Energy Services / Third Party Financing as an Instrument in Municipal Energy Policy Energy Services / Third Party Financing as an Instrument in Municipal Energy Policy DDI Jan W. Bleyl, Graz Energy Agency Ltd, Austria phone: ; internet:

Overview of Content 1.Why energy services 2.What exactly is an energy service? 3.Some Good Practice 1.Small Community Building Pool, Kichbach, Austria 2.Refurbishment of Street Lighting: City of Laa, Austria 3.> 300 public buildings in Berlin: „Energy Saving Partnership“ (ESP), Berlin, Germany 4.Succes criteria and recommendations

The Question: Can buildings be made more energy efficient and more economical at the same time?  without (or only little) own investment capital ?  with guaranteed total cost or guaranteed savings ?  with innovative technologies ?  with individually compiled services

The Answer: Energy services (= Contracting)

Energy Service Models PERFORMANCE CONTRACTING Energy management system, thermal insulation, optimizing operations Energy service DELIVERY CONTRACTING e.g. replacing boilers, fuel change, biomass heating, CHP plant, solar systems Useful energy SUPPLIER (UTILITY) Electricity, district heating, heating oil Final energy Primary energy

Types of Energy Services 2/2 nEnergy service company (ESCo) designs, constructs, operates and finances the energy supply facilities nESCo is responsible for purchasing of fuels (gas,...) nESCo delivers useful energy (heat, electricity, compressed air) with guaranteed prices (all inclusive) nPayments depend on actual consumption Delivery Contracting Energy Performance Contracting nESCo designs, constructs, operates and finances energy saving measures in the building nESCo delivers energy services (tempered rooms, illuminated work areas, air exchange etc.) at fixed prices (Contracting - rate) nESCO guaranties max. energy consumption/cost and is financially responsible for deviations (bonus- malus)

What is an energy service? Techn. components Producers, construction, operation&maintenance! (Primary) energy Electricity, gas, wood, fuel oil Money Equity capital, banks, leasing institutions,... Know-How Engineers, architects, consultants, innovation? Kunde Energy Service Company (ESCo) useful energy / savings at guaranteed prices Client

Contracting: a customized service package Investment, financing Operation & maintenance Outsourcing of economic and technical performance risks Functional, performance and price warranties Consulting, planning Tendering, construction Service Package Contracting

Delivery Contracting - Business Model InvestmentEnd of contract Basic or service price (fixed) Energy delivery contract investment and financing costs relating to operation risk share of of construction costs (e.g. subsidies) or payment of the residual value to the contractor annual costs Time Present state Overall energy costs fuel; electricity; maintenance; repair (substitute investment); personnel expenditure; other overall costs price adjustment (wage, maintenance index) overall costs, contracting Energy price (acc. to consumption) costs relating to consumption (fuel, electricity) price adjustment (oil, electricity index)

Performance Contracting - Business Model contribution to building costs (e.g. subsidies) or payment of the residual value to the contractor Payment to ESCo for prefinancing the investment increased comfort + added value (NEBs) maintenance and repair taking over risks EPC contract contract ends Service life of the investment Energy costs after refurbishment Saving investment Overall energy costs (new)... Present costs = baseline Present state annual costs Time Overall energy costs fuel; electricity; maintenance; repair (substitute investment); personnel expenditure; 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

Advantages of contracting models (client perspective): Saving investment costs through third-party financing and (part-) Repayment from savings; Eliminating deficiencies and increasing the value and comfort of the building; Shifting technical and economical risks to the ESCo; Warranted savings and energy prices; Focusing on the key business; One contact person for all matters (one face to the customer); Long-term increase in the revenue from the property The objective is to create a win-win-win situation for all parties involved. The image and environment profit just as well.

EPC Community Building Pool 1/2 The city of “Biberach” has approximately inhabitants. 4 of the communal buildings were in need for energetic rehabilitation and modernization: municipal office (1987), fire brigade (1985), primary school (1987) and kindergarten (1975) Total investment: 111,000 € (incl. VAT) Building measures Technologies measures Organisational measures

EPC Community Building Pool 2/2 Contracts and cash flows FINESCOCLIENT 1. framework c. 2. purchase c. FINESCOCLIENT total investment (111,000 €) Client pays contracting rates (cession) Cash flows: energy service contract with savings guarantee Finance lease agreement Innovative aspects: ??? -> No, this is standard! Contracts:

Refurbishment of street lighting 1/3 Total investment: 450,000 € (excl. VAT) The refurbishment measures included: Some 167 light points in the main streets, including masts, digging, wiring and switching units. Auxiliary services like removing of old instal- lations, assembling of new street lights, protective earthing, some 57 lamp posts are equipped with illuminated advertisement boards (size A0) to generate an income to the city Source: RL 2005

Refurbishment of street lighting 2/3 Financer (FIN) and customer (CUST) have concluded a financing lease agreement. The investment is repayed over a contract period of 15 years by the city. The new street lighting is planned and built by an ESCO by order of FIN (purchase contract). There is no direct contract relationship between ESCO and CLIENT. By renting out the advertising boards on the lamp posts, the city generates an additional income. More over, a part of the investment is VAT deductible by a contractual differentiation between “sovereign community tasks” and “income from rent and lease”. Thus approximately 5 % (21,000 €) of the investment is cut down „on-off“ plus the additional income from renting the advertising boards. Source: RL 2005

Refurbishment of street lighting 3/3 Contracts and cash flows FINESCOCLIENT total investment (450,000 €) client pays monthly rates (180 rates) Cash flows: Innovative aspect: contractual differentiation between sovereign community tasks and income from rent and lease  Cut down of the investment and additional income from renting for the community. Source: RL 2005 FINESCOCLIENT purchase contract Finance lease agreement Contracts:

Saving Potentials in Public Buildings – „Energy Saving Partnership“ Berlin Source: Berlin Energy Agency 2002

Energy services – opportunities, risks and success criteria Decision criteria: In house Energy Service Investment costs 100 % 0– Economic and technical risks Owner Contractor Facility that is adjusted and maintained optimally and operative only at a high own commitment Own interest of the contractor Performance warranties (e.g. maximum consumption, efficiency) No Yes ! Functional guaranties only warranty period over total contract period Cost limits (e.g. investment, prices) No Yes Long-term contractual obligation No Yes Project coordination / know-how Consultant + ESCO Service package / outsourcing No Yes Size of the building / facility any Floorspace > 2,000 m² Energy costs > 20,000 € /a Life cycle costs usually higher usually lower building owner + engineer

Conclusions and Recommendations 1.Energy services – delivered by ESCos - are a well proven instrument to succesfully implement energy conservation measures. => We recommend to publicly call for tenders and compare offers to „in house“ solutions. 2.Project development and implementation requires a lot of effort and experience (functional tendering, awarding of contract, model contracts,...). => To support the process, we recommend to cooperate with an experienced consultant (e.g. energy agencies) 3.The European Community supports the energy service approach, e.g.:  The energy end-use efficiency and energy sercvice directive will (hopefully) come,  www. Eurocontract.net supports market implementation in 9 European member states.  Could your buildings profit from Energy Services?

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