Course on Regulation and Sustainable Energy in Developing Countries - Session 9
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Transcript of Course on Regulation and Sustainable Energy in Developing Countries - Session 9
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Energy Performance ContractingEnergy Services Companies (ESCO)
Webinar 5 April 2012
Pierre LangloisPresident - Econoler
Course on Regulation and Sustainable Energy in Developing Countries –Session 9
www.leonardo-energy.org/course-regulation-and-sustainable-energy-developing-countries
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Energy Performance ContractingEnergy Services Companies (ESCO)
By Pierre LangloisPresidentEconoler
Webinar April 5, 2012
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PRESENTATION STRUCTURE
1. EE benefits and barriers2. The EPC concept3. EPC contractual approaches4. EPC financing structures5. Measurement and verification6. ESCO: different models and examples
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1. EE PROJECTSBENEFITS AND BARRIERS
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END USER BENEFITS
› Lower operational costs› Optimization of equipment operation› New and modern equipment (increased value)› Improved competitiveness› Improved product quality› Higher comfort level› Green image
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BARRIERS
AwarenessKnowledge
Lack of capacityLack of confidence in project results
and
Financing
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2. ENERGY PERFORMANCE CONTRACTING
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ENERGY PERFORMANCE CONTRACTING
A contractual arrangement between a beneficiary and a provider (called an Energy Service Company) for the implementation of an EE project, where the global investments have to be paid for through a contractually agreed level of energy cost reduction.
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A firm that provides integrated solutions for enhanced energy cost reductions and whose payments are directly linked to project performance.
ENERGY SERVICE COMPANY
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Professional consulting
engineer
Equipment manufac-turers
Governments
Financial institutions
Energy Suppliers
Client
Guarantee•Analysis•Concept•Installation•Financing•Monitoring•Training
ESCO
ContractorsTHE EPC APPROACH
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THE SKILLS OF AN ESCO
TechnicalIGA
EngineeringM&V
Training andManagement
Support
ProjectManagement
ConstructionManagementor execution
FinancialDirect financingor arrangements
Operation &Maintenance
(Occasionally)
Risk ManagementFor guarantee of savings
and for cost and delaycontrol
DevelopmentSales
Marketing
LegalContracts
Local regulations
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Verification of energy savings methodology,
procurement process, customerspending categories and
financial needs
Customer verifiesESCO findings
ESCOunderstandsand validates
customerconcerns and
issues as well asother projectparameters
Preliminary proposal
ESCO createsproposal summarizingall info from previous
step; preliminarybudget estimates
used
Customer reviews
Customer signs ESCO signs Letter of Intent (LOI)
Figure 1: Overview of Comprehensive Project Service Sales Process (continued)
Preliminary survey andwalk-through of customer
facility
Customer providesenergy bills and
operating cost data
ESCOestablishes
preliminary scopeand budget for
potential project
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Proposal presentationESCO preparespresentation with
final projectparametersand benefitstatements
Customer reviews contract and
financing
Energy ServiceAgreement (ESA) Customer signs ESCO signs
Projectimplementation
Risk reviewESCO conducts
a completereview of job
estimates and risks;contract finalized
Figure 1: Overview of Comprehensive Project Service Sales Process (continued)
ESCO finalizesall project
parameters incl.:ops, energy, & cap
(if any); financing;
implementationschedule; contractdevelopment starts
Customer reviewspreliminary
contract
Conduct detailed engineering study, ;
initiate contract and start financing discussions
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3. EPC Contractual Approaches
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Guaranteed Savings Concept
BANK
Financial institution
Achieved energy savings
Client pays ESCO during implementation
ESCO
Client
Client reimburses loan directly to the bank
Client retains 100%of savings
ESCO reimburses for underperformance of the project
Bank loan to client which provides guarantees
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Financialinstitution
ESCO
Client
Shared Savings Concept
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Customer
BANK
Lending institution
ESCOBank lends 70% -90% of project costs to ESCO ESCO is the borrower
ESCO implements project and owns the energy facility Typically pays 10% -30% equity share
ESCO assigns receivables from customer directly to bank (sometimes pays via bank)Loan is usually secured with energy assets
Energy facility
Customer pays ESCO for energy
ESCO supplies energy from
facility
“Chauffage” Concept
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CURRENT USE OF THE CONCEPTS
The more the country is developedGuaranteed savings
The less the country is developedShared savings
It should actually be the reversed
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EPC AROUND THE WORLD
More used around the worldGreatly underdeveloped world wideImportant barriers in the public sector du to procurement issues
No good information on the market size available
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EPC AROUND THE WORLD
Concept is expending in many countries
North America still the biggest market
EPC is used in many different forms
Europe will use more EPC base on the current CC objectives and regulations (EC directives)
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4. MEASUREMENT AND VERIFICATION
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A NATIONAL BASELINE
250,000
500,000
750,000
1,000,000
Ener
gy
Baseline Period Reporting Period
Baseline + Adjustments
Metered Energy
Savings
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INTERNATIONAL PERFORMANCE MEASUREMENT AND VERIFICATION PROTOCOL
› The most known protocol on M&V› Produced and disseminated by the Efficiency Value Organization
› Can be downloaded for free from EVO
www.evo-world.org
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5. ESCO: Different Models
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ESCO: DIFFERENT MODELS
› Utility-based ESCO (the cases of Croatia and Uruguay)
› Government-based ESCO (the case of India) › Private sector ESCO (the case of China)
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ESCO: UTILITY BASED ESCO
› Utility-based ESCO (the cases of Croatia and Uruguay)
› Owned by Utility› Targeted sectors: all sectors but mainly focusing on
government facilities and institutions (schools, offices, universities, hospitals, industries, etc)
› Maximum payback period : Variable, Private 5 years, Public 8 years(Croatia)
› Project’s range: USD 100,000 to 2 Million (Croatia) › Utility financing:
› Croatia : 7 million › Uruguay: 7.1 million
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ESCO: UTILITY BASED ESCO
› Advantages› Client data base available› Available financing source› Easy access to clients› Client trust utility› Access to all sectors especially government
› Disadvantages:› Not flexible and could not follow the fast changes
as it is a part of big system› Difficulties to stimulate staff
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ESCO: GOVERNMENT BASED ESCO
› Government-based ESCO (EESL: the case of India)
› Established by Government to facilitate implementation of energy efficiency projects
› Targeted sectors: Demand Side Measures including municipal functions, agriculture, public building, lighting etc.
› EESL work as ESCO, as Consultancy Organization for CDM, as a Resource Centre for capacity building of State Designated Agencies, Utilities, financial institutions, etc.
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ESCO: GOVERNMENT BASED ESCO
› Advantages› facilitate preparation of energy efficiency projects› Partner with private ESCO’s and other companies
to promote energy efficiency.› Assists and help for project financing› Capacity development and activities support to
potential ESCOs in the market
› Disadvantages:› Longer delay for project development and
implementation› Rigid procedure
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ESCO: PRIVATE SECTOR ESCO
› Private sector ESCO (the case of China) › Owned by private companies: vendors of energy-
efficient equipment or subsidiaries, companies with innovative proprietary technology, companies with special skills in diagnosis of energy efficiency. Some ESCOs have evolved from local energy conservation technical centers, etc
› Targeted sectors: industrial enterprises are the dominant clients with building sector and commercial
› Payback period : The focus on commercial clients has helped lead to a fast-paced business centering on projects which can conclude within three years or less
› Number: registered ESCOs in China reached over 900 by the end of 2010
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ESCO: PRIVATE SECTOR ESCO
› Advantages› Very flexible EPC following client criteria› Ability to develop and adjust to a win-win
approach› Full services project or focus on a single
technology or system renovation
› Disadvantages:› Required important fianancial capacity› Limited access to gouvernement facilities› Limited support form governemental institutions
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6. EPC: Public procurement
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PUBLIC PROCUREMENT FOR EPC
Although EPC may be well suited to address the challenges of improving public sector energy efficiency, rigid administrative systems are quite poorly suited to efficient procurement of energy services
Helping public agencies manage the EPC process is a difficult task
Solutions must be country specific
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PUBLIC PROCUREMENT FOR EPCA COMPLEX ISSUE
HTTP://www.esmap.org/filez/news/7272009105811_P2E2_presentation_REV_3.pdf
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7. Conclusion
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CONCLUSION: IS EPC IS THE SOLUTION FOR EE?
Limitation of the concept› Size is an issue› Credit risk in the private sector is a limitation
Focused Markets› Public sector has always been the favorite› Limited use in the industrial sector
Case studies› Successes: Canada, China, Croatia, Germany› Failures: Egypt, Tunisia, Poland› Mixed successes: Brazil, India