1. ENERGY PERFORMANCE CONTRACTING (EPC) FOR PUBLIC BUILDINGS An E-Learning Introduction for Practitioners and Decision Makers. Training period: 2016/17 Welcome to the EnPC-INTRANS e-learning course. You may control the learning speed yourself. When you click  …  on any of the slides you will open a box with additional learning input. The numbers show the proposed reading order of boxes. Clicking an open box will close it. Clicking the blank space of a slide means to stop an animation or to switch to the next slide. Enjoy your EnCP-INTRANS E-Learning Course !  C l i c k

2. DISCLAIMER: Neither GIZ nor any other consortium member nor the authors will accept any liability at any time for any kind of damage or loss that might occur to anybody from referring to this document/presentation/event. In addition neither the European Commission nor the Agencies (or any person acting on their behalf) can be held responsible for the use made of the information provided in this document/presentation/event. Please, proceed to the next slide only after carefully reading this disclaimer !

3. The EnPC-INTRANS project Slide N° 3 10 Partners from 9 Countries Germany Greece Slovenia Serbia Latvia Romania Slovakia Croatia Ukraine www.enpc-intrans.eu  (1) You may contact all partners through our project website: www.enpc-intrans.eu.www.enpc-intrans.eu  (2) You may open the partners‘ websites by clicking their logos

4. Slide N° 4 Actual annual energy cost Implementation of energy saving measures agreed in the energy performance contract EPC guarantee period time Energy cost prior to energy saving measures Reduced energy cost Continued savings of the public building owner End of EPC contract Saved energy cost of the building owner may compensate (in whole or in part) for EPC fees An ESCO provides an agreed service-package, including technical improvements (investments) on the basis of an EPC contract. ESCO = Energy Service Company EPC = Energy Performance Contracting EE = Energy efficiency Source: GIZ The concept of EPC for public buildings Guaranteed energy savings        (7)  (8)  (9)  (10) (3) During the first period of contract duration (preparatory phase), the agreed energy saving measures (technical installations etc.) are implemented (1) Characteristics of Energy Performance Contracting (EPC) in public buildings:  EPC is a contractual service arrangement between a public building owner and an ESCO including an energy savings guarantee provided by the ESCO.  EPC is a tailor-made package of quality energy performance measures including the planning, financing, implementation, and monitoring of technical improvements and energy management services.  EPC provides for the payment of the contract price (minus subsidies) from fixed annual service fees reflecting the achievement of guaranteed savings.  The EPC service fees do in the ideal case not exceed the monetary value of guaranteed savings in the baseline year (fixed price basis).  In the of deep renovation of buildings additional cash flows are required e.g. from subsidies, donations or building owner’s own funds. (4) The guarantee phase starts when the agreed measures are completed and the new installations, contructions etc. are accepted. (6) During the period following the end of contract duration, the continuing savings remain in the building owner’s pocket. (5) Energy savings achieved during contract duration compensate (in whole or in part) for the agreed service fees during the guaranteed period. (2) Energy consumption and cost (on a fixed price basis) during the reference year are representing the baseline for the verification of guaranteed savings and for the calculation of EPC service fees.

5. Major advantages of EPC compared to traditional owner-directed ways of project implementation are: The building owner transfers its investment risk to the ESCO. Energy efficiency improvements are guaranteed by the ESCO, and the payment of EPC service fees is linked to the achievement of these guarantees. The ESCO's technical know-how and professional energy management services are used by the building owner. The building owner is relieved of essential planning and operating tasks. Authorities doing EPC on a regular basis appreciate also the model's flexibility. (source of arguments : Transparense 2011) Slide N° 5 Advantages of EPC for the public building owner

6. Slide N° 6 EPC business models Guaranteed energy savings (compared to baseline) Planned investments No investment cost (prior to investment stage)  (2) The most common EPC business model (here called EPC basic) aims at facilitating investments in technical energy saving measures (ESM) creating a relatively high energy saving effect (fast-paying energy saving measures) and is financed (usually in whole) from guaranteed energy savings over a contracting period of typically 5-15 years.  (1) Although the basic concept of EPC is always the same, different business models may apply, depending on the ambition of energy saving guarantees, and the complexity and volume of planned investments.  (4) EPC plus applies when services of the ESCO are including, in addition to fast-paying energy saving measures (ESM), comprehensive structural measures on the building shell like insulation of roofs and walls, window replacement, and non-energy related measures like e.g. rehabilitation of structures, renovation or new installation of non-energy related facilities, renovation of interiors, etc. Additional payments (in addition to EPC service fees based on guaranteed savings) and long contract durations (often more than 15 years) are required in EPC plus projects.  (3) EPC light stands for improvements of EE achieved by means of contracted energy management services aiming at the achievement of guaranteed energy savings little or no investment in technical facilities. Service fees are paid from savings. Contract duration is very short (e.g. 2-3 years).  (5)  (6)

7. Slide N° 7 Specific features of EPC business models EPC lightEPC basicEPC Plus Scope of investment Only equipment and operating costs. Investments only in fast- paying energy saving measures. Investments in comprehensive rehabilitation (deep renovation) of buildings including non-energy related measures. Energy saving guarantees Typically 10-20 % Typically 20-60% Ideally >70% Contract duration In most cases 2-3 years In most cases 5-15 years Often >15 years State of building and planned investment All public buildings with energy saving potentials. The building still serves its purposed, but energy systems installed and used in the building are outdated and inefficient. Building does no longer serve its (current or future) purpose. Building and installed energy systems are outdated and/or dysfunctional, deep renovation is planned. Design and planning of the EPC project Building owners or local facilitators. Building owners or local facilitators.in cooperation with contracted architects, and engineers. Installation and operation of equipment and facilities ESCO This table is continued on the next slide.next slide  (1) Major differences between the three types of business models are related to: - Scope of investment – - Ambition of energy saving guarantees – - Necessary contract duration -

8. Slide N° 8 Specific features of EPC business models EPC lightEPC basicEPC Plus Ownership of installations All installations property of the building owner. Ownership of all equipment and facilities installed in a building is usually transferred to the building owner at the date of acceptance as stipulated in the contract. Services (operations) included in the scope of a project. Management services: Energy accounting and management. Verification of energy bills. Measurement of actual energy consumption and verification of achieved energy savings. Grant applications and approval procedures. Operational services: Optimisation of operation and maintenance. Sometimes additional: auditing and certification procedures. Financing ESCO pays only staff cost. ESCOs own equity, loans, subsidies, financial contributions from the building owner. Calculation of necessary EPC service fees on the basis of guaranteed energy savings Sufficient to provide for the amortisation of all cost of the ESCO +ESCO’s profit. Sufficient to provide for amortisation of plan-ning and investment cost (- subsidies), financing, services, and maintenance cost, (+ ESCO’s profit). Sufficient to provide for the amortisation of planning and investment cost related to fast- paying ESM (- subsidies), financing, services, and maintenance cost (+ plus ESCO’s profit). Additional financing options that may help reducing EPC service fees. Usually not necessary. Down-payments for a part of the public building owner’s up- front cost (reduction of the investment cost of the ESCO). Subsidies on interest rates paid by the ESCO (reduced financing cost). Subsidies on specific technical measures (e.g. feed-in tariffs for renewable energies). Pay-back of investment Completely from guaranteed energy savings. Partially from guaranteed energy savings. The remaining share paid separately (e.g. up-front).  (1) A more detailed comparison of EPC business models is available here.here

9. Selection of EPC projects/business models Slide N° 9  (2) If a building is still functional, but its energy facilities are outdated, obsolete, or need upgrading to new standards, EPC basic may apply if the guaranteed savings are sufficient pay (usually in whole) for the necessary energy saving measures during an acceptable period of contract duration. Contract duration in the range of 5-15 years should be acceptable  (1) If a building and the installed energy systems are technically up-to- date, EPC light will most probably be sufficient in order to activate energy saving potentials resulting from optimized energy management and improved consumer behavior. Only little ore no investment is required. Contract duration may be very short (e.g. 2-3 years).  (3) If a building needs deep renovation, including both energy saving measures and non-energy related rehabilitation measures, EPC plus may usually apply only if additional payments (in addition to EPC service fees based on guaranteed energy savings) are possible, and long contract duration (often more than 15 years) is acceptable. Additional payments may be financed from subsidies for the EE rehabilitation of public buildings, from national or regional EE funds, from international donor funds, or from the building owners’ own funds.  (4) If an old building is deeply run- down, or inadequate for the intended future use, replacement by a newly constructed building may be more economical than renovation. In this case EPC does not apply.

10. Economics of EPC projects can be assessed from two different points of view: From the Building owner’s point of view: Comparison of annual EPC service fees and the value of guaranteed savings: EPC is the most attractive if annual EPC service fees are less or equivalent to the monetary value* of annual guaranteed savings. From the ESCO’s point of view: Assessment of net present value (NPV) of cash flows during contract duration: EPC is the more attractive the higher the total NPV of all cash flows in the project. Assessment of the internal rate of return (IRR) of the EPC is the more attractive the higher the IRR of the project. * The monetary value of guaranteed savings is in EPC contracts in general calculated on the basis of energy prices actually paid in the baseline year (fixed price basis). Slide N° 10 Economics of EPC projects  (1) The EnPC-INTRANS training tool for the demonstration of economic pre-feasibility assessment of EPC contracts from a commercial point of view may be downloaded here together with the relevant user instructions here  (2) Calculation of the monetary value of achieved savings on a fixed price basis reduces the economic project risk for both the ESCO and the public building owner. If the actual energy price would increase in the future, which is the most likely, the additional benefit would remain in the building owner’s pocket while the ESCO still receives the agreed EPC service fees. If the actual energy price should decrease in the future, the public building owner would still have to pay the full amount of agreed EPC fees, which helps to ensure the economic sustainability of both the EPC project and the ESCO. This effect will be compensated by additional gains of the public building owners during the next period of increasing energy prices.

11. Slide N° 11 Economic pre-feasibility assessment of EPC projects Challenge: In order to attract qualified bids, projects must be economically feasible also from a commercial point of view.  (1) The EnPC-INTRANS training tool for the demonstration of economic pre-feasibility assessment of EPC contracts from a commercial point of view may be downloaded here together with the relevant user instructionshere  (5) The expected interest rate on own equity, respectively the minimum required Internal Rate of Return i1 are company-specific values. If no other information is available, i1 may be set equal to the interest rate for bank loans under current market conditions i2.  (6) The annual discount rate i3 is usually a company-specific value. If no other information is available, it may be set equal to the minimum required Internal Rate of Return i1.   (3) In EPC basic business models, public building owners do usually not have, and would also not accept, to pay any extra up-front to the ESCO.  (4) In EPC basic business models EPC service fees are usually equivalent to the monetary value of guaranteed savings in the baseline year. If EPC service fees would be less than 100% of the value of guaranteed savings, a part of the savings would remain in the building owner’s pocket during the guarantee period already, but contract duration would have to be extended. (2) At an early stage of project development, expected savings are resulting from rough analysis or performed energy audits. Must be verified by means of fine analysis performed by the contracted ESCO prior to implementing agreed energy saving measures.  (8) This example is calculated on the basis of market conditions assumed for Germany in 2016.  (7) NPV > 0 means that the project may be economically feasible under the assumptions made.

12. Slide N° 12 Economic pre-feasibility assessment of EPC projects Economically feasible project (from a commercial point of view): Accumulated total revenues (NPV) exceed accumulated total cost (NPV) during contract duration (12 years). Economically not feasible project (from a commerical point of view): Accumulated total revenues (NPV) are less than accumulated total cost (NPV) during contract duration (8 years). (Results of a sensitivity analysis performed by means of the EnPC-INTRANS demonstration tool. Same project, different contract durations) Revenues (NPV) accumulated Cost (NPV) accumulated  (2) If contract duration is cut too short, the same project may no longer be economically feasible.  (1) If the NPV of all revenues accumulated during contract duration exceeds the NPV of all cost accumulated during contract duration, the total NPV of the project is positive (>0). This means that the project may by economically feasible from a commercial point of view with the assumed contract duration.

13. Third party financing (TFP) Slide N° 13 Credit of ESCO Credit of customer (building owner) Building owner ESCO Investor/Bank Implementation of agreed measures. Guarantee of savings. Payment for services and repayment of investment cost. Granting of a loan. Payment of the loan. Building owner ESCO Investor/Bank Implementation of agreed measures. Guarantee of savings. Payment for services Payment of loan from achieved savings. Granting of a loan. In developed EPC markets, the most common financing model for EPC is third ‐ party financing Credit of ESCO (with sale of claims / forfaiting/factoring) Building owner Implementation of agreed measures. Guarantee of savings. Payment of loan from guaranteed savings (& objection waiver) Granting of a loan. Payment for services Sale of claims Factoring agent ESCO Investor/Bank           (10) The public building owner pays a share of the EPC service fees (agreed annuities) directly to the bank, or the involved factoring agent. (4) The EPC service fees paid to the ESCO cover the total cost of the project minus financing cost and pay-back of the loan. (3) The public building owners is due for the payment of annuities to the bank. (5) In more developed markets banks get used to the business model. ESCOs offering EPC services get better accepted as creditors by commercial banks. (6) The loan is given directly to the ESCO which pays for the total investment cost. (7) The ESCO is due for the payment of annuities to the bank. (8) Sale of claims / forfaiting / factoring are means to further reduce the risk of the bank and the risk premium the bank has to take from the ESCO. Finally, this concept aims at reducing the overall cost of the project and the necessary EPC service fees to be invoiced by the ESCO. (9) The ESCO sells its claims to the lending bank (either directly or through a factoring agent), often accompanied by a waiver of objections issued by the public building owner. (2) The public building owner takes the loan and pays itself for the investment cost. (1) In newly emerging markets for ESCO/EPC businesses commercial banks do usually not yet trust this business model and are therefore reluctant to financing ESCO/EPC projects. In such a situation the public building owner may be better accepted by the banks as a credit customer. It ma take the loan and guarantee the payment of annuities to the bank. The public building owner may in such a situation often get better loan conditions (cheaper interest rates) than a private ESCO, which helps reducing the overall project cost.

14. Selection criteria for EPC projects Slide N° 14  Current energy cost are high (e.g. > 100,000 €/y)  Energy facilities are obsolete, or non-functioning, or new standards are to be achieved.  Future use of the building for the planned purpose is ensured (for at least 15 years, or more). In the ideal case all three criteria are fulfilled in an EPC project. Sources of data underlying the selection of buildings for EPC may be: Energy audit or Energy Performance Certificate (if any existing). Data on energy consumption (invoices etc.). Contracts on energy delivery, energy management etc. Results of on ‐ site inspections. Etc.  (2) If the installed energy facilities are up- to-date and work efficiently, investments in the further improvement of energy efficiency may probably not pay off within an acceptable period of time (EPC guarantee period)  (1) If the total amount of current energy cost is too low, the monetary value of achievable savings will in many cases not be sufficient as to allow for the repayment of the cost of an EPC project from guaranteed savings.  (4) A checklist for on-site inspections (rough analysis) performed during the preparatory phase of an EPC project is available for free download here.here  (3) Achievable savings depend among other things on the type and intensity of building use. If a building is not used at all, or not for the same purpose than during the reference year any more, measurement and verification of energy savings compared to the baseline year will be very difficult further on and may cause debate between the building owner and the ESCO. For the building owner, the concept of paying the agreed EPC service fees from guaranteed savings may not work if a building is not used during the entire guarantee period, or if its type of intensity of use changes substantially at some stage during the guarantee period.

15. Development of an EPC project (6) Procurement procedures have to follow EU and national public procurement rules. P R O C E S S E S Selection of building Acceptance of installations M I L E S T O N E S         (2) Political commitment (at national and local level) to improve EE in public buildings is the major pre- condition for EPC projects. If this is given, a public owner’s building stock may be screened for the identification of major energy saving potentials and for the selection of buildings most suitable for EPC projects (see also the previous slide).see also the previous slide (4) For each building taken into consideration, rough analysis of building conditions and saving potentials has to be performed in order to provide a sound basis for the development of tendering documents. (3) Final selection of buildings should take into consideration political priorities (visibility, public interest) as well as economic and technical saving potentials per building (5) Decision to use EPC instead of implementing a project in the traditional owner- directed way, should be taken on the basis of comparative economic assessment of options. Limitations, if any, of the public building owner’s technical and financial capacities should be taken into consideration. (see also the next slide).see also the next slide Slide N° 15 Source of the underlying chart: Transparense.eu  (1) The development of an EPC project may be organized in 5 subsequent phases, which may be characterized by specific processes and aim at crucial milestones of project development. It should be supported by local facilitators, wherever the public building owners technical capacities and experiences with EPC projects is not sufficient to develop EPC projects on its own. (9) Continuous monitoring and verification of actually achieved savings (compared to the baseline) takes into consideration external influences (weather conditions, building use, user behavior, newly installed energy consumers etc.). Transparent calculation methods have to be provided in the EPC contract in order to avoid unnecessary debate. (6) Data given and assumptions made on the basis of the rough analysis performed during tender preparation have to be verified at the first stage of EPC contract implementation. (7) Agreed measures, if confirmed on the basis of fine analysis performed by the ESCO are implemented during the preparatory phase of EPC contract implementation (prior to the commencemen t of the guarantee period). (8) The guarantee period starts when all agree measures are completed by the ESCO and accepted by the public building owner on the basis of provisions made in the EPC contract.

16. Strategy development Most important question is whether the building owner should implement the project on its own (budget-financed), or via an EPC (ESCO-financed). Slide N° 16  (2) If budget funding is possible for the entire project cost, there are still important potential benefits of EPC to be taken into consideration (e.g. transfer of risk, mobilization of ESCO’s technical know how and service capacities).  (1) This basic information was gained during on rough analysis performed at the pre- tendering stage.  (4) The lack of own budget for the financing of investments in EE improvements is still the major incentive for many building owners in emerging ESCO markets to make use of EPC business models.  (3) Public building owners are always obliged to go for the “most economical option”. Therefore, permitting of EPC projects in public buildings is often depending on the proof of economic advantages of EPC projects compared to traditional (owner-directed) public investment projects for the building owner (additional benefits are often not taken into consideration by permitting authorities). Although this has been proven already in many completed EPC projects in Europe in ex-post evaluations, major barriers for the permitting of EPC projects may still occur from: - a lack of permitting authorities trust in EPC business models – - a lack of experience in the comparative assessment of EPC projects - - a lack of a life-cycle-cost perspective in public investment planning, and – - a lack of accepted methods for such a comparative assessment when performed ex-ante during permitting procedures – It is therefore recommended to study the national budget laws and regulations carefully in advance in order to make sure that the results of comparative assessment of EPC project economics are finally accepted by relevant permitting authorities.

17. Role of local facilitators Slide N° 17 Local facilitators shall support all process steps of EPC project development Local facilitators may be: Local or regional energy agencies Engineering offices Legal advisers Architects Economists They should have a sound knowledge and understanding of: Techniques and economics of EE in buildings Public procurement procedures and codes of conduct EPC concepts and business models Local energy agencies, if financed by municipalities’ membership fees may sometimes be involved without any tendering. Contracting of commercial local facilitators has usually to follow standard services procurement procedures.  (1) As most of the public building owners in Europe have neither and experience with EPC projects, nor the necessary technical know-how and capacities to develop EPC projects on their own it is recommended to involve qualified and experienced local facilitators acting at all stages of EPC project development, implementation, monitoring and verification on behalf of the public building owner. The cost for the services provided by local facilitators are usually not included in the EPC contract, but paid on the basis of separate service contracts. This allows the contracted facilitators to act, independently from and ESCO, solely to pursue the interest of the public building owner.

18. Scope of rough analysis of the current situation of the building and existing energy saving potentials Slide N° 18 EPC EPC light Energy management services Basic information on the building EPC basic Energy management services & Rehabilitatio n of energy systems EPC Plus Energy management services & Rehabilitation of energy supply systems and energy consumers & Deep renovation of building envelope, structures, ínstallations, facilities, interiors etc. Scope of the assessment of saving potentials (bottom-up analysis): Rehabilitation needs and saving potentials related to the deep renovation of the entire building, including walls, windows, roofs, structures, basements, installations, technical facilities etc. Rehabilitation needs and saving potentials related to energy supply systems and energy consumers, including rehabilitation potentials. Saving potentials resulting from an evaluation of energy consumption data, energy controls, energy management, and user behaviour without any major investment planned. Building type, year of construction, shape, size, type of use, structural characteristics, installed technical facilities etc. + + +  (2) The scope of the rough analysis has to be adjusted to the complexity and ambition of the intended EPC project.  (1) This rough analysis has to be performed at a very early stage of the project development process providing among other things the basic information needed for the compilation of the tender document. This rough analysis has to be verified by the contracted ESCO during the first phase of project implementation.  (4) The basic information on the building is required as the basis for the planning of any kind of EPC project.  (3) A checklist for on-site inspections (rough analysis) performed during the preparatory phase of an EPC project is available for free download here.here  (5) Rough analysis for the preparation of an EPC light project may focus on the assessment of energy saving potentials related to improved energy controls, facility management, management of building use and user behavior without any major investment.  (6) In most of the EPC projects (usually developed on the basis of EPC basic business model) the analysis is focusing on the identification and assessment of fast-paying energy saving measures creating a relatively high energy saving effect per invested amount. This may include the improvement. Rehabilitation, or replacement of outdated and inefficient energy supply and distribution infrastructure in a building. Many projects include also a fuel switch e.g. from decentralized heating to district heating, a switch from heating-only to combined heat and power generation units, or afuel switch from fossil to renewable energies. Additional measures like e.g. thermal insulation of hot spots, may also be of interest.  (7) Deep renovation of a building (EPC plus) requires comprehensive analysis of all building components, in order to allow for developing an outline of a comprehensive refurbishment program for a building, which may be discussed e.g.in competition to concepts for the construction of a completely new building instead.

19. Non-confirmation of rough an analysis, or confirmation, but decision against EPC if no qualified bidder Two-stage negotiated tendering procedure (based on EUROCONTRACT project development models) Slide N° 19 Evaluation of Building data Determination of energy costs baseline Determination minimum saving guarantee requested Compilation of tender dossier Project-specific adjustment of the EPC contract template Publication of contract notice Expression of interest from ESCOs Selection of 3-10 qualified bidders (short list)* Tender preparation based on rough analysis and submission by ESCOs Vetting and assessment of received bids* Negotiations & selection of most economic offer(s)* Stage 1: Fine analysis with regard to energy Detailed validation of potential energy and cost savings Comparison of results, final decision of client Request for tenders Cancellation of the tendering procedure Cancellation of the tendering procedure Compensation for planning cost Contractin g local facilitators recommended Setting up of project control committee Selection of buildings Supporting the build owner (project control committee), or acting on its behalf Project preparations Invitation to tender, rough analysis, award of contract Contract Stage 2: Implementation of EPC if no economic offer Cancellation of the tendering procedure Contract stage 1: Project planning contract Fine analysis Start of Stage 2 of contract * According to national legislation a minimum number of bidders and/or received bids may be requested at first and/or second stage of the tendering process.  (2) The fist step in the preparation of tendering procedures should always be the contracting of a local facilitator supporting the public building owner during the tendering process and beyond. (see also slide 17)slide 17  (1) Practitioners recommend using the two-stages approach for the tendering of EPC projects, because : Project preparation effort is relatively little prior to entering into the tendering stage A major share of the project planning cost is transferred into the contract scheme and may be included in the services covered by EPC fees. Detailed planning is performed by the ESCO during first contract phase. Little up-front cost are to be paid by the building owner.  (4) At least 3-5 ESCOs (if no other stipulations made in national law) should be invited to submit their tenders. If more than 5 ESCOs submit their applications, transparent selection criteria must be applied, such as e.g. : Qualification criteria, for example:  Economic capacity of the ESCO measured in turnover in energy services and in particular in EPC.  Number and relevance of (up to 5) own reference projects based on ESCO/EPC business models. Eligibility criteria, for example: Professional or trade register extract Proof of liability insurance (with minimum coverage level) Legally required licenses and certificates Corporate structure (legal status, statutes, shareholders) Declaration concerning payment of legal taxes and duties Number of employees (e.g. during the past 3 years) Economic, technical, and financial capacities. Additional criteria, for example: Commitment to the European EPC Code of Conduct Clear information on the selection criteria and ratings must be included in the tender dossier, resp. in the Call for Expressions of Interest.  (3) Rough analysis of the building conditions and existing energy saving potentials provides the basic input for the tender dossier.  (5) Proposed election criteria for the identification of best initial tenders: PROPOSAL A (Source KEA) Project concept (weight 50%)  Assessed may be the quality and comprehensiveness of measures which were not declared to be mandatory. (Tenders which do not provide all mandatory measures will not be further evaluated.) Net present value (NPV) of guaranteed savings (weight 20%) NPV of guaranteed savings achieved during a standard period of e.g. 20 years (fixed prices, fixed discount rate) Net present value (NPV) of net income of building owner (weight 20%)  Difference between the NPV of guaranteed savings and the total expenses of the public building owner (EPC fees etc.) during a standard period of e.g. 20 years (fixed prices, fixed discount rate) CO2 emission reduction in tons/ y (weight 10%)  (6) Subject of negotiations with ESCOs may be, for example: Extent and quality of the designed measures Preserving requested the parameters of internal environment, observing the existing standards and laws, compatibility with the existing equipment Time schedule of activities Calculation of guaranteed savings in referential and real prices Determining the reward for the applicant, and the share of the contracting entity on extra savings Contracting entity requirements, call to adjust the tender  (7) Stage 2 of the contract starts only if the fine analysis confirms the assumptions made during tender preparation on the basis of previous rough analysis.

20. if no economic offer, or if decision against EPC if no qualified bidder among expressions of interest Single-stage negotiated tendering procedure (based on EUROCONTRACT project development models) Slide N° 20 Evaluation of Building data Determination of energy costs baseline Determination minimum saving guarantee requested Compilation of tender dossier Project-specific adjustment of the EPC contract template Publication of contract notice Expression of interest from ESCOs Selection of 3-10 qualified bidders (short list)* Tender preparation by ESCOs including: Inspection of the buildings & validation of building data Rough analysis with regard to energy situation of the building Determination of energy and cost savings potentials Presentation of bids by ESCOs Evaluation of bids* Invitation of best bidders for contract negotiations Contract negotiations Selection of the most economic offer and comparison with non-EPC options Request for tenders Cancellation of the tendering procedure Contractin g local facilitators recommended Setting up of project control committee / Selection of buildings Supporting the build owner (project control committee), or acting on its behalf Project preparations Invitation to tender and award of contracts Signature of the EPC contract Planning, guarantees, implementation, * According to national legislation a minimum number of bidders and/or received bids may be requested.  (2) Services of local facilitators during tender preparation have to be more comprehensiv e  (1) Single-stage tendering of EPC projects is possible e.g. if so required by national law.  (3) The tender dossier must be very detailed and specific in technical and economic terms. Rough analysis is not sufficient as the basis for a tender dossier in a single-stage tendering of EPC projects. Therefore the tender preparation cost for a single-stage tendering are usually higher than for a two-stage tendering process. Tendering procedure may however come to an earlier end (contract close).

21. Tendering procedures Typical timeline (two-step procedure – experience of KEA) Slide N° 21 Tendering process stepDuration (source: KEA) Preparation of tender dossiers1-3 months Publication of the contract notice and invitation of expressions of interest- Call for expressions of interest and selection of tenderers1.5-2 months Notification of shortlisted tenderers and invitation to tender- Tender preparation and tenderers‘ rough analysis of the project2-4 months Evaluation of tenders, negotiations with best tenderers, selection of the winning tender1-1.5 months Economic comparison of the EPC with standard solutions (own implementation)0.5 months Selection of the winning tender and awarding meeting of the local council0.5 months Approval of the supervising authority Notification of the winning tenderer of the award of contract, and contract signature 1-3 months Fine analysis including detailed planning of the project by the contractor2-4 months Review, revision if necessary, and approval of the results of the final analysis1-2 months Implementation of agreed measures and installation of facilities4-12 months Total duration from the start of preparation of tender dossier to start of the guarantee period 10-20 months  (2) This example represents experience gained on the German market. How long lead times of EPC project may actually be in advance to the start of compilation of tender documents may depend on political and permitting procedures, which an EPC project may have to undergo under specific national and local conditions prior to the launch of the call for tender. This may vary depending on the local political situation as well as on the existing legal framework. Thorough investigation of the political will to launch EPC projects as well as of the legal and administrative framework conditions (permitting needs and procedures) is recommended prior to investing in the development of EPC projects.  (1) Project development from the compilation of tender documents of a building to the commencement of the guarantee period may take 1-2 years. This long lead time must be taken into consideration in public building owners’ investment plans.

22. Minimum contents of tender documents Slide N° 22 Key requirements  Minimum share of savings on the energy consumption/energy costs  Obligatory and/or recommended energy efficiency measures  Information whether and under which conditions the ESCO is required to provide financing  Deadline for the expiration of EPC contract Formal requirements for tender Organisational aspects  What tasks should be carried out by the ESCO and by the client? Contract terms and conditions  Exact definition of the contractual relationship Technical aspects  Description of the buildings,  Energy statistics (copies of invoices, and data on energy consumption in technical and monetary terms min. 3 years back )  Calculation method for a baseline energy consumption  Operation times, equipment, building use, requirements (temperature, ventilation etc.)  Conditions of energy system and energy management in place A sample of tender documents or an EPC project was published in WORD format in 2013 by the Irish Sustainable Energy Authority SEAI, which can be reviewed here.here  (1) A standard document on public tenders for EPC projects was published by the European Transparense project in 2011, which can be reviewed here.here

23. Major components of EPC contracts Slide N° 23  Guarantee of savings  Volume of investment  Definition of a reference scenario (baseline) of the future energy consumption.  Obligation of the ESCO to provide a report on yearly savings evaluation.  Responsibility of the ESCO for design and implementation of the energy saving measures.  Obligation of the client to provide proper conditions for realization of energy saving measures.  Planned duration of installation of the investment  Way of transfer of the installed energy saving technologies to the ownership of the beneficiary.  Means of payment for the services and savings. Usually these are paid as a monthly fixed advanced payment agreed by both parties.  Declaration of the purpose of operation of the facility on which the Energy Performance Contract is effectuated.  Duration of the contract.  Method of recalculation of the guaranteed savings in case any of the input parameters differs from the presumptions defined in the reference (baseline) energy consumption scenario  (1) A standard document on EPC contracts was published by the European Transparense project in 2011, which can be reviewed here.here

24. Calculation of baselines Slide N° 24 Step I: Collection and list of invoices for energy consumption Step II: Correction for the reference year Fuel/heat consumption Electricity consumption kWh Heat consumption kWh Electricity consumption Step III: Prices correction Step IV: Baseline calculations Step V: Baseline documentation The last completed calendar year (1 st January – 31 st December) preceding the EPC project is usually used as the reference year (baseline year). Alternatively, in order to make sure that the reference year is representative regarding energy consumption, the average consumption value of the three last completed years maybe defined as baseline consumption. The calculation methodology has to be defined in the EPC contract. Climate adjustment Utilization correction  (1) A model appendix for an EPC contract with calculation instructions for the Determination of Energy Costs Baseline, the Amount of Savings and the Remuneration was published by the Berlin Energy Agency, which can be reviewed here.here  (2) Energy bills are a feasible base for baseline calculation due to their official, independent and testable character. They may be used as follows:  Collect all energy bills for each building with consumption in the baseline year, copy them for the tender documents (ESCOs will need them before final approval of the baseline).  List meter by meter, building by building in one data sheet.  Note extra information (provider, meter number, factors, date of fitting, extra meters..) in the data sheet.  Compare to own meter readings for verification.  (4) Prices correction: Reference prices are fixed for the whole EPC period to secure a constant calculation basis for investments.  List prices for each building/meter (may have different prices).  Take into account consumption and related fix prices (connection power).  Metering prices, basic prices, which cannot be influenced by the ESCO may be left out of the calculation  If necessary give a description of the price system in a comment Usually, reference prices are the actual prices paid during the reference year.  (3) Corrections may be requested with regard to:  Adjustment of billing periods to reference year  If the billing period (100 days billing period) exceeds the reference year (only 60 days of reference year covered by billing period), correction may be calculated as follows:  For electricity consumption: kWh baseline = kWh bill x 60 days/100 days  For heat consumption: kWh baseline = kWh bill x Σ (median temperatures) 60 days / Σ (median temp.) 100 days  Elimination of the influences of exceptional weather conditions: It is very common to use the average consumption of the last three years as the baseline in order to eliminate influences of short-term weather events.  Normalization of the utilization of the building: If, e.g. only 70% of floor space is used/heated during the baseline year, but the entire building is planned to be used/heated in the future, consumption metered for the baseline year should be corrected accordingly.  5) Baseline (€) = (kWhheat * Reference priceheat + kWheat * ReferencepricekW + Fixpriceheat) + (kWhelectr * Reference priceelectr + kWelectr * ReferencepricekW + Fixpriceelectr) Baseline is calculated net – exclusive of VAT, VAT is just rated per each yearly accounting. Verification / plausibility check : Comparison with other years / benchmarks / own meter readings  (6) Part of the baseline documentation, beside its calculation, are  Information about work time (opening hours for public buildings, work schedule, class schedule in schools),  Scheme of yearly events,  Information about facilities and technical equipment per building  Number of employees, pupil, students, hospital bed etc. In summary all equipment and activities in baseline year should be documented as a official part of the tender documents and EPC contract

25. Measurement and verification of savings Slide N° 25 Starting point: Collection and list of invoices for energy consumption Fuel/heat consumption Electricity consumption Step II: Climate adjustment kWh Heat consumption kWh Electricity consumption Step IV: Price adjustment (prices of baseline year) The ESCO has to provide a proof of saving based on energy bills for the contract buildings. It has to determine the adjusted net amount of saving actually achieved. The settlement method is analogous to that for baseline determination. Step I: Day adjustment Step III: Utilization adjustment Baselin e cost Corrected energy cost Adjusted amount of savings - =  (1) A model appendix for an EPC contract with calculation instructions for the Determination of Energy Costs Baseline, the Amount of Savings and the Remuneration was published by the Berlin Energy Agency, which can be reviewed here. here  (2) First, the energy consumption from different bills and meters are allocated to the settlement period (usually a calendar year) to adjust for different numbers of days, if necessary.  (4) If the utilization changes in a contract building, related changes of energy demand are to be determined and assessed under cost aspects. The client has to give notice in due time of any change of use. Methods of calculation for the most common changes in usage can be provided with the contract or the assessment is done based on existing technical rules and standards. If applicable the EPC contract should also contain appropriate calculation rules to account for changes of energy sources, or the use of CHP units in the settlement.   (5) Finally, the energy costs of the respective settlement year are calculated from adjusted consumption values of the supply bills and fixed reference prices.  (6) The energy costs of the settlement year determined in the above listed four steps are deducted from the baseline.  The difference between the two is the objective energy cost saving achieved in the settlement year.  The values have to be determined for each individual building.  After summing up the values for all buildings, the total remuneration is determined as the sum of basic remuneration for the guaranteed saving achieved and (if achieved) the proportional bonus remuneration for saving beyond the obligation.  (7)  (8)  (9)  (10) (3) Existing technical standards (e.g. German VDI 2067) the annual climate is characterized for example as the sum of the degree days. This has to be defined in the contract as the reference value for the adjustment for the reference year. The current annual sum of the degree days is then used to adjust the heat consumption (space heating share, e.g. 90% in schools) for the respective settlement period. Data on regional degree days per period may be investigated here.here

26.  Energy Services Directive; ESD: Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services and repealing Council Directive 93/76/EE Energy Services Directive; ESD  European Energy Services Initiative (EESI 2010): Standard EPC documents; I. Definitions; EESI IEE/08/581/SI2.528408 European Energy Services Initiative (EESI 2010)  Berliner Energieagentur GmbH, SCHLAWIEN – NAAB Partnerschaft ed. (BEA/NAAB): Energy Saving Guarantee Contract - Appendix 8. Calculation Instructions for the Determination of the Energy Costs Baseline, the Annual Amounts of Savings and the Remuneration Berliner Energieagentur GmbH, SCHLAWIEN – NAAB Partnerschaft ed. (BEA/NAAB):  European PPP Expertise Centre (EPEC): Guidance to Energy Efficiency in Public Buildings European PPP Expertise Centre (EPEC)  Institute of Building Efficiency – An Initiative of Jonson Controls (Institutebe 2010): Energy Performance Contracting in the European Union: Creating Common “Model” Definitions, Processes and Contracts. Issue Brief, September 2010 Institute of Building Efficiency – An Initiative of Jonson Controls (Institutebe 2010)  Institute of Building Efficiency – An Initiative of Jonson Controls (Institutebe 2011): Measurement and verification of energy savings. Issue Brief, November 2011 Institute of Building Efficiency – An Initiative of Jonson Controls (Institutebe 2011)  Netherlands Enterprise Agency (RVO): Guideline for Tenders for Energy Performance Contracts Netherlands Enterprise Agency (RVO)  Sustainable Energy Authority of Ireland, (SEAI 2014): Energy Performance Contracts Handbook. July 2014 Sustainable Energy Authority of Ireland, (SEAI 2014): Further reading Slide N° 26 The following publications are recommended for further self-studies. If any of the links is not active any more, these publications may be researched on the world wide web.

27. Further reading  Sustainable Energy Authority of Ireland, (SEAI Draft): A Guide to Energy Performance contracts and Guarantees. Draft for Consultation Sustainable Energy Authority of Ireland, (SEAI Draft)  Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense 2014): D3.1 Energy Performance Contracting Manual for EPC Beginner Markets. December 2014 Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense 2014)  Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense May 2011): Standard EPC Documents – IV. Baseline and verification of energy savings (May 2011) Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense May 2011)  Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense May 2011/2): Standard EPC Documents – Questions and Answers (May 2011) Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense May 2011/2)  Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense January 2011): Standard EPC Documents – III. Public Tender (January 2011) Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense January 2011)  Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense January 2011/2): Standard EPC Documents – V. Energy Performance contracts (January 2011) Transparense IEE Project “Increasing transparency of Energy Service Markets”  UK Department of Energy & Climate Change (DECC 2015): Guide to Energy Performance Contracting Best Practices. January 2015 UK Department of Energy & Climate Change (DECC 2015)  UK Department of Energy & Climate Change (DECC 2012): Contract Guidance Note & Model Contract Energy Performance Contract (EPC) UK Department of Energy & Climate Change (DECC 2012)  U.S. Environmental Protection Agency (EPA; 2007), ENERGY STAR Buildings: Introduction to Energy Performance Contracting. Prepared by: ICF International National Association of Energy Services Companies, October 2007 U.S. Environmental Protection Agency (EPA; 2007), ENERGY STAR Buildings Slide N° 27

28. Imprint This document/file is issued by the consortium formed for the implementation of the EnPC-INTRANS project under Grant Agreement N° 649639 by the following partners: AE3R - Energy Efficiency and Renewable Energy Agency Ploiesti-Prahova (Romania) e-code (Slovakia) EIHP - Energy Institute Hrvoje Požar (Croatia) FIATU - Finance & Technology Ukraine (Ukraine) GIZ - Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (Lead Partner; Germany) KEA - Klimaschutz- und Energieagentur Baden-Württemberg (Germany) CRES - Centre for Renewable Energy Sources and Saving (Greece) KSSENA - Energy Agency of Savinjska, Šaleška and Koroška Region (Slovenia) SCTM - Standing Conference of Towns and Municipalities (Serbia) ZREA - Zemgale Regional Energy Agency (Latvia) Lead Partner for the compilation of this document: e-code Contact: Radoslav Vician, Slnečná 1164, 963 01 Krupina / Slovakia, rado@e-code.sk Authors of this document: Catalin Csaszar (AE3R), Eva-Maria Geiger (GIZ), Miodrag Gluscevic (SCTM), Fotini Karamani (CRES), Olena Kotlyarska (FIATU), Signe Martinkrista (ZREA), Niko Natek (KSSENA), Konstanze Stein (KEA), Mateija Vajdic (EIHP), Radoslav Vician (e code), Bruno Wilhelm (GIZ) Disclaimer: Neither GIZ nor any other consortium member nor the authors will accept any liability at any time for any kind of damage or loss that might occur to anybody from referring to this document. In addition neither the European Commission nor the Agencies (or any person acting on their behalf) can be held responsible for the use made of the information provided in this document.

29. THANKS A LOT FOR YOUR PARTICIPATION IN THIS E-LEARNING PROGRAM! And good success in your future efforts promoting energy performance contracting in public buildings! Lets’s meet at: www.encp-intrans.euwww.encp-intrans.eu