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Financing Energy Efficiency Through ESCOs and Energy Performance Contracting

Financing Energy Efficiency Through ESCOs and Energy Performance Contracting. 20 October 2011. ESCOs Defined.

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Financing Energy Efficiency Through ESCOs and Energy Performance Contracting

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  1. Financing Energy Efficiency Through ESCOs and Energy Performance Contracting 20 October 2011

  2. ESCOs Defined • An Energy Service Company is a commercial business providing a broad range of comprehensive bundle of energy efficiency, water efficiency, operational efficiency, renewable and distributed energy generation measures. • ECSOs provide turn-key responsibility including: site audits, detailed design and engineering, business case analysis, installation, commissioning, and measurement and verification to international standards. • The savings from a typical ESCO project are used to pay back the capital investment over the lifetime of a project (typically 5-20 years). • The ESCO assumes performance risk for a project in the form of a long-term performance guarantee (to ensure savings materialise and are preserved over time). • Typical instrument is the Energy Performance Contract (EPC).

  3. GHG Abatement Curve

  4. Energy Efficiency is the Lowest Cost Strategy Most economically viable and readily addressable opportunities are related to buildings.

  5. EU Building Sector

  6. Europe’s buildings waste €270 billion of energy every year

  7. Energy Performance Contracting • EPC is an innovative financing technique that repays the cost of projects through the cost savings they produce. • Advantages: • Provides building owner with access to outside capital for projects by transferring the risk to the ESCO. • Guaranteed Savings. • Reduced operating costs of a building. • ESCO provides a truly turnkey solution. • Comprehensive measure for a facility (deep retrofits). • Immediate improvements are made; • Buildings upgraded with modern, reliable energy efficiency equipment. • Comfort conditions are improved for occupants. • Reduced carbon emissions • Creates Jobs. • Proven process.

  8. Energy Performance Contracting II • EPC has been used in the public and institutional sectors (esp. in NA) for the last 20+ years. Performance Contracting Activity in US by Building Type

  9. EPC – The Model

  10. EPC – The Process Changes in energy use accounting Contract closure Preliminary study Preliminary audit Detailed analysis Implementation Guarantee phase Planning, installation, project management Energy Saving Guarantee measurement & verification service (IPMVP) Detailed engineering study Enough inefficiency to fund an improvement programme? Level of savings delivered over what period? What are the finance & contractual arrangements? How do I know the savings are being delivered to pay for the programme?

  11. EPC – A Bundle of Measures Roof Insulation Lighting replacement, control systems & LEDs Ventilation fans Building Management Systems Damper control Solar gain minimization Wall Insulation Zone temperature control Voltage reduction Chiller upgrade/replacement & absorption cooling Plug load management VSD motor control On-Site Technical Resource Management Boiler upgrades, controls Combined Heat & Power High efficiency motors

  12. Why use EPC? • Can be completely self funded • Transfers financial and equipment performance risk to the ESCO – if the savings target isn’t made, the ESCO pays the difference, it’s guaranteed ! • Immediate improvements are made • Buildings upgraded with modern, reliable energy efficient equipment • Comfort conditions are improved for occupants • Carbon reduction • Creates new jobs & generate work for SMEs • Proven process, used for more than 30 years The EPC programme money is already in the building owner’s budget, currently paying for wasted energy !

  13. EPC – Barriers & Solutions • EPC is a successful model throughout North America, yet only exists in pockets in Europe. • Key Barriers include: • Lack of awareness and trust. • Reluctance or not able to access third party financing (financing itself is not an issue). • Procurement process. • Administrative and legal barriers. • Selective financing. • Lack of policy clarity and incentives. • Over-reliance on government funding. • Accounting and budgetary rules. • Possible solutions includes: legislative and governmental support, removal of administrative & legal barriers, accounting rules, continued promotion, standardisation, and continued focus on energy efficiency.

  14. adam.mccarthy@jci.com Johnson Controls

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