financing energy efficiency through escos and energy performance contracting
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Financing Energy Efficiency Through ESCOs and Energy Performance Contracting
20 October 2011
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).
GHG Abatement Curve
Energy Efficiency is the Lowest Cost Strategy
Most economically viable and readily addressable
opportunities are related to buildings.
EU Building Sector
Europe’s buildings waste €270 billion of energy every year
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.
Energy Performance Contracting II
EPC has been used in the public and institutional sectors (esp. in NA) for the last 20+ years.
MUSH58%
Federal22%
Public Housing2%
Commercial9%
Industrial6%
Residential3%
Performance Contracting Activity in US by Building Type
EPC – The Model
EPC – The Process
Detailed analysis
Implementation
Contract closure
Changes in energy use accounting
Preliminary study
Detailed engineering
study
Planning, installation,
project management
Energy Saving Guarantee
measurement & verification service
(IPMVP)
Preliminary audit
Guarantee phase
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?
EPC – A Bundle of Measures
Lighting replacement, control systems &
LEDs
On-Site Technical Resource Management
Chiller upgrade/replacement & absorption cooling
BuildingManagement Systems
Zonetemperature
control
Boiler upgrades, controlsCombined Heat & Power
VSD motor control
Ventilation fans
High efficiency motors
Voltage reduction
Damper control
Plug loadmanagement
Solar gainminimization
Roof Insulation
Wall Insulation
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 !
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.
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