time of 2,9 years, based on the assumption of 9 months of cooling and 3 months of heating and a COP of 1,5 (which is realistic based on on-site observations). Fedesco subsequently realized on-site measurements in two identical rooms, one equipped with the film, the other without. The following graph shows inside radiation temperature meetings at 50 cm from the window, while the airco was turned off. The meetings took place during 4 days in August with sunshine.

Figure 15 Radiation temperature measurement with/without SSS window film

The following maximum and average temperature differences were measured.

Maximum

• 13/8: 10,20°C

• 14/8: 12,90°C

• 15/8: 14,60°C

• 16/8: 13,40°C

Average

• 13/8: 3,73°C

• 14/8: 7,43°C

• 15/8: 9,16°C

• 16/8: 8,84°C



The following graphs shows measurements in December in a similar building, showing both the solar heat reducing and the isolating effects in the winter, lowering needs for both cooling and heating. As a matter of fact the window film straightens the overall temperature pattern which is much more fluctuating in the room not equipped with the building. Average temperature differences measured at night are 3 to 3,5 °C with maximums of up to 6 °C.

Figure 16 Temperature measurements in the winter showing isolating effect

Fedesco plans to measure real energy savings throughout 2009 and 2010, using its EMBV energy monitoring, bookkeeping and verifications system. Given the measurements they are expected to confirm or even surpass the calculations.



6.3 National Implementation Finland (Selection)

Motiva Oy, representing Finland in Task XVI, is a state-owned company working for the promotion of energy efficiency and use of renewable energy sources on the assignment of its clients. In addition, a unit working on the promotion of material efficiency was set up in Motiva in 2007. Advancement of energy services is an essential part of this work. The biggest client of Motiva is the Ministry of Employment and the Economy. Motiva’s role in promoting ESCO-business in Finland is based on the assignment from that Ministry (until the end of 2007 Ministry of Trade and Industry) and includes the following tasks:

• to act as an information link between ESCOs, energy users, potential clients, and energy auditors

• to prepare information material, brochures, ESCO tools, to arrange information dissemination activities and seminars, and to be in direct contact with ESCOs and their potential clients in Finland

• to follow the development of the ESCO-industry abroad and to participate in international co-operation

• to identify possible obstacles to the growth of the ESCO-business • to disseminate information of good ESCO-project cases

ESCO services have been available by several ESCOs to customers in Finland for years. The business has not grown as much as expected despite the information dissemination, contract models development and other work done by e.g. Motiva and the ESCOs themselves.

The main framework for the energy efficiency promotion work is in the voluntary Energy Efficiency Agreements (EEAs) where energy audits make one of the key implementation instruments. The recommendations from the audits are considered as the main initial data source for utilising energy services. The reporting system established for the EEAs and energy audits also provides a way to follow up the overall market development.



Seppo SilvonenWarsaw 22.10.2009

The link between VoluntaryEnergy Efficiency

Agreements andEnergy Audits

Energy auditsand analysis

Improvementplans and

implementation

Description ofenergy consumption

2 Description ofenergy consumption

2

3

4

5 Annual reporting

Agreement1 Agreement1

Follow up,

updates….

Figure 17 Energy audits make an essential instrument in the implementation of the Energy Efficiency Agreements

27

Task XVI”Competitive

EnergyServices”

© Grazer Energieagentur GmbH - For requests: [email protected]://dsm.iea.org

presented by:

Motiva Oy

Partners in Energy Auditing

Subsidy application

Ministry of Employment and

the Economy

Local offices of MEE

MEE guides and rules

Subsidies

Results, Follow-up

AuditorsCustomers

Partners-professionals of renewables

-suppliers-etc.

• MEE guides and rules• Auditors training• Audit models and guides• Information and guidance,

marketing• Quality control• Follow up

Figure 18 The linkage between the actors in the national energy auditing program



The EEAs for the various energy production and end-use sectors were revised in 2007 taking into consideration the implementation of the Energy Services Directive, which sets the target of 9 % energy efficiency improvement by the end of 2016.

The EEA for the municipal sector includes the requirement to get acquainted with ESCO-services and to utilise them as considered feasible.

Most of the Finnish ESCOs provide information of their energy service projects to be published on Motiva’s website, but as such, the register is not comprehensive.

The national activities include studies concerning the energy service markets, including interviews of market actors in order to have the main barriers identified and to get information for producing additional promotion material. Motiva works with the active ESCOs aiming at developing business especially with the municipal clients by utilising the client contacts of the ESCOs to get feedback on the new ESCO Guide and promotion material. At the same time information is accumulated of the market development.

Seppo SilvonenWarsaw 22.10.2009

Energy services to

municipalities and

other public entities

-guide



ESCO-service: model 4

Open call for proposals

• no specification of

measures

• ESCOs are requested to

propose the most

economical and covering

measures

Energy costs Proposal 1

Proposal 2

Proposal 1Proposal 3

Initial cost Savings to ESCOduring the contract perios

Figure 19 An ESCO -guide for supporting municipal decision-makers in the process of procuring the services was produced

Government subsidies for investments in ESCO projects have been increased and made more attractive by the Ministry of Employment and the Economy.

New guidance about developing ESCO projects has been provided by Motiva to potential customers during Task XVI. This means that they have received information about the flexibility of the ESCO service (pooling buildings, including refurbishment needs in ESCO projects etc.). It is still evident that more concrete guides and models are needed for the public procurement process.



6.4 National Implementation India (Selection)

6.4.1 Overview of Energy Efficiency Investment Market:

The overall energy efficiency investment market size under ESCO system of performance contract in India has been estimated by the ADB Study project team at 140 billion rupees (2,100 million Euros), leading to avoided capacity of 9240 MW.6 The break up of the potential is shown below:

SN Market Type Investment Potential, billion

Rs

Energy Savings

(MWH)

Energy Demand Savings

(MW)

1 Industrial Generic Energy Efficiency Process Energy Efficiency

121.00 42.00 79.00

49.00 million 23.70 million 25.30 million

7000 3400 3600

2 Commercial Government Owned Offices Hospitals Private Owned Hotels

5.70

3.40 0.85

1.44

1.71 million

0.76 million 0.87 million

0.18 million

553

360 140

53

3 Municipal 13.00 3.70 million 1688

4 Totals 140.00 54.40 million 9240

- Indian energy efficiency market potential

Energy efficiency is prevalent in Industrial Sector and there is a strong competitive pressure for operating efficiently. However, such efforts in the building sector particularly in Government facilities and municipal sectors have been extremely meager.

6.4.2 Target Sectors for energy efficiency through ESCo route

Government offices

Investment potential has been estimated at 3400 million rupees (68 million Euros) for energy efficiency projects in the government owned large office buildings (having over 500 kW connected load for individual facility) in the selected thirty-six cities. Overall energy savings potential has been estimated at 760,000 MWh. At 15% return on investment, avoided cost for every unit works out to about Rs 0.70. Unit cost of supply from new generating facility would be about Rs 2.50 to 3.50 depending upon the generation technology, fuel usage and transmission and

6 Source: ADB Technical Assistance study 2002, power generation, transmission and distribution is

excluded from the scope, but has as well tremendous potential.



distribution cost. Share of investment for different applications reveal that investment for improving lighting is 10%, HVAC is 80% and other improvements are remaining 10%. This makes it imperative not only to bundle all the projects together to improve the viability of the overall investment and thereby achieving the targeted energy savings, but also focus first on HVAC systems.

Municipal Facilities

Municipalities and water utilities in India are constantly challenged by escalating population growth, power shortages, rising energy costs, and water scarcity. A municipality’s potential for future development and improved service delivery is also limited by old and outdated infrastructure. Inefficiencies in lighting and water supply systems incur huge losses for the municipal government and for the municipality’s inhabitants. Implementing improvements would conserve precious resources as well as reduce costs substantially.

Agriculture

Agriculture accounts for about 27% of electricity consumption in the country, and this is increasing because of increasing rural electrification. This electricity is largely used in agricultural pump sets. However, pump set efficiency is very poor largely because free or subsidized electricity for the agricultural sector provides no incentives for energy savings. DSM can, therefore, be a second – best measure to promote pump set energy efficiency. BEE is preparing an Agricultural DSM (Ag. DSM) program in which pump set efficiency up-gradation could be carried out by an Energy Service Company (ESCOs) or the distribution company. The ESCO/DISCOM would invest in energy efficiency up-gradation on a rural pump set feeder on which supply quality enhancements such as HVDS) have already been carried out. The intervention would lead to lower energy supply on the feeder, and hence to lower subsidy by the state government to the DISCOM. Part of the savings in the subsidy would be paid to the ESCO/DISCOM on an annual basis, over a 5 year period, to pay for their investment in pump set up-gradation. To ring fence the payment security mechanism, a large Financial Institution having sufficient leverage with the states (like PFC, REC) can be brought in to provide loan to the project and ensure returns by way of instruments like ESCROW7, etc. This has the ability to reduce significantly the risk associated with the project. The role of the DISCOM could be that of a Monitoring and Verification on payment of fee as a part of the project.

6.4.3 Efforts so far:

EMCAT ESCO Development (India) (USAID Project)

The primary goals of the ESCO portion of EMCAT were to assess the national economic and political conditions that affect the development of ESCOs in India and to examine the Indian ESCO market in general. The main mission was to

7 A deed, bond, or other written engagement, delivered to a third person, to be held by him till some

act is done or some condition is performed, and then to be by him delivered to the grantee.



• Assist the Industrial Development Bank of India (IDBI) in establishing a role as a commercial financier in energy efficiency performance contracting.

• Provide ESCO and Performance Contracting training.

Bureau of Energy Efficiency – Building Initiative

Bureau of Energy Efficiency was established on March 01, 2002 as per the provisions of Energy Conservation Act 2001 by merging erstwhile Energy Management Centre of Ministry of Power. The Bureau is responsible for spearheading the improvement of energy efficiency of the economy through various regulatory and promotional instruments.

The mission of BEE is to institutionalize energy efficiency services, promote energy efficiency delivery mechanisms, and provide leadership to improvement of energy efficiency in all sectors of the economy. Bureau has selected “Energy Efficiency in Buildings and Establishments” as one of the 10 thrust areas for action. BEE had implemented energy efficiency improvements through ESCO concept in 9 public buildings by providing legally vetted performance contract, assist in floating RFP, and preparing criteria for selection of ESCO on shared saving concept.

Design of Standard Performance Contract

A draft Performance Contract prepared on the basis of draft circulated by BEE and also incorporating suggestions arising out of discussions in the consultative workshop organized by BEE for the ADB EETA 3885 IND in New Delhi on 20-May-2003. The draft PC prepared by BEE was discussed in a committee comprising of members from different Government Facilities under the chairmanship of CPWD. The final draft was discussed with prospective lenders and ESCOs and the same was adapted. Finally the Ministry of Legal Affairs vetted the sample contract. Thus a model legal standard performance contract suitable for implementation of energy efficiency projects through performance contracting route is now made available.

Payment Security Mechanism

The financing mechanism is an important issue in energy saving projects mainly due to lack of separate revenue stream of energy savings. The issue of payment security mechanism is discussed below:



ESCO

TRA

Funding of Energy (Power and Fuel) Savings due to ESCO

Assignment of a) Rights under Equipment supply contract to liquidated damage s

b) ESCO’s energy efficiency assets (insurance policy)

Cash flows

Host

Excess flows to ESCO

Debt Service

Statutory Dues

Operating Expenses

Shortfall in Debt service

DSRA

ESCO

TRA

Funding of Energy (Power and Fuel) Savings due to ESCO

Assignment of a) Rights under Equipment supply contract to liquidated damages b) ESCO’s energy efficiency assets (insurance policy)

Cash flows

Host

Excess flows to ESCO

Debt Service

Statutory Dues

Operating Expenses

Shortfall in Debt service

Mechanism Explanation: Legal Documents and Parties Involved: The ESCO and the lenders to the ESCO will jointly appoint a mutually acceptable Indian bank to act as the trustee and paying agent on behalf of the Lenders (The Trustee Bank). The Trustee Bank shall establish a Trust and Retention Account into which the facility owner will pay the energy saving payments as required under the Energy Services Contract after the energy savings are verified as per the agreed M & V protocol. At the time of entering into the performance contract, the ESCO requests that all the payments be made into the Trust and Retention Bank Account. The Trustee Bank shall allocate all payments in accordance with a Payment Trust and Retention Agreement (the Agreement) and shall be bound by the terms of the Agreement. The Agreement shall be executed between the Trustee, ESCO, the lenders and the Facility owner. The Agreement will also envisage the establishment of a separate Debt Service Reserve Account.

Operation of the Structure: The Host Facility shall pay the amount due and payable to the ESCO under the Energy Performance Contract after the energy savings have been verified jointly by the ESCO and the host facility (Consisting of the Core team) as per the agreed Monitoring and Verification protocol specified in the Agreement directly into the Trust and Retention Account in accordance with the Agreement. On each Debt Service Date that there exists no default, the



Trustee Bank shall apply the following order of precedence for allocating funds available in the Trust and Retention Account:

a. Statutory dues of the ESCO viz. taxes, duties etc.

b. Operating expenses as per agreed budget

c. Payment of interest and principal

d. Funding of a Debt Service Reserve Account

The Debt Service Reserve Account is a liquidity support mechanism to provide comfort to lenders as it is expected that the reserve would have sufficient balance to meet a predetermined number of debt servicing installments. The DSRA is expected to be funded over the first 6 months by trapping the returns to the sponsors of the ESCO. This balance may be invested in permitted securities. If the DSRA is depleted, the sponsors of the ESCO would be required to build up the balance over the next quarter either though the cash flows of the ESCO (as per waterfall shown above) or if required through additional funds brought by the sponsors.

e. Balance shall be paid to ESCO

6.4.4 Way forward

By Energy Supply Contracting the client pays for (useful energy measured in MWh) steam, compressed air, electricity and other utilities which are measured and paid for. The contracts may last for longer term. By doing so, all energy supply (secondary) is efficient since the ESCO uses the most energy efficient converters such as boilers, compressors, CHP systems etc. There is also a competition for these services through transparent tendering process. More than 70% of energy efficiency potential8 is addressed through these types of contracts, since most of the energy saving measures relate to improving the utilities.

The demand side measures beyond the meter such as lighting retrofits, HVAC control systems etc, can be implemented through separate performance contracts. India should try these Energy-Contracting since more than 50% of the potential could be easily achieved. More than that lease financing concepts could be used as this equipment have large life and could be used in other sites or in the same site.

BEE had initiated efforts in the identified sectors such as municipal, agricultural pump set efficiency improvement and buildings.

India has a legally vetted contract for shared saving concept. This requires ESCO to invest on its own. This has serious limitation on the number of contracts that could be implemented by ESCO on shared saving concept since these ESCOs have limited equity. This leads to the conclusion that we should try the following in the identified sectors namely Government buildings,

8 According to energy audit studies, major process changes are not addressed, and the energy audit

activity centers around utilities such as boilers, compressed air, pumps, fans, motors, etc.



Municipal water pumping, Agriculture irrigation pump sets, Micro and Small enterprises:

• Innovative financing mechanisms including risk guarantee mechanisms, Securitization (Forfeiting), venture capital, leasing etc.

• Go in for guaranteed savings contracts i.e. client invests based on the ESCO guarantee

• Energy Supply contracting



6.5 National Implementation Japan (Selection)

6.5.1 JFS’s ESCO and Related Business in Japan

Main targets:

Non-industrial buildings such as commercial buildings, hospitals, universities, office buildings are the main customers.

Type of ESCO contracts:

More shared savings contracts than guaranteed savings contracts.

Our competitive edge:

Unique service based on each customer’s needs

Strong procurement ability

Independency from manufactures and particular energy saving methods

Wealth of knowledge and information on electricity contracts and rate structure

JFS is leading the ESCO industry in Japan as one of the three big ESCO’s.

Customers of JFS:

ESCO Business (62 customers):

1. Large shopping malls

2. Factories

3. Hotels

4. Banks

5. Universities

6. Local govt. buildings, etc.

Retrofitting (27 customers):

1. Factories

2. Hotels

3. Banks, etc.

Energy saving measures are also introduced in accordance with retrofitting.

Energy Center (1 customer):

1. University Hospital

Energy Audit/Support Service for Regulations (more than 300 customers):

1. Govt. facilities

2. Commercial buildings



3. Research Institutes

4. Hospitals

5. Universities, schools, etc.

This overview of the JFS’s ESCo business in Japan and a good practice example of the Tokyo Metropolitan Hiroo Hospital can also be found in a presentation enclosed in the appendix.

6.5.2 Issues in ESCO business in Japan

The down side of improved recognition of ESCO

The notion that “all initial costs can be covered by a reduction in running costs by an ESCO method” is being overemphasized, and so sometimes the concept of ESCO itself can be an obstacle (in case of large refurbishment such as heating system replacement, completing a deal is not easy).

“Comprehensive service and performance guarantee” should be the basic concept of ESCO in the first place.

A scheme that is not constrained by the extent of running cost reduction should be more developed. (JFS has some successful projects of this kind. They are called “sticking out ESCO.”)

Pro and con of ESCO competition by local governments

Pro: improving the recognition of ESCO

Con: weakening ESCO industry by excessive competition?

Difficulty in finding ESCO projects

JFS has started a Web-based energy management service called “@Energy” with a view to subsequent ESCO projects.

Solutions for small buildings

Energy consumption of each building is small, but total amount as a whole category is huge.

Reduction in the running cost is too small to cover the initial costs.

Cost effective methods for small buildings should be developed.

A new finance scheme

Government Assistance such as a subsidy for ESCO projects for small and medium sized enterprises.

Customers’ need for CO2 emission reduction

In addition to the conventional guarantee method of financial compensation, JFS has introduced guarantee scheme for CO2 emission reduction for its ESCO service.



6.5.3 Good Practice Example Double-Guarantee ESCO Service

Japan Facility Solution, Inc. (JFS) has introduced a new type of ESCO service called “Double-Guarantee ESCO Service.” With this service, JFS succeed in attracting more variety of customers who seeks for tools to reduce CO2 emissions in order to comply with environment related regulations and satisfy CSR.

1. The Outline of scheme Normal ESCO service: guarantees only the cost reduction by energy

conservation. This ESCO service: guarantees cost reduction + CO2 emission reduction by energy conservation.

In case of shortage of guaranteed CO2 emission reduction, JFS will compensate for shortage by either of the following methods. • Offer CO2 emissions rights (CDM, etc.) • Pay cash equivalent to the pre-contracted unit price of CO2

emissions rights multiplied by shortage amounts (tons). The marginal compensation risk is negligible. • The guaranteed both amounts are in a strong positive correlation. • Up to now, the shortage cases for the guaranteed amounts are very

few (only one case), which means the risk of JFS is negligibly low.

Figure 20 Double Guarantee ESCo Service scheme

2. The service formation Offer of emissions rights: JFS gets ready to offer emissions rights to

customers by contracting call option for emissions rights with Mitsubishi Corp. beforehand.

Attestation by the third party (optional): When the customer hopes for the third party attestation of the emission reduction by the energy service, the customer asks for the attestation (JFS owes the cooperation obligation).

Customer

JFS

Double-guarantee ESCO

Service contract Guarantee of

cost reduction

Guarantee of

CO2 emission



Customer

JFS

Double-guarantee ESCO Service contract

Third party attestation

Mitsubishi Corp.

Consignment of attestation (optional)

Attestation of CO2 emission reduction

Purchase of emissions rights (by call option)

Payment for the emissions rights

Figure 21 Double Guarantee ESCo Service contractual relationships



6.6 National Implementation Netherlands (Selection)

6.6.1 Essent Energy Services, Energy Performance Contracting

Essent is the largest energy company in the Netherlands. Essent supplies gas and electricity to large commercial customers and retail. Essent also owns several power plants and one nuclear plant in the Netherlands. From January 1, 2009, Essent is split into a supply company (Essent) and a network company (Enexis). Since October 1, 2009, Essent is taken over by RWE. Essent is not a price fighter on energy and has chosen to deliver services to customers. The ESCO business is an important service. In 2003, Essent has adopted a small independent ESCO (ARPAS Energy Contracting) and has implemented the activities within the organization. Currently the activities of energy services are scaling up. There are approximately 50 projects realized. One of the projects is described below.

6.6.2 Development in the Netherlands

The Netherlands are lagging behind other countries on the ESCO developments. The Ministry of Economic Affairs has paid little attention to energy services.

During 2009, the interest increased. ESCO is an important tool given to the savings target in the Netherlands

Economic Affairs examines the status of ESCO business in the Netherlands

Economic Affairs is examining the possibility to place a guarantee fund to absorb the risk of ESCO companies

To finance ESCO companies can use the green scheme. That means 1% lower interest rate

ESCO is specifically mentioned in More with Less (variant of white certificates)

Economic Affairs examines the possibilities for tenders for purchasing electricity and gas to be linked to guaranteed savings

A trend in the Netherlands is that the business goes back to core business. Foreign branch operations are divested:

Installation companies focus on core business:

UNETO VNI (dome organization of installation firms of the Netherlands) wants to deliver an ESCO-service to the installation firms that are connected. They believe that installation companies attend to install and not to make contracts and give a guarantee on energy savings. Essent will possible be the provider of such services

COFELY currently operates several projects but will return to core business: installation and maintenance work. Essent and COFELY have signed a strategic cooperation



6.6.3 “Good Practice” Example: EPC with Financial Lease at the City

Hall in the city Sittard

The municipality Sittard Geleen in the south of the Netherlands is one of the first communities to recognize the benefit from Energy Performance Contracting. One of the first projects was realized in the city hall.

Figure 22 Good Practice City Hall Sittard (Netherlands)

Features of the building

Office building

Useable floor area 5.600 m²

Volume 16.750 m3

Costs of heat and electricity 0.2 million €/a

Initial situation:

High annual energy costs

Obsolete lighting

Poor light quality

Malfunctioning cooling

The objectives of the project were

Sample low-energy building

Reduce annual energy costs

Improving indoor climate

Replace out of date equipment

Measures:

Energy management and controlling system



Replace old central heating boilers by cascade of 10 HE (high efficient) boilers

New refrigerating installation with 70% of free cooling

High efficient lighting system with daylight and motion detection (winner Green Light Award 2003)

Business Model

Energy Performance Contract:

Advice of building owner (city of Sittard), design and project management by Essent Energy Services (works as ESCO)

Intermittent financing 100 % through ESCO, Financial lease by ING bank

Contract costs: € 260,000, Government subsidy € 13,000

ESCO as a general contractor

Contract period 15 years

Savings:

Guaranteed savings:

Heat: 293 MWh/a; electricity: 150 MWh/a

Sharing of extra savings: 50 % / 50 % to ESCO/Client

Task sharing and interfaces:

GC –Essent

FI –ING bank Building

owner + Essent

1. Functional specifications2. => EPC Contract

Subcontractors:•Implementation and maintenance by installation firms according design Essent

•Technical risks of good function

•Design of measures•Project management

•Procurement of subcontracts

•Monitoring•Economic risk of

guaranties

•Advice from Essent •Overall project coordination

•Functional planning

•Financing•Risk of non payment

Financial LeaseContract

Figure 23 Good Practice Sittard (Netherlands) Task sharing and interfaces



FIN

ESCO

CLIENT

1. Framework contract2. Financial lease

1. EPC Contract2. Financing and

pledge agreement

Contractual relationships: Cash flows:

FIN

ESCO

CLIENT

Total investment(260,000 €)

ESCO forwards leasing rates 15 years

Client pays contracting rates

15 years

Figure 24 Good Practice Sittard (Netherlands) Contractual relationships and cash flows

Lessons Learned, Innovations and Client’s Advantages

ESCo takes total care – important for customer

Single point of contract – important for customer

No investment required by customer

Improvement of the inside climate

Reducing total operating costs with 4 %

Emission reduction 17 %

Covering agreement between ING bank and Essent:

• Target groups A+B defined for further EC-projects

• Certain interest-conditions for target groups defined

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 7 Task X Energy Performance Contracting Review (Finland)


7 Task X Energy Performance Contracting

Review (Finland) As a preparatory measure and to connect Task XVI to the previous work in the same subject area, a review of the Task X ´Performance Contracting´ work done was carried out. Relevant results achieved and lessons learned were identified. A menu of possible market development activities was compiled.

The general objective of Task X was to facilitate greater use of performance contracts between professional building owners and all types of companies offering these services.

In order to reach the objective the Experts of the Task laid out definitions for the terms used in the EPC-context to set a common language for the industry, especially in the international communication. The work specified various forms of implementing EPC laying out alternative contracting arrangements in order to discuss their applicability and advantages in various investment conditions. A palette of services that are or could be offered using the energy services concept was introduced. The reporting includes also a list of barriers that had been faced in the participating countries in trying to expand the EPC-market.

Task X work was performed in 2000-2004. The participating eight countries were: Austria, Finland, France, Greece, Italy, Japan, the Netherlands, Norway, Sweden and the United States. The two essential elements in the output of the work are the Country Reports and the presentation material from the Experts’ meetings and workshops. The topics of the workshops covered the following areas: EPC Project Initiation, EPC Process and Procurement, EPC and Government Policy, Refurbishment Projects, and EPC and Certificate Trading. The material from the workshops gives definitions for the terminology commonly used in the context of Energy Performance Contracting, lots of information on national implementation activities, on the status of the EPC-business in each of the countries as well as versatile case studies of EPC projects.

In Task X an ESCO was defined as a company engaged in developing, installing and financing comprehensive, performance-based facility improvement projects, typically 7-10 years in duration, centered around improvements in the energy efficiency and reduction of maintenance costs for facilities owned or operated by customers.

Energy Performance Contract (EPC) is a contractual agreement for the obligations between the client and the ESCO.



Performance Contracting - Business Model

contribution to building costs(e.g. subsidies) or payment of the residual

value to the contractor

contribution to building costs(e.g. subsidies) or payment of the residual

value to the contractorPayment to ESCo for• prefinancing the investment• increased comfort + added value (NEBs)• maintenance and repair• taking over risks

EPC contractcontract ends

Payment to ESCo for• prefinancing the investment• increased comfort + added value (NEBs)• maintenance and repair• taking over risks

EPC contractcontract ends

Service life of the investment

Energy costs after

refurbishment

Saving investment

Overall energy costs (new)•...

Service life of the investment

Energy costs after

refurbishment

Saving investment

Overall energy costs (new)•...

Actual costs = baseline

Actual state

annual costs

Time

Overall energy costs (old)fuel;electricity;maintenance;repair (substituteinvestment);

personnelexpenditure;

other

Actual costs = baseline

Actual state

annual costs

Time

Overall energy costs (old)fuel;electricity;maintenance;repair (substituteinvestment);

personnelexpenditure;

other

Accounting adjustments (yearly):• energy price (reference prices from baseline)• climate (outer temperature by # of “degree days”)• changes in utilization of facility

Financial advantage for facility owner

O&m cost

Financial advantage for facility ownerFinancial advantage for facility owner

O&m cost

The business elements in performance contracting are shown in the scheme above. According to the Task X report the key features are the following:

An Energy Service Company (ESCO) plans and realizes energy efficiency measures and is responsible for their operation and maintenance throughout the contract term.

The ESCO has to guarantee energy cost savings compared to a present state energy cost baseline.

The efficiency investments are (partly) paid back out of the future energy cost savings.

The client continues to pay the same energy costs as before (sometimes even a smaller amount). After termination of the contract, the entire savings will benefit the client.

The ESCO’s remuneration is the contracting rate and depends on the savings achieved. In case of underperformance the ESCO has to cover the short fall. Additional savings are shared between building owner and ESCO.

Various forms of arranging an EPC contract are applied in the market. Task X names the following:

- Shared savings: ESCO offers the financing and takes both the performance and the credit risk

- Guaranteed savings: ESCO takes the performance risk and the customer is responsible for the financing

- First out: all energy cost savings are used to pay the interests and amortization of the loans until full repayment

- Contract for energy management (Chauffage Contract): offering better service at the same cost

The Experts in Task X brought up a long list of obstacles that had been identified when marketing and implementing energy services: slow movement from buyers, lack of understanding of the opportunities, lack of information, time-consuming work for raising interest, cost-consuming to establish the baseline, lack of public



recognition, lack of clear procurement rules and contract arrangements, lack of general contract conditions, lack of guarantees and securities, lack of financing alternatives, challenges in measurement and verification, lack of technical experts, separated responsibilities for investment and operation, low energy prices, costly tendering process, limited time available on the customer’s side, no incentive to make improvements, concern for the own personnel, problems in entering into multi-year contracts, overlapping roles between the client’s person in charge and the ESCO-representative, ESCO’s insufficient knowledge of the client’s specific problem, disadvantageous profit/risk outlook, legal barriers with public tenders, efficient use of energy, difficulties in the evaluation of bids, and variable quality of consultants.

In its reporting Task X limited itself to introducing the basics of EPC with several conclusions from the Country Reports regarding the conditions for successful EPC-business, and examples of contract models in some countries to facilitate easier operation in the business. A number of ESCO-projects implemented are presented in the Country Reports of Task X and listed in one of the appendices to the Summary Report, giving information of many of the characteristics of the projects. Estimates of the EPC market potential in Europe, Japan and the U.S. are given, indicating that the then volume of the business covered only 0,2-3,0 % of the estimated total potential.

Regarding the procurement process in public sector projects further consideration is seen necessary in terms of

- selecting independent consultants to prepare documents for the competitive bidding

- formulating the bidding requirements so that enough interest can be found among the potential bidders

- taking care of the customer’s competence to manage the competitive bidding process

The Final Report of Task X concludes with recommendations as to the actions to facilitate greater use of performance contracts by professional building owners. These recommendations deal with credibility and trust, process and procurement, contracts, financing, measurement and verification, market and actions to promote the services.

On the basis of the presentations in the workshops of Task X it can be concluded that the role of governments is considered crucial in establishing the playing field for the energy service business, e.g. through procurement adaptation, public buying, standard contracts, energy audits, public facilitators, regulations, financial mechanisms, subsidies, tax benefits, and information.

Reflecting the results of Task X against the targets of the national implementation activities in Task XVI the congruence between the activities and instruments was sufficient to offer complementarity and continuity between the two tasks.

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 8 Summary, Conclusions and Outlook


8 Summary, Conclusions and Outlook The success of further increasing energy efficiency will play a vital role in coping with the challenges of our common energy future. Avoiding energy consumption by increasing end-use efficiency is a highly effective way to meet all three key targets of energy policies: security of supply, affordable costs of energy services and environmental soundness.

Energy-Contracting - also labelled as ESCo or Energy Service – is a many times proven instrument to implement energy efficiency measures in the fields of lighting, heating, ventilation, air-Conditioning (HVAC), control systems or even comprehensive refurbishment of buildings. An Energy Service Provider (ESCo) takes over the technical and commercial implementation and operation risks and has to guarantee for the performance and results of the measures implemented over the project term. ESCo services are also well suited to implement innovative and renewable energy systems.

The ESCo industry is an expanding business in various parts of the world contributing to the improvement of energy efficiency, control of energy costs and reduction of greenhouse gas and other emissions. At the same time, many end-use market segments are still in a developing stage or have not reached their full potential. The two basic business models of offering energy service packages are Energy Supply Contracting (ESC) and Energy Performance Contracting (EPC), applicable with flexible scope of services and financing arrangements. Our view of the basic features of “real” Energy-Contracting projects is summarized in chapter 4.

Energy Supply Contracting projects usually achieve 15-20 % efficiency improvements in the conversion from final to useful energy. Energy performance contracting projects typically realize efficiency gains of 20-30 %. With the Integrated Contracting approach or a Comprehensive Building Refurbishment model even higher potentials can be unlocked. CO2-Emission reductions are in many cases above 50 % because of a change to energy carriers with lower carbon content or renewables.

Task XVI has elaborated innovative contributions e.g. on “Financing Options for ESCo Projects”, “Comprehensive Building Refurbishment through EPC”, “How much can Energy-Contracting contribute to EE in the Residential Sector” or a “Calculation Tool for Estimation and Visualization of Monetary Saving Potentials”. And a new ESCo business model labeled as “Integrated Energy-Contracting” (IEC), which combines energy efficiency and (renewable) energy supply in an integrated product [Bleyl 2009]. For a summary and conclusions on these topics we refer you to the conclusions of the respective publications in the annex of this report.

Nevertheless, Energy-Contracting still is a complex product, which can not be procured or sold easily. As it is the case with energy efficiency in general: Many obstacles root in the scattered nature and small units of end-use energy conservation potentials and must not be attributed to Energy-Contracting models.



On the way towards better developed energy service markets work remains to be done. Some general lessons which we have learned are:

Successful market development, in particular for EPC (e.g. in the US, Germany, Austria or recently in Sweden) was demand side driven, meaning ESCo customers defined their needs and goals for energy service packages and put out request for proposals on the market. To enable the demand side, there is a need for capacity building and exchange of know how and experiences, e.g. with respect to procurement practices, terms of references including (functional) performance specifications and model contracts or quality assurance by the awarding authority.

To foster market development, the role of independent market facilitators as mediators between ESCos and their (potential) clients has proved to be of great value. This role requires more active players and deserves better support! The facilitator’s task is to consult to the customer and help him to define concrete projects, to put out request for ESCo proposals and to evaluate them. And to support the client in preparing meaningful tender documents, which describe performance specifications and the technical, economical, financial, organizational and legal framework of the energy service package to be procured and a model contract.

Financing is not necessarily the core business of ESCos. Their core competence usually lies in technical, economic, and organizational matters of an energy service package. In many cases including a financing institution (FI) as a third party to take over financing matters and risks makes good sense. Financing should be individually arranged from a combination of future energy cost savings (project cash flow), third party financing, investment cost allowance (from the customer) and subsidy programs. In other words: ESCos should serve as finance vehicle, not necessarily as financiers (cf. [Bleyl+Schinnerl 2008a]). Weather financing is a bottleneck or not, turns out to be very different in various markets.

Energy-Contracting is a flexible and modular energy service package. Most energy efficiency projects differ in their contents and general conditions. Therefore, it has proved to be sensible to adapt the ESCo business model (e.g. ESC, EPC or IEC) and the scope of services to the individual project. This also implies the ESCo customer may define – depending on his/her own resources – what components of the energy service will be outsourced and which components are carried out in-house, e.g. financing or regular on-site maintenance.

Energy efficiency improvements are not the driving force for most of the projects but rather a (beneficial) side effect. Non-energy goals or benefits like investments in more effective production processes, compliance with legal requirements (e.g. emissions control or work place regulations), external appearance and image improvements or CO2-reductions are more important to business or building owners. Project developers need to listen better to the needs expressed by the customer side and to build strategic



alliances to incorporate energy efficiency goals or minimum performance standards early on in the project development process, e.g. in co-operation with property developers, building investment funds or facility managers.

High priority should be placed on the development of concrete projects in the end-use sectors of public institutions, tertiary sector, trade and industry as well as housing. What is important is to optimize investment decisions according to project (or better life) cycle cost and to ensure the results of the energy efficiency measures on a long-term basis. In this regard, ESCo models inherently have substantial advantages to offer.

The underlying goal is to increase understanding of Energy-Contracting as a flexile and high potential tool to implement energy efficiency projects. And to unbiasedly discuss advantages and disadvantages, limitations and realistic potentials of outsourcing energy service packages to ESCos in comparison to in-house implementation.

This list does not claim to be exhaustive and country specific additions and adaptations to these proposals for National Implementations Activities are suggested, off course.

Task XVI was extended for a 2nd three year period until June 2012 as decided by the IEA DSM Executive Committee. Work is being continued within it’s established structure consisting of the Energy Service Expert Platform, individual National Implementation Activities, carrying out research on innovative Energy-Contracting models (Think Tank) and nationally and international dissemination activities:

Think Tank research and documentation will be conducted in a number of areas, e.g.

- A new “Integrated Energy-Contracting” (IEC) model to combine energy efficiency and supply (from renewable sources) was recently introduced. Secondly, the IEC model proposes to apply qualitative and quantitative quality assurance instruments to verify energy savings without baselines. (Task XVI discussion paper, published in October 2009, download available from www.ieadsm.org)

- (Public) procurement of energy services: A guide how to purchase a “real” energy service package (scheduled for publication in 2010)

- Comprehensive refurbishment of buildings (continuation): Extending the scope of ESCo services to the building shell. Collection and documentation of good practice examples (scheduled for publication in 2010)

- Calculation tools for procurement of energy services, e.g. for comparison of different ESCo offers and in house implementation cost including non-monetary criteria

Further topics will be proposed by the OA and decided in mutual agreement with the country experts.

All country experts will continue to conduct country specific National Implementation Activities (NIAs) in order to support capacity building,



market development or initiation of model projects. Already ongoing activities can be integrated into the NIAs.

The Energy Services Expert Platform will continue to serve the country experts mutual exchange and networking, to support national implementation activities and communication with their stakeholders and to provide access to innovative and competitive Energy service models and tools from the Think Tank.

Task XVI has received considerable interest in its previous work and publications, inter alia expressed in invitations to conferences and workshops to more than fifteen IEA as well as non IEA countries. This international and national dissemination activity of Task XVI work will be taken further and will also enhance the visibility of the DSM program as a whole. The task will also continue to organize stakeholder workshops in conjunction with its bi-annual expert platform meetings.

In order to achieve energy policy goals and sustainable cost reductions, there is an urgent need to support all suitable political, regulatory and market based instruments for the implementation of Energy Efficiency and Renewables. Accessing energy saving potentials through outsourcing to an ESCo or in-house implementation remains one of the most important and, at the same time, most demanding tasks, which can only be advanced in a concerted action with as many players active in energy policy and industries as possible.

ESCo models offer integrated solutions for the project life cycle, encompassing planning, construction and operation& maintenance. Energy-Contracting is an interdisciplinary approach, which takes care of technical, economical, financial, organizational and legal aspects of the implementation process in order to achieve guaranteed performance and results of the efficiency technology deployed. This highly integrated and multidimensional approach opens up solutions, which are not achievable through a standard, disintegrated implementation process, e.g. life cycle cost optimization across investment and operation budgets or integrated planning or performance guarantees over the complete project cycle, all summarized in one ESCo contract.

At the same time this requires well educated stakeholders on the customer and the ESCo side with an understanding and resources of all the disciplines involved. And it requires new organizational routines, in particular on the customer side, e.g. with regard to procurement practices, interdisciplinary co-operations between different departments and project engineers or long-term cross-budgetary financial management. Last but not least: The decision of the building or business owner to tap into energy efficiency resources (either voluntarily or forced by regulations) remains a basic requirement – independent of the implementation model.

Strong efforts on all levels of policy framework, capacity building and concrete market development remain to be done on the way to better developed energy service markets and to more competitive energy service products. In case of questions or ideas for further co-operation, your feedback is highly welcome. You can reach the authors at [email protected] or [email protected].

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 9 Figures


9 Figures

Figure 1 IEA dsm Task XVI: Structure and work packages ........................... 12

Figure 2 Energy-Contracting: Components of service package and outsourcing of interfaces and guarantees to an ESCo ................... 15

Figure 3 Scope of services of two basic ESCo models .................................. 16

Figure 4 Energy-Contracting: A modular energy service package with guaranteed results for the client ............................................... 17

Figure 5 Integrated Energy-Contracting Model with quality assurance instruments (examples) to combine energy efficiency and supply .................................................................................. 19

Figure 6 OpCo-Tool: Accumulated Saving Potentials (example) .................... 22

Figure 7 OpCo-Tool: Energy Cost Development, Saving Potentials and Present Values (example) ........................................................ 23

Figure 8 Comprehensive Refurbishment-EP-Model selection flow chart .......... 27

Figure 9 “Schloss Retzhof”: Seminar House of the Province of Styria ............. 32

Figure 10 Integrated Energy-Contracting Model with quality assurance instruments (examples) to combine energy efficiency and supply .................................................................................. 32

Figure 11 Retzhof: Contractual relationships and cash flows (overview) .......... 33

Figure 17 Energy audits make an essential instrument in the implementation of the Energy Efficiency Agreements ................... 42

Figure 18 The linkage between the actors in the national energy auditing program .................................................................... 42

Figure 19 An ESCO -guide for supporting municipal decision-makers in the process of procuring the services was produced ..................... 44

Figure 20 Double Guarantee ESCo Service scheme ....................................... 53

Figure 21 Double Guarantee ESCo Service contractual relationships ............... 54

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 10 References and Literature (Selection)


10 References and Literature (Selection)

[2006/32/EC] Directive of the European Parliament and of the Council on Energy End Use and Energy Services, 2006/32/EC as of 5 April 2006

[Bertholdi et.al. 2007] Paolo Bertoldi, Benigna Boza-Kiss, Silvia Rezessy Latest Development of Energy Service Companies across Europe - A European ESCO Update EC JRC Institute for Environment and Sustainability, Ispra 2007

[Bleyl+Suer 2006] Bleyl, Jan W; Suer, M 2006 Comparison of Different Finance Options for Energy Services. In: light+building. International Trade Fair for Architecture and Technology. Frankfurt a. Main

[Bleyl+Schinnerl 2008] Bleyl, Jan W.; Schinnerl, Daniel “Energy-Contracting” to Achieve Energy Efficiency and Renewables using Comprehensive Refurbishment of Buildings as an example in: Urban Energy Transition edited by Peter Droege, Elsevier 2008

[Bleyl+Schinnerl 2008a] Bleyl, Jan W.; Schinnerl, Daniel in IEA dsm Task XVI “Opportunity Cost Tool, Comparison and Evaluation of Financing Options for Energy-Contracting Projects. A Manual for ESCo, ESCo customers and ESCo project developers, download available from www.ieadsm.org

[Bleyl 2008] Bleyl, Jan W. 2008 Integrated Energy-Contracting Landesimmobiliengesellschaft Steiermark. Goals, Implementation Model and First Results in building workshop, Austrian Energy Agency 20. November 2008

[Bleyl 2009] Bleyl, Jan W. Integrated Energy-Contracting (IEC). A new Model to Combine Energy Efficiency and (Renewable) Energy Supply. IEA dsm Task XVI Discussion Paper, download available from www.ieadsm.org

[Bundescontracting 2009] www.bundescontracting.at currently not online

[CEN/CLC/TF 189] European Committee for Standardization Energy Management and Related Services draft under discussion

[dena 2004] Deutsche Energie Agentur Leitfaden Energiespar-Contracting Berlin 4th edition. December 2004.

[dena 2009] Deutsche Energie Agentur Leitfaden Energieliefer-Contracting under preparation, publication planned for 2009.



[DIN 8930-5] Deutsches Institut für Normung Kälteanlagen und Wärmepumpen. Terminologie Teil 5: Contracting Berlin, November 2003.

[EDLGewInd 2008] Bleyl, J., Schinnerl, D., Auer, M.: Energieliefermodelle für Gewerbe und Industrie in Auer M. (Projektleitung) Projekt Nr. 810698 Energiesysteme der Zukunft, Mai 2008

[Eikmeier et al. 2008] Eikmeier, B., Seefeldt, F., Bleyl, J. W.; Arzt, C.: Contracting im Mietwohnungsbau, 3. Sachstandsbericht, Bonn Oktober 2008

[Eikmeier et al. 2009] Eikmeier, B., Seefeldt, F., Bleyl, J. W.; Arzt, C.: Contracting im Mietwohnungsbau, Abschlußbericht, Bonn April 2009

[ESP 2009] Berliner Energieagentur Energiesparpartnerschaft Berlin. Ergebnisse aus 23 Gebäudepools nicht veröffentlicht Berlin 2009

[GEA 2009] Grazer Energieagentur GmbH, www.grazer-ea.at 2009

[GEFMA 540] German Facility Management Association Energie-Contracting. Erfolgsfaktoren und Umsetzungshilfen GEFMA 540, Ausgabe 2007-09

[Hita et.al 2009] Hita I., Dupont M., Xavier R. How can IPMVP be “adopted” in a European country where M&V methods are not so widespread (France)? Illustration through the presentation of 2 case-studies in ECEEE 2009 Summer Study Proceedings, paper # 3126, La Colle sur Loup 2009

[IEA 2006] Internationale Energie Agentur World Energy Outlook 2006, Global Savings in CO2 Emissions in the Alternative Policy Scenario Compared with the Reference Scenario Paris, 2006

[IEAdsm 2009] Task XVI „Competitive Energy Services“ of the IEA (International Energy Agency) Demand Side Management Implementing Agreement. Task flyer available from www.ieadsm.org

[IPMVP_2009] Efficiency Valuation Organization (EVO) International Performance Measurement and Verification Protocol (IPMVP) download available from http://www.evo-world.org/index.php

[LIG 2009] Landesimmobiliengesellschaft Steiermark mbH, www.lig-stmk.at 10. August 2009

[ÖKOSAN 2009] Comprehensive Building Retrofit with the Integrated Energy-Contracting Model Taking LIG, Styria as Example. Goals, Implementation Model and first Results in ÖKOSAN ’09 – International Symposium for the high value refurbishment of large volume buildings , Weiz, Austria 2009

[ÖNORM M 7140] Österreichisches Normungsinstitut ÖNORM M 7140 Betriebswirtschaftliche Vergleichsrechnung für Energiesysteme nach der erweiterten Annuitätenmethode. Begriffsvestimmungen,



Rechenverfahren Wien 2004

[McKinsey 2007] McKinsey Global Institute Curbing Global Energy Demand Groth: The Energy Productivity Opportunity 2007

[Prognos 2009] Prognos AG in Eikmeier et al 2008, S. 38f.

[SenStadt+BE 2002] Senatsverwaltung für Stadtentwicklung des Landes Berlin und Berliner Energieagentur Energieeinspar-Contracting. Die Energiesparpartnerschaft. Ein Berliner Erfolgsmodell April 2002.

[Siemens 2009] Siemens AG Österreich Theresien- und Jörgerbad interne Auskunft 24.08.2009

[UZ 50] Österreichisches Umweltzeichen Richtline UZ 50 Energie-Contracting Wien 2003

[Varga et.al. 2007] Varga M., Baumgartner B., Bleyl, J.W. Quality Assurance Instruments for Energy Services Eurocontract manual, Graz Energy Agency 2007 download available www.eurocontract.net

[VDI 2067] Verein Deutscher Ingenieure VDI 2067 - Wirtschaftlichkeit gebäudetechnischer Anlagen. Grundlagen und Kostenberechnung, Blatt 1 Düsseldorf 2000

[VDMA 24198] Verband Deutscher Maschinen und Anlagenbau Perfomance Contracting. Begriffe, Prozessbeschreibung, Leistungen VDMA 24198 Frankfurt/Main Februar 2000

[VfW 2009] Verband für Wärmelieferung Der Verband für Wärmelieferung in Zahlen Hannover 2009 download verfügbar unter www.energiecontracting.de

IEA dsm Task XVI Competitive Energy Services: Final Task Report (Phase 1) 11 Appendix


11 Appendix

11.1 Think Tank

11.1.1 Integrated Energy-Contracting – a new ESCo business model

091026_T16_Integrated Energy Contracting_GEA_Bleyl.pdf

090918_T16_Integriertes Energie Contracting_Diskussionspapier_GEA+LIG_Bleyl.pdf

11.1.2 Financing Options for ESCo Projects

080328_T16_Finance Options for Energy-Contracting_GEA_Bleyl Schinnerl.pdf

080113_T16_Finanzierungsmodelle für Energiedienstleistungen_GEA_Bleyl, Schinnerl.pdf

11.1.3 Opportunity Cost Tool

070507_T16_Opco-model_Example Printout_GEA.pdf

081210_T16_OpKo Tool_Beispieldatei_GEA.pdf

11.1.4 Comprehensive Refurbishment of Buildings

081118_T16_Comprehensive Refurbishment of Buildings through EPC_GEA_Bleyl, Schinnerl.pdf

090813_T16_Umfassende Gebäudesanierung mit ESC_draft_GEA_Bleyl, Schinnerl.pdf

11.1.5 Energy-Contracting: How much can it Contribute to Energy

Efficiency in the Residential Sector?

090709_T16_EC residential market_IAEE09 abstract_GEA_Bleyl.pdf

11.2 Task X Review 070712_Motiva_Review of Task X.pdf



11.3 IEA Demand Side Management Program (short

description)

'Promoting Energy Efficiency and Demand-Side Management for global sustainable development and for business opportunities'.

The Demand-Side Management (DSM) Program is one of more than 40 co-operative energy technology programs sponsored by the International Energy Agency (IEA).

Since 1993, the IEA DSM Program has worked to develop and promote tools and information on demand-side management and energy efficiency. As a result of this collaborative work between countries in Asia, Europe and North America, the program has created a 'tool box' of resources and information for governments, utilities and energy companies to help them incorporate DSM measures in their energy policies and activities.

Thus, for whoever wants to develop or use demand side management activities or related policies and for whatever purposes, the IEA DSM Program should be the natural first resource to consult to make use of experiences learned and to further develop DSM and Energy Efficiency tools.

Objectives

The Program has two major objectives directed at its two major stakeholder groups. The Program will provide to:

(a) Governments of the participating countries, increased capabilities to develop policies and programs for more effective use of DSM and energy efficient products [Government includes administrations, authorities, regulators etc and their associations.] and to

(b) Energy businesses, the information and tools necessary to create new cost-effective products and services in response to domestic and global opportunities. [Energy businesses include system operators, transmission and distribution companies, brokers, wholesalers, utilities and their associations. Suppliers of “enabling hardware and software technologies” are included in this category.]

But the Program should also enable access to information to

(c) Stakeholders that advocate energy efficiency and sustainable energy systems arguments and knowledge about the opportunities.

You can find more detailed information at the website of the IEA demand side management: www.ieadsm.org.

The Austrian member of the Executive Committee of the demand side management implementing agreement is DI Boris Papousek of the Graz Energy Agency.



11.4 Notes

IEA DSM Task XVI Participating Countries and Contacts

Austria

Jan W. Bleyl (Operating agent and NE) Email: [email protected] Tel: +43-316-811848-20

Daniel Schinnerl (national expert) Email: [email protected] Tel: +43-316-811848-15

Grazer Energieagentur GmbH Kaiserfeldgasse 13 8010 Graz

Belgium

Lieven Vanstraelen (National expert) Email: [email protected] Tel: +32-2-76202-80

Fedesco Royal Green House, Rue Royale 47 1000 Bruxelles

Johan Coolen (National expert) email: [email protected] Tel: +32(0)3/225.23.12

Factor4 Lange Winkelhaakstraat 26 2060 Antwerpen

Finland (until June 2009)

Seppo Silvonen (Co-Operating agent) Email: [email protected] Tel: +358-424-281-232

Pertti Koski (National expert) Email: [email protected] Tel: +358-424-281-217

Motiva Oy P.O.Box 489 00101 Helsinki Fax: +358-424-281-299

India

Srinivasan Ramaswamy (NE 10/2009) Email: [email protected] Tel: +91-11-26179699

Abhishek Nath (NE until 10/2009) Email: [email protected] Tel: +91-11-2617-9699

Bureau of Energy Efficiency 4th Floor, Sewa Bhavan, R.K. Puram New Delhi -110066, India Fax: +91-11-2617-8352

Japan (Sponsor until June 2009)

Takeshi Matsumura (National expert) Email: [email protected] Tel: +81-3-522929-22

Japan Facility Solutions, Inc. 1-18 Ageba-cho Shinjuku-ku Tokyo 162-0824, Japan Fax: +81-3-5229-2912

Netherlands

Ger Kempen (National expert) Email: [email protected] Tel: +31-43-36903-53

Essent Retail Services BV Withuisveld 7 6226 NV Maastricht Fax: +31-43-369-0359

Spain (since July 2009)

Andrés Sainz Arroyo (National expert) Email: [email protected] Tel. +34-91-650 20 12 ext. 2252

Red Eléctrica de España Dpto. Gestión de la Demanda Paseo del Conde de los Gaitanes, 177 28109 Alcobendas, Madrid, Spain

Borja Herrero Ruiz (National expert) Email: [email protected] Tel. +34-91-7883100

Hitachi Consulting Orense, 32 28020, Madrid, Spain

Competitive Energy Services (Energy-Contracting, ESCo Services) File Library/Key... ·...

Documents

Transcript of Competitive Energy Services (Energy-Contracting, ESCo Services) File Library/Key... ·...