1. http://dsm.iea.org Task XVI ”Competitive Energy Services” presented by: with support from: Integrating Demand Side Measures into Energy Supply Contracting Models IEA dsm Task XVI expert meeting, New Dehli, April 1 st, 2008 DDI Jan W. Bleyl IEA dsm Task XVI Operating Agent, DI (FH) Daniel Schinnerl c/o Graz Energy Agency Ltd. Bleyl@Grazer-EA.at, Schinnerl@Grazer-EA.at

2. 2 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at 1 st Thesis Any Energy Supply (also with Renewables) should include Energy Efficiency measures in the building/facility! Otherwise we can not meet Kyoto/EU goals.

3. 3 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Outline 1.Motivation: Why energy efficiency must be first? And even cost effective? 2.A brief introduction to Energy Contracting 3.Proposal of a new Integral Energy Contracting (IEC) model (Energy Supply + efficiency measures) 4.Announcement of pilot project: Call for ESCos 5.Summary, conclusions and outlook

4. 4 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at IEA: Demand-side Energy Efficiency plays major role Source: World Energy Outlook 2006: Global Savings in CO2 Emissions in the Alternative Policy Scenario Compared with the Reference Secenario 65 % Demand-side efficiency measures, ~ 4 Gt CO 2 Reference includes ~ 50 % efficiency improvements (1970 – 2000)

5. © Graz Energy Agency - For requests: Bleyl@grazer-ea.at Global CO 2 Mitigation Cost Curve 2030 (beyond Business As Usual) Negativ Mitigation Cost! Source: McKinsey/Vattenfall 2007

6. © Graz Energy Agency - For requests: Bleyl@grazer-ea.at Global CO 2 Mitigation Cost Curve 2030 (beyond business as usual) Source: McKinsey/Vattenfall 2007 Building Insulation Air Conditioning, Lighting Systems Co-firing biomass

7. 7 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at “20-20-20 until 2020” EU Strategy Facing Climate Change and Security of Supply Main targets until 2020: 20 % reduction of GHG 20 % reduction of energy consumption until 2020  improving the energy performance of buildings,  improving the efficiency of the production, transport and distribution of heating and electricity  minimum efficiency requirements for energy-using appliances  awareness-raising amongst consumers about sensible and economic energy use Increasing of renewable energies up to 20 % of energy mix

8. 8 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at 2 nd Thesis Energy Supply Contracting combined with building efficiency measures could do the job (Integral Energy Contracting)

9. Energy-Contracting: A modular Package with Success Guarantees 2.Financing, Subsidies 4.Operat. & mainten., Troubleshooting, Optimization, User motivation 1.Project development, Rough planning (Functional) Specs. Tendering 3.Detailed planning, Construction, Initial start up Service Package „Energy- Contracting“ Outsourcing of commercial and technical performance risks ! Function-, performance and price guarrantees ! Added value: => Energy-Contracting is the guarantee, that the overall system performs to specifications ! Over the whole contract term ! 5.Fuel purchase © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at

10. Integral Energy Contracting Model ENERGY PERFORMANCE CONTRACTING (EPC) controls, energy management systems, hydraulic adjustment, efficient lighting, peak load management, thermal insulation, user motivaton … Useful Energy => N Wh ENERGY SUPPLY CONTRACTING (ESC) replacing boilers, local heating networks, biomass heating, CHP plants, solar systems, … Final Energy => M Wh Standard ENERGY SUPPLIER (UTILITY) Secondary/ final energy Primary energy natural gas, heating oil, electricity, district heating, … coal, natural gas, crude oil, … Business models Typical meausres Value chaine © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at

11. Integral Energy Contracting - Business Model (in Comparison to Present State / in House) Contract term Efficiency investment Total energy costs (€/a) time Energy price (guaranteed): Consumption cost (fuel, electricity) Price adjustment: gas-, oil-, biomass index Basic / service price (guaranteed): Capital cost: investment and financing Operation & maintenance cost Risks and profit Price adjustment: capital-, wage-, maint. index Present state / in house (Substitue) investment Repair Operation & maintenance Staff Fuel Electricity Capital O&M Consumption © Grazer Energieagentur GmbH – For requests: bleyl@grazer-ea.at Controlling of det. planning Proof of function Performance measurement Quality assurance for efficiency measures (examples) …

12. Integral Energy Contracting – Quality Assurance Instruments Energy price Controlling of det. planning Proof of function / Control of quality Energy bookkeeping Performance measurement Basic / service price Energy Efficiency Quality Assurance, Examples: Coaching + Contr. of construction Yearly verification Annual reports: balances, proposals for EE-measures Contract term time Contract term Invest © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at

13. 13 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Pilot Project Integrated Energy Contracting Announcement: Call for ESCOs Complete refurbishment of 4 heat plants and execution of efficiency measures in buildings Total floor area: 10.500 m 2 Client: Landesimmobiliengesellschaft Steiermark Project management: Graz Energy Agency EU TED announcement: „AT-Graz: Dienstleistungen im Energiebereich (2008/S 14-018018)“ Deadline for participation proposals: 20.02.08 More info: www.grazer-ea.at or Bleyl@grazer-ea.at Landesimmobilien GmbH www.LIG-Stmk.at

14. 14 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Summary and Conclusions 1.Generally: Any building design/refurbishment should first of all focus on all possible demand reduction potentials. Afterwards, the remaining demand should be supplied as efficiently as possible. Especially if renewables are involved. 2.Energy services – delivered by ESCos - are a well proven instrument to implement energy efficiency measures. With guaranteed success. The proposed Integrated Contracting models can facilitate customized packages of energy supply and building efficiency measures. 3.Energy Contracting projects require experience (functional tendering, awarding of contract, model contracts,...). To avoid mistakes, we recommend to cooperate with an experienced consultant (e.g. energy agencies)  Could your buildings profit from the Energy Contracting approach?

15. 15 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Outlook 1.Spread and discuss the new Integrated Energy Contracting concept 2.Find simple but effective quality assurance instruments for efficiency measures 3.Initiate further Integrated Contracting projects, 4.Contribute to the implementation of the climate protection goals (EU 20-20-20 by 2020, EE+ES- directive,...)  Are you interested in developing a project together?

16. 16 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at The Grazer Energy Agency Team Get in touch: office@grazer-ea.at, www.grazer-ea.at

17. 17 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Reserve

18. 18 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Supply-Contracting + EE-measures

19. 19 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Financing modules and sources Financing can be composed from the following instruments: Subsidies for EE-measures Future energy cost savings ((Part-)-financing from demand reduction, e.g. „Shared Savings“) Building cost allowances or payment of residual values (may be part of awarding competition) Increased basic price (may be part of awarding competition) Financing with addtional financing partner (Leasing, credit or Forfaiting) Financing from own funds

20. 20 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Quality assurance/ Performance verification for EE – measures by building owner 1.Terms of reference (functional) for EE-measures 2.Controlling of (detailed) planning by (independant) energy specialist 3.Coaching and control of construction by (independant) energy specialist 4.(Energetic) control of construction quality (Thermografy, Blower Door…) 5.Energy book keeping (also possible by ESCo) 6.Expertise by (independant) energy specialist (2nd opinion report)

21. 21 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Quality assurance/ Performance verification for EE – measures by ESCo 1.Proof of function e.g. start up-, parameter- and operation protocols 2.One-time verifications: Thermography, Blower Door, … 3.Yearly verifications for efficiency factors, return temperature limitation, compliance with heating curve, … 4.Obligations for anual reporting: energy balance, comparison with previous consumptions, … proposals for EE-measures 5.Calculative verification

22. 22 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Overview of concepts 1.Cost-oriented energy prices (AP) 2.Supply-Ct. + simple EE-measures (LC+EE „light“) 3.Supply-Ct. + comprehensive EE-measures (LC+EE) 4.Supply-Ct. with shared savings (LC+Shared Savings) 5.Performance-Ct simlified (EPC „simple“) 6.Quality Assurance Instruments / Performance verifi- cation for EE-measures by building owner or ESCo 7.Contracting ≠ Third Party Financing, Financing modules

23. 23 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Cost-oriented energy prices (EP) Pricing structure: Energy price = marginal production cost (basically fuel cost). All other cost in basic price Advantages/Disadvantages: +No incentive to sell more energy +Better image for Supply Contracting (?) +No mininum purchase quantity +Additional or under consumption are do not affect ESCo profits -disadvantage: High share of basic price (BP) from total energy cost

24. 24 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Supply-Contracting + simple saving measures (ESC+EE „light“)(1/2) Standard SC supplemented with simple demand side saving measures No savings guarantee but quality assurance instruments for EE- measures (=> slide quality assurance) No (utilization-, price-?, climate-?) adjustments EE-measures are specified in detail or with competition of ideas (functional specifications) (Evaluation of saving proposals with tender evaluation) One time performance verification after installation, possibly renewed after 3 years … Examples: Thermostastic valves, hydraulic adjustment, energy book keeping, billing according to consumption, user motivation, …

25. 25 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Supply-Contracting + simple saving measures (ESC+EE „light“) (2/2) Pricing structure: Service price + energy price (+ Investment cost subsidy) (=> slide business model) Advantages: +Integrated Planing: 1. Reduction of demand => 2. Efficient Supply of remaining demand +guarantees for all inclusive energy prices, function, … +Outsourcing of technical / economic risks to ESCo +Reduction of interface problems +ESCo is also responsible for operation & maintenance over contract term + Quality assurance easier than with EPC …

26. 26 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Supply-Contracting + comprehensive saving measures (LC+EE) Standard SC supplemented with simple demand side saving measures Concept as with LC+EE light …

27. 27 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Supply-Ct. with shared savings (LC + Shared Savings) Analog to SC + EE: No savings guarantee but quality assurance instruments for EE-measures No adjustment to baseline Functional or detailed specification of measures, … Pricing structure : BP + EP + Shared Savings (z.B. 70/30) (+ Co-Financing.) Advantages/Disadvantages: +Incentives because of performance related components +(Part-) financing from future energy cost savings +…

28. 28 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Energy Performance-Contracting (EPC) simplified No adjustemt to utilization One-time savings guarantee or quality assurance instruments? Price- and climate adjustment? Possible guarantees: Technical performance-, Investment-, operation & maintenance-, … Analog to SC + EE: Functional or detailed specification of measures, … Analogy to Intracting-models Pricing structure: Fix Contracting rates (no utilization adjustment)

29. 29 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Summary and Conclusions (3/3) 6.Financing can/must be individually arranged from a combination of savings guarantee, investment cost subsidies, third party financing and subsidy programmes. => Differentiate between financial and ESCo service, use ESCo as finance vehicle

30. 30 Task XVI ”Competitive Energy Services” http://dsm.iea.org presented by: © Grazer Energieagentur GmbH - For requests: bleyl@grazer-ea.at Summary and Conclusions (2/3) 4.Energy-Contracting models as EE-tools will be successful, if we can communicate the added value to the customer (guarantees for all inclusive energy prices, outsourcing of risks, maintenance of equipment over project term, …) 6.EE may not be the driving force for building refurbishment. Non energy benefits (external appearance, space use efficiency, lifting income from rent) may be better for selling. Make shure minimum performance standards are in the ToR (also for sale&lease back projects) 1.combined with the known warrantees and outsourcing of technical and economical risks of standard EPC models. 2.Practical experiences with implementation of CR- Models are limited to Austria to our knowledge. We would like to learn about other experiences collected with comprehensive refurbishment of buildings in conjunction with energy services. 3.EPC-model can be very complex, e.g. adjustments of the baseline due to changes in utilization. => Integrating demand side measures and energy saving incentives in the Energy Supply Contracting-model