1. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 1/16 Energy Performance Contracting Marcel Didden “Midi de l’éfficacité énergétique” Namur, 12 November 2002

2. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 2/16 Small CV Marcel Didden (marcel.didden@mech.kuleuven.ac.be) 1998Master in electrical engineering, RWTH Aachen 1998 -K.U.Leuven, Energy Institute DSM and IRP in a deregulated electricity market 2000 -K.U.Leuven, Energy Institute Cost benefit analysis of voltage sag immunization methods

3. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 3/16 Outline 1. Introduction 2. Large customers without energy intensive process 3. Energy Performance Contracting 4. Conclusions and future perspective

4. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 4/16 1. Introduction Kyoto commitments in Europe High expectations for energy efficiency - High saving potential known (technical as well as economic) - Market barriers prevent the realization of this potential Governments should help to remove these barriers

5. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 5/16 1. Introduction Different approaches for different consumer-groups 1) Large consumers with energy intensive process 2) Large consumers without energy intensive process 3) Others: Small and Medium Enterprises, residentials Presentation: focus on 2)

6. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 6/16 Large consumers without energy intensive process Electricity: Huge savings potential 1) Motors (50% of overall electricity consumption) - Variable Speed Drives - High efficiency motors 2) Lighting (80% consumption in office environment) - 16 mm TL-lamps - Fittings 3) Process air 4) Cooling

7. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 7/16 Large consumers without energy intensive process Some market barriers in industry: - Short term awareness / Bounded rationality -Reluctancy to adopt new techniques -Split incentives -Disruption in routine -Limited investment capital

8. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 8/16 Large consumers without energy intensive process Approaches: 1) Giving general information 2) Energy audit 3) Outsourcing Company pays fix price for lighting or motors

9. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 9/16 3. Energy Performance Contracting 4) Energy Performance Contracting Third party installs, maintains and bares risk for installation and is only paid for by a part of the savings To good to be true? Some issues: a) stipulation / measurement of the savings b) initial investment c) general confidence in this type of contract

10. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 10/16 3. Energy Performance Contracting a) Stipulation of the savings General question: how to measure savings ? US: many argumentation about these savings - Influence of the weather (especially in heating contracts) - Influence of increase / decrease production

11. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 11/16 3. Energy Performance Contracting - Solution: measurement protocols for different retrofits - 4 different types of measurement in the International Performance Measurement and verification protocol. -Important: measurement costs are 1-10% of retrofit costs For example: Protocol A - If usage of application is constant or known in forehand - Only measurement of power before and after the retrofit - Measurement error to be expected: +/- 20%

12. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 12/16 3. Energy Performance Contracting b) Initial investment Small ESCO’s only get a high-risk loan at the bank Options: i) Guaranteed savings: - Company takes loan at the bank and ESCO gets part of the savings - Savings lower: ESCO pays company extra - Savings higher: surplus is divided

13. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 13/16 3. Energy Performance Contracting ii) Shared savings - ESCO takes loan at the bank, company pays % of savings Pay from savings - Almost the same as shared savings but the payments to the bank are proportional to the actual savings - Not often used since bank demands a very high intrest Guaranteed Savings (GS) vs Shared Savings (SS) - Most contracts in the US are GS - GS paybacks up to 5 years, SS up to 3 years

14. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 14/16 3. Energy Performance Contracting c) General confidence - ESCO’s in the US have bad name due to contracts in the past -Organization (US: National Association of ESCO’s or NAESCO) gives accreditation to reliable ESCO’s End goal: - Tender by company where accredited ESCO’s can apply - ESCO that proves the highest savings, is contracted

15. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 15/16 4. Conclusions -ESCO-market is a good method to overcome market barriers in large companies without energy intensive production process - Regulatory framework has to be set by the government to get a well functioning market: - measurement guidelines - accreditation

16. ENERGY INSTITUTE KATHOLIEKE UNIVERSITEIT LEUVEN 16/16 4. Future Perspective Deregulation: -ESCO-market is expected to grow in future -Also alliances with utilities who want to gain consumers Additional Information NAESCO: www.naesco.org International Performance Measurement and verification protocol : www.ipmvp.org IEA-DSM Agreement: dsm.iea.org  library  Task VI