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ENERGY SERVICE COMPANIES AND THE ENERGY PERFORMANCE CONTRACTING IN EUROPE Laura Doz B. Thesis LIU-IEI-TEK-G--14/00733 -- SE Department of Management and Engineering 2 ENERGY SERVICE COMPANIES AND THE ENERGY PERFORMANCE CONTRACTING IN EUROPE Laura Doz Supervisor at LiU: Janerik Lundquist Examiner at LiU: Janerik Lundquist B. Thesis LIU-IEI-TEK-G--14/00733 -- SE Department of Management and Engineering 3 Index 1. Executive summary ...................................................................................................... 5 2. Introduction and purpose .............................................................................................. 5 3.Definitions ..................................................................................................................... 6 3.1. ESCOs .................................................................................................................... 6 3.2. Energy Performance Contracting, EPC ................................................................. 8 3.3. Energy Supply Contracting, ESC .......................................................................... 9 3.4. Power Purchase or Energy Services Agreements, PPA or ESAs .......................... 9 4. Background and current situation ............................................................................... 10 4.1. European overview .............................................................................................. 10 4.1.1 Policy .............................................................................................................. 11 4.2. Sweden ................................................................................................................ 13 4.2.1. Swedish market ............................................................................................. 13 4.2.2. Policy and public support .............................................................................. 15 4.3. Spain .................................................................................................................... 16 4.3.1. Spanish market .............................................................................................. 16 4.3.2. Policy and public support .............................................................................. 18 5. Barriers to the ESCO industry .................................................................................... 20 5.1. Barriers in Sweden ............................................................................................... 20 5.2. Barriers in Spain .................................................................................................. 21 6. Opportunities and possible improvements ................................................................. 22 6.1. Improvements in the European framework ......................................................... 23 6.2. Improvements in the Swedish framework ........................................................... 24 6.3. Improvements in the Spanish framework ............................................................ 25 7. Financing projects options and performance contracting models .............................. 26 7.1 Sources of financing ............................................................................................. 26 7.2. EPC models .......................................................................................................... 26 7.3. Other contracting models ..................................................................................... 31 8. Model project development and procurement processes ............................................ 33 4 8.1. Building Owners and Managers Association and Clinton Climate Initiative model .................................................................................................................................... 33 8.2. Eurocontract ......................................................................................................... 36 8.2.1. Single-Stage project development ................................................................. 36 8.2.2. Two-Stage project development.................................................................... 37 8.3. Model contract comparison.................................................................................. 38 8.3.1. ESCO Perspective ........................................................................................ 39 8.3.2. Customer Perspective .................................................................................... 39 9. Measurement and Verification ................................................................................... 40 10. Good practices examples .......................................................................................... 42 10.1. Berriak Supermarkets (Spain) ............................................................................ 42 10.2. National EPC project for non residential buildings (Sweden) ........................... 45 12. Discussion ................................................................................................................. 47 13. References ................................................................................................................ 50 14. Annexes .................................................................................................................... 53 14.1 Annex I .............................................................................................................. 53 14.1.1 ESCOs .......................................................................................................... 53 14.1.2. EPC.............................................................................................................. 55 15.1.4. Energy-Contracting EC ............................................................................... 58 5 1. Executive summary Nowadays, there are different energy contracting models being offered by the Energy Service Companies (ESCOs). This paper tries to give some clarity to them and especially to the Energy Performance Contracting (EPC) model since it is considered a good solution to face the barriers of the development of the ESCOs market, like the financing, through for instance the sharing of savings. Moreover, it is going to analyze the path of this market and the policy and public supports in two different countries, Spain and Sweden, in order to see if each can learn something of the other. Besides, the barriers to the development of the ESCOs market will be studied and the possible solutions to a further development will be presented. Hopefully, this paper can provide the reader an understanding on how the work in different countries and how this kind of projects are performed. 2. Introduction and purpose Energy Service Companies (ESCOs) concept starts in Europe more than a hundred years ago, but it was after the implementation of this kind of firms in United States in the 1970s, due to the beginning of the oil crisis, when this concept came back to Europe with more strength, since until this time it has been implemented successfully only in a few countries like Germany . In the last decade, the issue of the climate change especially in relation with the anthropogenic emissions of CO2, has had influence on decision-makers towards a more sustainable use of the energy sector. In order to achieve a more efficient use of the energy, the ESCOs has an important role since they provide solutions to improve the energy efficient and promote the use of renewable energies. It has been proved that the energy services carried out by the ESCOs are responsible of the reduction of the operation costs as well as environmental impact of buildings or facilities of the firms, in particular in relation to use energy and CO2 emissions, without the owners have to bear big risks . Buildings are related with 40% of the global energy use and CO2 emissions, so the work of the ESCOs in public and private buildings is as important as in the industrial sector. In this paper, some projects are 6 going to be analyzed in order to understand how ESCOs work and see the real improvements that they achieved. The energy efficiency in Europe was far from reached its maximum potential, since there are a lot of barriers such as low levels of awareness or confusion regarding its definitions. The aim of this paper is to get an overview of the ESCOs in Europe through time, give some clarity to their definition and to the concepts related with the energy sector, understand how one project is carried out from the financing to the measurement and verification of the results taking into account the different models to develop a project, identify the barriers and challenges as well as the benefits and opportunities. Just as important to this literature review is the to see some real cases of the work of a ESCO. Therefore some real projects are going to be studied. This paper is focused especially on Spanish and Swedish firms, trying to find out possible differences between them, and in the case that they exist, analyze how one country could learn from the other one. 3.Definitions 3.1. ESCOs ESCOs are understood as business or companies that promote the improvement of the energy efficiency (European Commission, 2006. Energy service directive 2006/32/EC). Nevertheless huge differences exist in ESCOs' business between countries and different organizations, moreover bigger variations are seen in how their efficiency projects are developed and implemented. These variations are due to distinct local and national regulations, the type and size of the markets and variations in its definition and in related terms such as Energy performance contracting (EPC) which is an innovative form of contracting that is going to be explained later. The different processes in which owners work with ESCOs to develop those projects are going to be analyzed later on in the chapter 8, Model project development and procurement process. The central theme of this paragraph is the variations regarding the ESCOs' definitions and other terms related to the energy sector. There are no commonly accepted 7 definitions. Sometimes the variations between definitions are small, for instance in the case of Energy Supply Contracting (ESC) or Energy Services Agreements (ESAs), but on the other hand wide variations exist between jurisdictions and organizations regarding how ESCOs are understood, what can be expected from them and how EPC and projects are carried out . An overview of the definitions used in the European Union is collected in Annex I, with the purpose to analyze the size of the variations and look for common elements between them. The lack of a standard definition has been proved to be cause of confusion regarding what can be expected from the ESCOs. In addition it can create variations in the quality delivered of their services and it also makes it more difficult the comparison between different projects in relation to the energy efficiency improvements and reductions of greenhouse gas emissions achieved. By analyzing the several definitions and taking into account sources of income of this kind of companies, some key factors required to be an ESCOs have been found . Nowadays ESCOs' industry is constituted by many companies with distinct structures offering a huge variety of services and products. It can be differentiated between two kinds of companies according to if they sell products and performance improvement services, or if they just sell services. The first sort of company is formed by many subsidiaries of large firms such as oil or gas companies, engineering firms, nonregulated energy suppliers or building equipment firms. In this group are also included regulated enterprises of public service of electricity and gas. In the other group can be found independent companies selling only services . One of the characteristics that differentiates ESCOs from other energy supply companies is that both products and services have as aim to satisfy demands of energy efficiency rather than provide energy supply. Therefore the majority of their benefits come from the provided energy efficiency, followed by renewable energies supplied, and the distributed generation and/or cogeneration of heat and power. Some energy services or energy efficient improvements provided by ESCOs are: energy efficiency, water efficiency, operations and maintenance cost efficiency, renewable energy and/or distributed generation improvement measures . Moreover from the definitions another crucial characteristic can be appreciated. This time regarding its business model, since generally it is based on the assumption of the risk derived energetic savings expected from the equipment installed or the services provided and continue with the measurement and verification of the outcomes of the project as a long-term guarantee to the customer. Hence, the benefits achieved by the ESCOs depend directly on the savings reached. 8 Usually ESCOs tasks in a project start with the energy analysis and audit, followed by the design in detail of the project and its implementation, the installation of the equipment required and its maintenance, and ends with the monitoring and measurement of the savings . 3.2. Energy Performance Contracting, EPC Energy performance contracting (EPC) is a kind of arrangement between customers and ESCOs through which they design, implement and finance or arrange the financing of the project. But as it has been said, there is not a common definition accepted for this. Nevertheless through Annex I in the section 14.1.2, it can be seen that the ten definitions, which go from the 'i' definition to the 'x', agree in common characteristics for describing an EPC such as: - EPC improves energy efficiency - EPC reduces operating costs - Investment needed for the EPC is recovered by cost savings. - ESCOs take the performance risks which is related to the guarantee savings and shared savings. In general, carry out a EPC implies that the ESCOs have to offer a "turnkey service" which means that they develop the project from the start and continue with measures and verification even when the project has finished. Moreover, the current concept of ESCOs about the guarantee saving is due to the EPC, since energy performance contracting was an innovative form of contracting that allowed to overcome one of the most important barriers for the implementation of energy efficient improvements. Most of the building or firm owners did not want to take the risk of not recover a minimum of the investment done to perform energy efficient improvement projects. So the main characteristic of the EPC and therefore of the ESCOs, is that ESCOs take the risk, and not the owner, assuring a minimum of cost savings and also basing its remuneration on demonstrated performance which makes reference to the levels of energy or/and operating cost savings. If the ESCOs do not fall short in the saving achieved in relation to the energy savings expected and which has been defined previously in the contract, they must pay to the owner for any shortfall . 9 Another advantage of this kind of arrangement is that owners do not need to have any knowledge about neither engineering, energies, technologies nor financing, so the market for the ESCOs through the EPC is bigger which implies a growth of the ESCOs. The EPC projects can be financed by varied sources, can be carried out under different performance contracting models and can be performed according to different procurement processes. These different options will be analyzed in sections 7 and 8, as well as one of the key characteristic of this projects, the Measurement and Verification, which is going to be explained in section 9. 3.3. Energy Supply Contracting, ESC Energy Supply Contracting (ESC) is used to provide useful energies in a efficient way, such as cooling, heating, electricity, stream, etc. It is important not to confuse ESC and EPC, since EPC is focused on achieving energy efficiency improvements rather than on supply energy as ESC does. Moreover in the ESC, investments are not recovered with the cost savings over time, as happened with the EPC. Another key difference between them is that through the ESC the companies do not take performance risks, in contrast to one of the main characteristic of the EPC . Thus, despite in some European countries the market demand side attended by them has been considered the same, the ESC are related with the energy supply rather than carry out energy efficient improvements. 3.4. Power Purchase Agreements or Energy Services Agreements, PPAs or ESAs The PPA includes all the commercial terms needed in the energy buying between the building owner and the ESCO or third party which owns the assets related with the production of electricity, cooling, heat, etc. The price per unit delivered is prefixed in the agreement and also the level of quality expected, as well as the penalties for underived service and the payment terms . The assets are usually decentralized sources, generally of renewable energies, facilities for cogeneration and trigeneration or district heating. In the case of distributed generation, i.e. the generator responsible of producing the energy is inside the boundaries of the building, when the contract finishes the building owners has as a rule 16 States in order to achieve the energy savings expected has to either develop an energy efficiency obligation scheme or use other instruments. Sweden has decided to accomplish the savings through different instruments instead of develop an energy efficiency obligation scheme. Between all of instruments that are explained in the Swedish NEEAP , here they are going to be explained those which could influence in the ESCOs market: - Support for energy efficiency in municipalities and county councils: the Swedish Energy Agency provides support to approximately 96% of the energy efficiency of the municipalities and county councils, and on the other hand, these ones must establish a set of targets to 2014 to 2020 and to develop an action plan describing how these targets are going to be achieved. - Municipal and climate advice: The Swedish Energy Agency provides support both financially as informative, for example by informing the SMEs of the need of carry out energy audits and let them know that the government provides financial support. -Energy audits checks: Since 2010 those companies who have an energy consumption in excess of 500 MWh and those related with the primary production of agricultural products which have at least 100 livestock units, are able to request to financial support to carry out audits up to 50% of the total cost, obtaining a grant of maximum 30.000 SEK. The political framework as it can be seen, is being increasingly more aware of the need to promote energy efficiency and energy services and therefore they are climbing in the political agendas thus helping the development of the ESCOs market. 4.3. Spain 4.3.1. Spanish market The ESCOs on the Spanish market are well established. They are very active, and have been one of the most developed in Europe due to a large support from the Government and initiatives and measures they have taken. Nevertheless the economic crisis which affects the country the last years, has stopped most of these measures, and it is actually one of the biggest barrier for the further development of the Spanish market. There is not an official register of the ESCOs operating in Spain, but according to the European Institute for Environment and Sustainability (2010), there are 15 companies 17 working currently as ESCOs in the country. On the other hand the Institute of Energy Diversification and Savings (IDAE), which is a government agency reporting to the Ministry of Industry, Tourism and Commerce (MITyC) which manages overall energy policy, pointed that there are more than 653 companies offering energy services. Therefore, once again, it is demonstrated the need of a global standardized definition of the ESCOs . Large companies are mainly dominating the market, since they have the financial capacity to assume big investments and the long-term recovery of them. There is also, a mix of large utilities, companies and multi services companies and small and medium sized companies, offering energy services, most of them as diversification of their activities. All these ESCOs generally carried out project of energy efficiency in public building, in private non-residential building and in industries involving cogeneration, audits, HVAC control systems and lighting . Furthermore, in 2009, with the purpose of bringing together all the ESCOs, two associations were created, the Business Association of Facility Management Services and Energetic (AMI) which is composed by 15 large companies, and the Association of Energy Service Companies (ANESE) which gathers more than 200 small associates . The EPC were not very common, so in order to promote them the IDEA developed an EPC template. Currently, the most common performance contracting models are the Chauffage and the Shared savings, which are going to be studied in the Section 7 . The most common source of financing were the commercial banks, but due to the economic crisis of the last few years, the conditions of the credits have become harder. Therefore, some companies have began to use their own capital to finance the projects, but this financing way is not sustainable long term since the recovery of the investment needs too much time. Other ESCOs have made agreements with private funds to get the credits. During the last decade, due largely to the construction crisis and the increasing energy prices it has been made a great promotion of the ESCOs in order to buoy construction companies which have diversified towards renovation projects and ESCO services. Moreover, some new companies have emerged offering fully-integrated energy management especially to public administrations and private companies . This market was valued in 2007 at over 100 million Euros, but in 2010, private companies estimated the potential of this market at € 1.4-4 billion . 18 4.3.2. Policy and public support Starting in 2004, in order to promote the demand of the energy services and therefore boost the growing of the market of the ESCOs, the Spanish government implemented some programs, between which they emphasize the Estrategia de ahorro y eficiencia energética E4 (National Efficiency Energy Strategy) and Plan 2000 ESCO. Both measures are especially focused in six sectors, building, industry, transport, agriculture, public services and appliances, and they are managed by the government of each Comunidad Autonoma (each region of the country) with the help of regional agencies. In particular, the E4 subsidizes the 75% of the cost of the energy audits, and depending on the solutions proposed in the audit report , the project could also be subsidized but in this case only up to 22% of the total cost of the financing . Other measure driven by the national government to encourage the market is the National Building Code, since it forces the new and refurbished buildings to supply part of their energy needs through renewable energy sources . This measure together with the Renewable Energy Programs which mainly consists in decreasing the feed-in tariffs, have been some of the main drivers which have influenced in the important growth that the solar and wind energy generation have experienced in the last years. As in the case of Sweden besides the national policies there is some EU-based policies influencing the energy services market, and as it happened before, the most important in relation to the ESCOs is the Energy Efficiency Directive 2012/27/EU. Each country is responsible to the application of the proper legislation in order to reach the objectives signaled in the mentioned Directive, as it has been pointed before. In the case of Spain, in addition to the measures which have been already mentioned, the national government developed the Sustainable Economy Law, Royal Decree Law 6/2010 which has an special section dedicated to measures to promote the market of the ESCOs and of course, the Spanish NEEAP. Pursuing the Article 3 of the Energy Efficiency Directive, each Member state has to establish indicative national energy efficiency target for 2020. The target defined by Spain states that an energy savings of the 20% has to be achieved by 2020, thus the absolute level of energy consumption has to decrease from 121.6 to 82.9 Mtoe by 2020 . Regarding the Spanish NEEAP , the Article 7 of the Energy Efficiency Directive states that each Member States in order to achieve the energy savings expected has to either develop an energy efficiency obligation scheme or use other instruments, and in contrast to the Swedish plan, Spain decided to adopt an energy efficiency obligation scheme. 19 This energy efficiency obligation scheme will be implemented based on a standardized scheme of negotiable energy saving certificates that are sufficiently flexible and simple such that there is no significant administrative burden for either the obligated parties in the scheme or for the managing authority, which is expected to be fully operational in 2015–2016. (Spanish NEEAP). The obligated parties are the electricity, gas and oil product retailers including transport, and their annual savings obligations are expressed in terms of final energy (GWh). At the end of each annual period, the obligated parties must provide the certificates obtained that are necessary to fulfill their obligation, or, alternatively, provide an equivalent amount of compensation to the Energy Efficiency National Fund. The operation of the obligation scheme is summarized in graph below. The obligated parties should provide to the managing authority (IDAE) the energy efficiency certificates which ensure that they have fulfilled the obligations which have been imposed by law, meanwhile the IDAE assume the task of supervise the accomplishment of these obligations. These energy efficiency certificates are emitted and registered by the IDAE, and the measures of energy efficiency as well as the expected savings derived from their enforcement and which will lead to the right to have these certificates are included in a catalogue. Energy service companies and/or obligated parties must obtain explicit approval from the final consumer for the action of promoting, supporting and/or funding investments in energy saving and efficiency measures. These investments will be those that give energy service companies (as participating parties and/or obligated parties) the right to receive energy efficiency certificates for the savings arising from such investments. Figure 1. General diagram on the operation of the energy efficiency obligation scheme. (Spanish NEEAP) 20 In the Spanish NEEAP it is also include an alternative measure to achieve the 2020 target, the Law 15/2012 of 27 December on fiscal measures for energy sustainability which has introduced a tax reform with the aim of internalizing the environment costs derived of the production of electricity and the storage of radioactive waste, in order to encourage people and companies to improve their levels of energy efficiency. Despite all the efforts made, according to different public and private identities they are insufficient to satisfy the recommendations pointed in the European directive. The main cause of this negative framework to the development of the ESCOs market is the economic crisis which is responsible of great restrictions in the public budget. Since the legislative basis is going in the right direction, it is expected that the compliance of these measures could be sufficient with the end of this crisis. 5. Barriers to the ESCO industry The theoretical concept of the ESCOs and the savings that they are able to reach is very attractive, moreover if we accept the fact which has been published widely in many times supporting that exists a cost-effective energy-efficiency potential in all countries then, ESCOs industry would have great market with an very high success. Nevertheless as it can be seen in the case of Sweden and Spain, the ESCOs market is present in each country in different ways, due to that there are barriers which impede the total success and the exploitation of the all potential of this industry. Therefore, the barriers are different depending on the country, thus in this section it is going to be presented an overview of the main barriers to the development of the ESCOs market in Sweden and Spain . 5.1. Barriers in Sweden Some of the barriers of the Swedish market are also presented in most of the other European countries, like problems with legal issues and inappropriate accounting rules, collaboration and commitment issues or the lack of standardization, however this last trouble is being faced since a few years ago for instance, through the development of standard model contracts. Besides, the low energy prices make that increase the payback times, nevertheless the increasing electrical connectivity between the European 21 countries is enhancing the price of the electricity at par to other countries with higher prices such as Germany . The main barrier to carry out EPC projects in Sweden, is the risk perceived by customers, banks or the TPF in the case they are the financial source, thus causing the increase of the financial costs. One of the main characteristic of the Swedish customers is their lack of confidence due to the unsuccessful past of the ESCO projects in Sweden, since the ESCOs had two failed upsurges in the 80s and the 90s, in which they were not able to achieve neither the expected savings nor benefits. The lack of successful reference cases with a clear client focus also contribute to this mistrust. This lack of confidence together with the limited knowledge and experience on EPC make difficult that customers engage contract models . It has to be taken into account that the Swedish market is a growing market and this implies the entrance of new ESCOs in the market and due to they are new, these companies are more likely to deliver projects not as good as the projects delivered by the already established companies, which could decrease even more the confidence in the EPC models . Another typical Swedish barrier is the lack of qualified people with the right background, as consequence of not be a mature market. Taking a look to the people who are currently training in the energy field, it can be said that this is not only a short-term problem but also a long-term. Besides the low number of energy service companies, due to lack of qualified staff and a mature market, makes the competition between them is poor and small, which increases the costs of services . The public procurement process are complex and costly, thus becomes a barrier for all the energy contracting models but specially to the EPC since it is one of the most complex contracting models. Besides this complexity, the restriction in tendering process cause the increase of the transaction costs. Finally, the last barrier is the "cultural unacceptance" of obtain monetary profits through the energy savings measures . 5.2. Barriers in Spain Currently the main barrier to the development of the ESCOs market in Spain, is the incapacity of the government to fulfill the European and Spanish legislation due to the economic crisis. 22 Some administrative barriers are the inefficient decision-making structures of the local government, the long and inefficient public procurement processes as in Sweden and the lack of experience and preparation of the administrative accounting systems to carry out in an efficient way the energy cost savings. Moreover the changing of this current structures is very difficult . There are also some technical barriers like the lack of standard and enforced measurement and verification protocols and the lack of TPF institutions. Regarding the financing, the ESCOs industry is facing a lot of barriers, such as the lack of suitable financing schemes to develop the ESCOs market and EPC models . Moreover, before the crisis most of the ESCOs were able to finance their projects through the banks, nevertheless nowadays the conditions credit have become harder, thus a lot of ESCOs have started to finance the projects with their own capital, and this is unsustainable. So, it can be said that nowadays in Spain there is a lack of capital and mechanisms for EPC contracts . As happened in Sweden, the energy prices are not high enough and make longer of the payback times thus causing the decrease the interest of the customers. However, it is expected that the prices will increase with the time as a consequence of the increasing electrical connectivity between European countries as it has been said before. The high transaction costs also decrease the interest of the customers and also of the ESCOs in the case of small projects . In relation to the market, in Spain each autonomous community has is own legislation and hierarchy related to the energy generation and conservation, which become an obstacle to those ESCOs who would like to expand their boundaries to different regions. Finally, the lack of awareness of energy efficiency opportunities and technology, and the high perceived technological and financial risk perceived by the customer is an important barrier like in Sweden. In contrast to the Swedish case, now the main cause is again the economic situation since the customers see the energy costs irrelevant compared to other business costs . 6. Opportunities and possible improvements With the purpose of overcome the barriers which have been described in the last section and achieve a higher growth of the ESCOs market and the EPC model contract, here it is proposed a comprehensive framework of improvements and opportunities. 23 Firstly they are going to be considered possible European measures, and then as the current situation and the background of the ESCOs in each country is different as it has seen, it is going to analyze what Sweden and Spain should do to promote even more, the energy efficient measures. 6.1. Improvements in the European framework In Europe, as it has already seen, different measures are being taken as the Energy Efficiency Directive or the Energy Efficiency Plan 2011 in order to make an effort towards the creation of a clear framework, standard definitions, guidelines for EPC projects structure and stricter enforcement of the environmental and energy efficiency legislation, in order to increase the confidence in the energy efficiency market and therefore increasing the ESCOs market. In order to overcome the barriers and exploit more the potential of this market, the following measures are suggested : - Energy price levels: increase the energy price could be an incentive to carry out energy efficiency measures. One way to do it could be through the liberalization of the energy market and with the introduction of CO2 taxes. The liberalization of the energy market is related with the increase of the competence between energy companies, which leads to a better and cheaper quality of the services delivered. - Demonstration projects: as a method to increase the awareness and trust in the EPC projects, since the mistrust is still being one of the major barrier. -Project bundling: project bundling in a pool makes reference to one project which implicates several buildings, in order to avoid the high transaction cost which is another of the bigger barriers of the EPC projects. This solution is most suitable for municipal and commercial sector. -Information campaigns and training programs: in order to increase the awareness of the importance of the energy efficient measures and the measures to carry them out. This dissemination of information, the publicity of the ESCOs or advice on EPC can be done by an energy agency, housing associations or industrial associations. Moreover the financial institutions, should train their employers in order that they will be able to provide confidence and information required about the EPC projects. -Standardization of Measurement and verification protocol: Besides the increase of the confidence through the assurance of the promised energy savings, the standardization 24 leads to the growth of the competition, the transparency and the increase of the cost effectiveness. The different governments should make policy reforms to establish an measurement and verification protocol mandatory, one option could be the implantation of the International Performance Measurement and Verification Protocol (IPMVP). -Development of Accreditation system: it is another measure to increase the confidence and the trust of the customers, since in a lot of countries like Spain, there are too companies calling themselves ESCOs but actually they are not. An official certification is one solution to assure to the customers that they are working with real ESCOs. 6.2. Improvements in the Swedish framework Sweden has a growing market, not mature yet, and therefore customers need to realize of the benefits that are related with carry out EPC projects from a point of view financing, environmental and risk reduction since it has to be remembered that through the EPC contract, the ESCO assumes some kind of risk instead of them. As it is a young market there is lack of staff qualified, it is need an education and training programs through certificate and degree programs offered at community and technical colleges and universities that would be directly related to occupations in the ESCOs market. Besides, in order to increase the customers awareness, the following measures could be carried out : - Workshops and knowledge sharing events with ESCOs, potential clients (municipal representation, facility managers..) and financial institutions. - A support network for potential customers, giving them advice and personalized information, successful cases similar to their situation and showing them the importance of guaranteed and shared savings. Moreover, in order to expand the bounds of the current ESCO market, the companies could: - Incorporate the supply side in the EPC projects, and offer a larger responsibility in the service, maintenance and operations of the supply side since it could lead to the increase of the interest of the customers and the savings as it also grows the interest of the ESCOs towards the optimization the technical facilities . - Introduce themselves in the private sector , since it has not been explored yet. The events mentioned before could be an option to capture customers of the private sectors. 25 The EPC projects in Sweden have had a more individualized approach in comparison with the projects in Spain. On the one hand it could lead to more suitable solution, nevertheless in the other hand a more standardized approach implies a faster and easier implementation, and also more standardized procurement procedures will lead to a lower transaction costs. This more standardized approach could lead to a growing implementation of EPC projects, which is a key objective in a growing market . 6.3. Improvements in the Spanish framework In Spain the economic crisis is the main barrier which keeps the ESCO market off the fulfill the European and the Spanish legislation, therefore to overcome this crisis would be the principal driver of the development of the market. In order to overcome the current lack of suitable financing sources, one option to finance the ESCO projects could be the cash-flow based financing through which the banks accept the stream of revenues directly from the energy savings as guarantee . Besides the economic crisis, they exist other barriers like the administrative problem, since in Spain each community has its legislation and the provincial governments know better their local situation, these ones should be the main drivers to overcome the barriers, moreover they can be more agile as the national government has inefficient decision-making structures. It is necessary to change this administrative structure and their current contracting law, one possible and needed reform is shorten the length of the public procurement processes. The Spanish government should carry out a long term solution at a national level, in order to unify the legislation of the different autonomous communities, since in this way the ESCOs could expand their market bounds. These growth will lead to an increase of the competence which is related with a higher quality of the delivered services and a lower price, which implies a growth of the market . One option to Spanish ESCOs could be to specialize their services having a specific customer profile (schools, hospitals, supermarkets, etc.) so they will be able to provide more suitable solutions and also it is a way to decrease the skepticism of the customers. 32 This contract is used frequently when the customer wants the externalize some facilities or the investment needed to the improvement of one energy service. To stimulate the cooperation of the customer to reduce the amount of energy, it exists a term of shared savings, according to which, below a certain amount of energy savings, these savings will serve to the ESCO the recover their investment, but above this amount the savings are shared between the ESCO and the customer. The savings usually comes from the operation and maintenance services. - BOOT, Build-Own-Operate-Transfer. Under this contract, the ESCO is responsible of design, build, financing and operating of an equipment during a agreed period of time, during which they are the owner of the facility, and after this period, the ESCO must transfer to the customer the ownership of the asset. It is a long contract duration, and it is used generally with large infrastructure such as boilers, energy centers, power systems (combined heat and power plants, CHP), power distributions systems (high voltage HV and low voltage LV) or refrigerators . The customer pays the ESCO along the agreed period; this payment covers the capital needed to the equipment, the operations costs and also an interest. -Leasing: The leasing contract is an alternative to borrowing, which is used generally in industrial equipment. The main advantage versus the borrowing, is that the lease payments are usually lower than the loan payments. The costs savings should cover the lease payments and the customer, i.e. the lessee, pays to the lessor with interests with an agreed frequency . There are two types of leasing: capital and operating leasing. Capital leasing is related with the purchase of equipment, when the lessee owns the asset and therefore it appears in their balance sheet, and moreover is who takes the risk. On the other hand, under the operating leasing, the ESCO is the owner of the asset, and the customer hires the equipment by paying a agreed monthly amount. Now, the asset does not appear in the customer balance sheet, and ESCO takes the risks, but on contrary it is more expensive to the customer. 33 8. Model project development and procurement processes Since almost two decades ago, the EPC offers a solution to the financing of efficiency energy projects through the self-financing due to the cost savings, but its development and procurement process remained too complex and spent long times, because, among other reasons, the lack of a standardized energy services performance contracting model. Several organizations, in an attempt to overcome the barriers which limited the market size, developed different project development models and procurement processes in order to make easier the issue of design the project and the bidding and selection of the proper ESCO. This standardized templates allows increase the market to those customer who are not energy experts, and also enables to reduce the time required . Now, the diverse model processes developed by the different organizations are going to be analyzed, and then, it will be carried out a process comparison between the customer and ESCO perspective. 8.1. Building Owners and Managers Association and Clinton Climate Initiative model The Building Owners and Managers Association (BOMA) together with Clinton Climate Initiative (CCI) developed in 2009 a project development process standard which can be summarized in seven steps contained in the following graph. 34 The first step in the BOMA Energy Performance Contract (BEPC), is performed by the building owner or customer, who must to define the project and the criteria which has to be followed throughout the project. In this first definition, the customer should include the desired outcomes, the economic return on investment (ROI) and the minimum Internal Rate of Return (IRR). And also at this point, it is advisable for the customer, start to look for and assess the potential sources of financing. Then, different ESCOs are invited to present their qualifications and conduct a technical walk-through. To make this technical walk-through more productive, customer should provide to the ESCO what is called as "Property information summary" which must contain as minimum, the annual consumption, a copy of the energy bills of the last twelve months, as well as the information about the age and size of every system involved, and their current status, i.e. if they have been upgraded or not. This information allows the invited ESCOs analyze the viability of the project and assess if they are enough qualified to carry out the project or not. The owner evaluate the capabilities of the different ESCOs and some of them are pre selected. After that, there are two options to select a single company between those preselected, ESCOs can be interviewed by the customer or they can be asked to send a more detailed proposal, what is known as Request for proposal (RFP) for preliminary opportunity assessment. It is advisable to carry out the RFP since it enables both, customer and company, have a more detailed assessment of the scope of the project and Figure 6. BOMA/CCI Project development process (BOMA and CCI, 2009. Building Energy Retrofit Program) 35 cost and savings expected, since the RPF should include all the Energy Conservation Measures (ECM's) and the cost and savings related with each one of this measures. Until now, the process does not imply any cost for the customer, but from now it is better if the project financing is assured since the next step could entail some costs as it will be seen. Once the customer has assessed all RPFs, the most suitable company is selected, which has to carry out a Project Development Agreement (PDA). The most critical and costly part of the PGA is the Investment Grade Audit (IGA). The IGA provides additional measures and an more critical analysis, which includes all the methods and assumptions followed, the data utilized, as well as the costs, energy savings, the expected annual maintenance and life, the environmental impact and the recuperation period of the investment. The cost of the IGA is included in the total cost of the project in the case that the customer decides to continue with the project, nevertheless in the event that project proposed meets the requirements established by the customer, and this one determines not to continue with them, he will must to pay a "walk-away fee" which is agreed before starting the IGA. And finally, if the ESCO is not able to meet the requirements, then the customer does not have to pay any fee. The results of the IGA are evaluated and the customer with ESCO, determine which measures are going to be included in the definitive project, in order to define the final scope. The next step is the execution of the BEPC itself. The BEPC include the guaranteed savings term, which assures the customer that a agreed minimum of energy savings is going to be achieved and otherwise the ESCO will pay for any shortfall. It is also included a guaranteed maximum price (GMP) that implies that the whole project will cost at most that amount, and in the event that the final cost is smaller than the GMP, the savings will be shared between the customer and the company at an previously agreed percentage. Moreover the BEPC uses the transparent pricing methodology, which means that it includes every cost and savings which enables customers know and negotiate the cost structure before sign the contract. Once the contract has been signed the work of the ESCO to implement the energy efficiency project starts. The savings/guarantee period begins when the execution of the project has been finished, in which ESCO has to carry out the measurement and verification of the cost savings, during the agreed period in the contract, which is usually from 10 to 20 years . 36 8.2. Eurocontract The Eurocontract is an European project which began in 2005 and finished in 2007 achieving as a result the development of two different project development models: the Single-Stage model and the Two-Stage model . Many organizations collaborate in its development, but its main partners were the Berlin Energy Agency and the Austrian Energy Agency. 8.2.1. Single-Stage project development The use of this model is appropriate to simple and small buildings (e.g. a single building), which require shorter time, easier and therefore cheaper projects. The process begins with the project preparation (around 2-4 months), where the building owner/the customer has to prepare all the building data and determine an annual energy cost baseline, as well as carry out a rough analysis determining potential energy and cost savings, and moreover he must define the targets of the project such as the minimum savings guarantee. Then, ESCOs are invited to present their offers and they have to prepare it basing only in the data and the analysis provided by the owner, and an rough analysis that they can carry out and allows them to validate the building data. After only this rough analysis, they have to do its offer which must contain the savings guarantee, the efficiency energy measures that they are planned to perform, as well as the estimated investment costs. From all the tenders that the customer receives, from 4 to 10 bidders get preselected and are called to present its bids. After these presentation, the number of potential bidders is reduced from 2 to 4. The remaining offers are analyzed in deep and the most economic one is finally selected with whom now the customer have to negotiate the contract. This process, from the request for tenders until one of them finally is selected and signs the contract, takes around 6-9 months. The next step is the project implementation (around 7-15 years), which starts with the preparatory phase in which it is carried out a fine analysis, allowing the second validation of the building data as well as the accurate calculation of the potential energy savings of the planned measures. Once the fine analysis is done, it can start with the planning, design and implementation of the energy savings measures. When the project finishes the measurement and verification of the guaranteed energy cost savings will begin, and they will remain during the period agreed in the contract. 37 The main characteristics of this model is the high preparation and work required by the customer, and that the fine analysis is part of the project implementation once the contract is signed and not of the tender . 8.2.2. Two-Stage project development Unlike the single-stage model, this model is appropriate to more complex and bigger buildings, e.g. an hospital, which supposes a longer period, a more difficult project and therefore more expensive. As happened before, the owner/customer has to prepare all the building data required and a rough analysis determining the cost baseline and the targets of the project, and then, ESCOs are invited but this time, only from 3 to 10 companies are called to prepare an offer to perform the project. These tenders have the same structure than tenders of the single-stage model, but now he also has to plan costs for fine analysis, unlike the other model where the fine analysis was part of the project implementation once the contract had been signed. After tender assessment, the most economic offer is selected, and from this point the model is similar to the BEPC: the ESCO carries out a fine analysis where they are done a validation of the rough analysis and detailed calculation of potential energy and cost savings of the measures planned. The result of this analysis is the confirmation of the guarantee savings and the planning of the project. The customer evaluates the results, and if they confirm the rough analysis, he can decide either to continue or cancel the project, but in the case that he determines not to proceed he will have to paid a "walkaway-fee" to the company as happen in the BECP which means that the ESCO takes a smaller risk than in the single-stage model. In the event that directly the project does not confirm the rough analysis it will be cancelled without a remuneration. In the case that the project continues, the project implementation begins which is the same as the single-model stage unlike that now the fine analysis has already been done in the previous phase . 38 .Both models have been summarized in the following figure: 8.3. Model contract comparison Each model have some advantages and at the same time, disadvantages for the ESCO and the customer. Here, both perspectives, regarding to the three models, are going to be analyzed. Figure 7. Eurocontract Project Development Models (Institute of building efficiency, 2010. Energy Performance contracting in Europe: creating common "model" definitions, processes and contracts). 39 8.3.1. ESCO Perspective On one hand, the BEPC model implies less risk to the ESCOs since the two Eurocontract models force the companies to present an offer basing only in the data provided by the customers and an rough analysis. That makes that the BEPC model will be able to carry out more aggressive measures to reduce energy costs and improve the efficiency energy, and therefore they are more likely to reach more savings and thus more benefits. On the other hand, Eurocontract models saves time to the ESCO, due to the customer is who provides the data needed and the first rough analysis, and moreover they do not have to present an Investment Grade Audit (IGA) to the customer, which implies a faster remuneration and hence a sooner improvement of the cash flows of the ESCO. Between the two models of the Eurocontract, the single-stage project development is the more easier and faster, but nevertheless it is also the more risky. That risk is reduced in the BEPC and the two-stage models, where the fine analysis or the IGA are developed under an agreement, under which, if the customer decides to not proceed with the project and if they have fulfilled with the requisites of the customer, the remuneration is guaranteed. Moreover, the selection of a single company in these models happens sooner in the process, what means that ESCOs minimizes the cost risks related to the planning and the design of the project since they are carried out once they have been selected, i.e. under contract. Furthermore, with the single-stage model, ESCOs have to promise some guarantees directly with the offer, which increase the risk even more, but to offset it and secure their incomes, they take into account security premiums in the calculations of bidders. 8.3.2. Customer Perspective From the customer perspective the BEPC model is attractive due to the transparent pricing methodology which allows him to be aware of and negotiate the cost before signing the contract. Also, under this model the ESCO must provide the guaranteed maximum price (GPM) which fixed a maximum price of the project and any savings under this price will be shared between the customer and them. On the other hand, the Eurocontract model it is more cheaper since it promotes a more competitive bidding process, nevertheless it implies a higher preparation and work by 40 the customer, and the measures taken are less deeper and therefore the cost savings are smaller. 9. Measurement and Verification The energy measurement and verification is one of the key concepts of the EPC model contract and it implies the study, measurement y knowledge about the energy levels before and after the implementation of the energy efficient measures carried out according to the EPC project . The book "Performance Contracting - Expanding Horizons" (Hansen, 2006, page 64) describes Measurement and verification as: "the set of methodologies that are employed to validate and value changes in energy and water consumption patterns over a specified period of time, which result from an identified intervention or set of energy conservation measures” In other words, it is a tool used to measure the savings which have been achieved after the implementation of the EPC-measures with the purpose of verify that the expected and guaranteed savings remain throughout the period of time agreed between the customer and the ESCO. The energy level is not the only measure, it would also be measured and compared with the baseline the lighting level, the water usage, the emissions of CO2 ... In general, the Measurement and verification is carried out by the same ESCO which have implemented the project, but sometimes it is the customer himself or a third part who carries it out. Moreover, there are different methods and protocols which can be followed to carry out the measurement and verification. One of the most used standard protocol, is the International Performance Measurement and Verification Protocol (IPMVP) . The savings cannot be directly measured, since it has to be taken into account that some savings can be a consequence of different factors such as the amount of production, the opening hours or the changes in the weather instead of be caused by the EPCmeasures . 41 Therefore the savings are calculated by comparing the measured energy use before and after the implementation of the measures with the adjustments required. The calculation can be summarized with the formula below: Where the Baseline Usages makes reference to the baseline prior to the implementation of the measures, the Adjustments makes reference to the changes which are not directly related with these measures as it has been said before, and finally the Post Installation Usage refers to the energy usage after the EPC-measures . Before starting to gathering the data which will be part of the Baseline energy records, it must be taken into account some considerations. First of all, the Measurement Boundary has to be defined, which refers to the scope of the project, i.e. if savings are going to be calculated taking into account the whole facility or only for a part of it. Another important consideration which has to be determined is how are going to be measured the levels of energy to calculate the savings, since in most cases a instantaneous measure of the electricity (or gas or heat) load before and after the implantation of the project, is enough but other times it is not. When an instant measurement is not enough, it has to be carried out a logging of the energy use during a representative period of Figure 8. Measuring and Verifying Energy Savings as a result of an Energy Performance Contract (SEAI. A guide to Energy Performance Contracts and Guarantees) 48 more attention to the more economic project instead of the more efficient ones. Thus they have to learn how to choose the proper project and also, the policy makers should work to make the public procurement rules to be easy and simple. The access to financing is a barrier in a lot of countries. It is not the case in Sweden but in Spain, where nowadays there is an economic crisis. Finally, the trust and awareness issue is a concern for most of the countries since it is essential to the market to be successful, the ESCOs need to prove that they are able to obtain the promised savings. It has to be remembered that the failure of ESCOs in Sweden in one of the previous upsurges was caused because the ESCOs were unable to reach the expected savings. Thus in Sweden the mistrust in the EPC has been bigger and therefore it took more time than in other countries like in Spain to achieve a strong position in the market. Nowadays, the increase of awareness in the model is the main reason of the growth of the market, since every day there are more cases which prove that the ESCOs meet the expectations. Nevertheless, when looking for good practices for this report, it was more easier to find examples of successful cases in Spain than in Sweden, and also Spanish cases were explained deeper than the Swedish ones. This proves of major maturity of the Spanish market despite being through a bad time. While it is true that the energy contracting models have to stand on by themselves, it is needed that the right framework exists. For instance, in Stockholm 2010 there was an incident about the legal situation of the procurement which questioned the entire national EPC market. Nevertheless, as has been seen the energy efficiency is being increasingly an issue more important on the political agenda, mainly due to the targets defined by the European union. It can be said that the path that it is being marked by the current measures will hopefully lead to the best possible framework for energy contracting. In Spain, during the last years, it has been made a lot of publicity about the ESCOs' projects due to the national decline of the construction market and the increasing energy costs. This publicity contributes to overcome the informational barrier, however, a deeper investigation is needed to solve the current financing problems and also a necessary change of the inefficient execution of government procedures is required. The increasing energy prices and the "free market" for selling electricity and natural gas ("regulated market" has almost disappeared) are also helping to promote the implementation of energy efficiency projects. Despite the good path of the ESCOs in Spain partly due to the large governmental programme, specific laws to regulate their implementation and promotion of ESCO from energy agencies and the constant decrease in state support for energy efficiency projects as a consequence of the crisis are the actual main barrier. If the government could simply carry out the measures which have already been established the adequate framework could exist. 49 The case of Sweden has seen a different path since despite the failure in its beginning it is an example of how a deliberated, well-designed dissemination of information and trustworthy documents and procedures is a key for the development. So, while in Spain, the ESCOs required less time to get a strong position in the market, now due the current economical situation its growth rate has decreased. On contrary in Sweden after having overcome the mistrust and the bad reputation, the ESCOs have experimented a good growth rate during last few years. The market structure is also different. Therefore the characteristics of the EPC projects are not the same. The main feature of the Swedish energy market is the high use of district heating, due to which, the EPC projects do not usually include neither service and maintenance nor supply side measures. The common projects are mainly of modernization and refurbishment of public buildings involving lighting, heating, ventilation and air conditioning (HVAC), complex refurbishments and fuel switch. On the other hand the projects in Spain include public buildings, private non residential buildings and industries involving cogeneration, audits, HVAC control system and lights. Once again, focusing on the most common projects that are performed, it can be seen that the Spanish market is more mature than the Swedish, therefore both Swedish policy makers and Swedish ESCOs should learn from the Spanish ones, especially how to reach the private sector. Both countries, also has differences between the typical energy service providers. The Swedish market is composed mainly by international medium sized building and control manufactures and facility and operation companies with EPC as a side business, while in Spain the market consists of national and international large utilities, construction and multiservice companies, which once again, proves the major maturity of the ESCOs in Spain. Sweden has experimented a great growth in the last few years, and a suitable way of continue in the good path and continue growing could be to enter in the private sector, to include the service and maintenance in the EPC projects or for instance, in cases where the supply facilities are installed (such as existing oil heat boilers), providing just the service and maintenance could be an option. The energy service market is constantly changing, therefore the energy service providers should be dynamic and they should be able to adapt their services to the customer needs and develop new approaches capable to comply today's and tomorrow's challenges. After this report, it seems that, although much remains to take advantage of the full potential of the energy efficiency services, the ESCOs and both European, national and regional policy makers are working in the correct way. 50 13. References 1. Bobbino, S., Galván, H., González-Eguino, M., 2013, Budget-Neutral Financing to Unlock Energy Savigns Potential: an analysis of the ESCO Model in Barcelona, The BC3 Working Paper Series, Basque centre for climate change, Spain (p. 8-12). 2. Bobbino, S., Galván, H., González-Eguino, M., 2013, Budget-Neutral Financing to Unlock Energy Savigns Potential: an analysis of the ESCO Model in Barcelona, The BC3 Working Paper Series, Basque centre for climate change, Spain (p. 17-20.) 3. Ürge-Vorsatz, D., Köppel, S., Liang, C., Kiss, B., Nair, G.C., Celikyilmaz, G., 2007, An Assessment of on Energy Service Companies (ESCOs) Worldwide, WEC ADEME project on energy efficiency policies, ADEME with the World Energy Council, Central European University (p. 10-17). 4. Bertoldi, P., Rezessy, S., 2005, Status Report 2005, Energy Service Companies in Europe, European Commission, DG JRC with the Institute for Environment and Sustainability, Renewable Energies Unit, Luxembourg (p. 17-22). 5. Bertoldi, P., Rezessy, S., 2005, Status Report 2005, Energy Service Companies in Europe, European Commission, DG JRC with the Institute for Environment and Sustainability, Renewable Energies Unit, Luxembourg, (p. 23-28) 6. European Commission, 2011. Communication from the commission to the European Parliament, the Council, the European economic and social committee and the committee of the regions, Energy Efficiency Plan 2011, Brussels (p. 2-12). 7. Secretary of State for Energy, 2013, Report on the energy savings and efficiency measures in compliance with the Article 7 of Directive 2012/27/EU of the European Parliament and of the council of 25 October 2012 on Energy Efficiency, National Energy Efficiency Action Plans (NEEAPs), Ministry of Industry, Energy and Tourism, Madrid, (p. 9-16) 8. Government of Sweden, Ministry of Enterprise, Energy and Communications, 2013, Plan for implementation of Article 7 of the Energy Efficiency Directive, National Energy Efficiency Action Plans (NEEAPs), European Commission Directorate - General for Energy, Brussels (p. 4-11). 9. Energy European Commission. 2014. Energy Efficiency: Reporting targets. [Online] Available at: http://ec.europa.eu/energy/efficiency/eed/reporting_en.htm 51 10. Energy European Commission. 2014. Energy Efficiency: Energy efficiency Directive. [Online] Available at: http://ec.europa.eu/energy/efficiency/eed/eed_en.htm. 11. Clinton foundation Initiative, 2009, An introduction to EPC, ECP toolkit for higher education, American College and University Presidents Climate Commitment (p. 2-9). 12. Marino, A., Bertoldi, P., Rezessy, S., 2010. Energy Service Companies Market in Europe, Status Report 2010, JRC Scientific and technical reports, Publications Office of the European Union, Luxemburg, (p. 55-62) 13. Wargert, D., 2011, Energy Contracting models in Germany and Sweden, Lunds Tekniska Högskola, Lund, (p. 55-67). 14. Wargert, D., 2011, Energy Contracting models in Germany and Sweden, Lunds Tekniska Högskola Lund, (p.30). 15. Ryan, A., Meally, D., O'Ruordan, C., Mercer, T., A guide to Energy performance Contracts and Guarantees, Sustainable energy authority of Ireland (SEAI), Dublin (p. 78). 16. Ryan, A., Meally, D., O'Ruordan, C., Mercer, T., A guide to Energy performance Contracts and Guarantees, Sustainable energy authority of Ireland (SEAI), Dublin, (p. 9). 17. Mayer, A., Supple, D., Kuhn, V., Lines, S., 2010, Energy Performance Contracting in the European Union: Creating common "model" definitions, processes and contracts, Johnson Controls, Washington, (p. 2-13). 18. Shirley J. Hansen, Ph.D. with Pierre Langlois and Paolo Bertoldi, 2009, ESCOs Around de world: Lessons learned in 49 countries, The Fairmont Press, Lilburn. 19. Asociación de Empresas de Servicios Energéticos, Caso de Estudio Berriak, Casos de éxito, DEXMA Energy Management with GESE Servicios Energéticos. [Online] available at: http://www.anese.es/?p=13741. 20. European Energy Service Initiative, 2009, Good practices examples, Kalmar läns landsting, Build up. [Online] Available at: http://www.buildup.eu/es/cases/22406 21. Building Owners and Managers Association (BOMA) and Clinton Climate Initiative (CCI), 2009, Building Energy Retrogit Program. [Online] Available at: http://www.kentlaw.edu/faculty/fbosselman/classes/energysp09/BEPC%20Program%20 Outline.pdf 52 References Annex: European Commission, 2006. Energy Service Directive 2006/32/EC. [Online] Available at: http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32006L0032 Graz Energy Agency Ltd, 2009. [Online] Available at: http://www.grazerea.at/eesi/upload/download/diskussionspapiere/091018_gea_energy_contracting_definit ions-discussion_paper.pdf Lawrence Berkeley National Lab, 2013. [Online] Available at: http://emp.lbl.gov/sites/all/files/lbnl-6300e_0.pdf World Energy Council, 2007. [Online] Available at: http://www.worldenergy.org/documents/esco_synthesis.pdf Clinton Climate initiative an d American college & university presidents climate commitment, 2009. [Online] Available at: http://www.laccdbuildsgreen.org/docs/energyToolkit/ClintonClimateInitiative/2An_Introduction_to_EPC.pdf Berliner Energieagentur GmbH, 2011. [Online] Available at: http://www.seai.ie/News_Events/Previous_SEAI_events/Susanne%20Berger.pdf Berliner Energieagentur GmbH, 2010. [Online] Available at: http://www.codema.ie/images/uploads/docs/Standard1_Definitions.pdf Ecole des Mines Paris, 2002. [Online] Available at: http://wwwcenerg.ensmp.fr/english/themes/mde/pdf%20J%20Adnot/pef9.pdf European Commission, 2006. Energy Service Directive 2006/32/EC. [Online] Available at: http://eur-lex.europa.eu/legalcontent/EN/ALL/;jsessionid=QT3ZT65h3PbP790PL20Zbt19JYrGCWnBy1MfvQF7p WdgLVrmXyyg!-107852504?uri=CELEX:32006L0032 Graz Energy Agency, 2009. [Online] Available at: http://www.grazerea.at/eesi/upload/download/diskussionspapiere/091018_gea_energy_contracting_definit ions-discussion_paper.pdf International Energy Agency Demand Side Management Programme, 2013. [Online] Available at: http://www.ieadsm.org/Files/Tasks/Task%2016%20- %20Competitive%20Energy%20Services%20(Energy%20Contracting,%20ESCo%20S ervices)/Publications/(1)What%20is%20Energy-Contracting_Task16Discussion%20paper-Rev.3_131014.pdf 53 ICF International and National Association of Energy Services Companies (NAESCO), 2007. [Online] Available at: https://www.energystar.gov/ia/partners/spp_res/Introduction_to_Performance_Contracti ng.pdf Johnson Controls, 2010. [Online] Available at: http://www.institutebe.com/InstituteBE/media/Library/Resources/Existing%20Building %20Retrofits/Issue-Brief-Energy-Performance-Contracting-in-the-EU-Part-2.pdf London Development Agency RE:FIT Programme. [Online] Available at: http://www.london.gov.uk/sites/default/files/DD706%20REFIT%20new%20framework %20PDF.pdf World Energy Council, 2004. [Online] Available at: (http://www.worldenergy.org/documents/eepi04.pdf) Graz Energy Agency, 2009. [Online] Available at: (http://www.grazerea.at/eesi/upload/download/diskussionspapiere/091018_gea_energy_contracting_definit ions-discussion_paper.pdf) Graz Energy Agency Ltd, 2008. [Online] Available at: http://download.nachhaltigwirtschaften.at/pdf/T16_Comprehensive-Refurbishment-ofBuildings-through-EPC.pdf Graz Energy Agency, 2013. [Online] Available at: http://www.ieadsm.org/Files/Tasks/Task%2016%20- %20Competitive%20Energy%20Services%20(Energy%20Contracting,%20ESCo%20S ervices)/Publications/(1)What%20is%20Energy-Contracting_Task16Discussion%20paper-Rev.3_131014.pdf 14. Annexes 14.1 Annex I 14.1.1 ESCOs 54 i) European Commission (2006) “Energy Service Directive” (2006/32/EC) "Energy service company’ (ESCO): a natural or legal person that delivers energy services and/or other energy efficiency improvement measures in a user's facility or premises, and accepts some degree of financial risk in so doing. The payment for the services delivered is based (either wholly or in part) on the achievement of energy efficiency improvements and on the meeting of the other agreed performance criteria. " ii) Graz Energy Agency Ltd (2009) "An Energy Service Company (ESCO) implements a customized energy service package (consisting of planning, building, operation & maintenance, optimization, fuel purchase, (co-)financing, user behavior …). The ESCO provides guarantees for all inclusive cost and results and takes over commercial and technical implementation and operation risks over the whole project term of typically 10 to 15 years. ESCo products provide either useful energy (Energy Supply Contracting - ESC) or energy savings (Energy Performance Contracting - EPC) to the end user. And they achieve environmental benefits due to the associated energy and emission savings as well as non-energetic benefits such as increase in comfort or image gains. " iii) Lawrence Berkeley National Lab (2013) "Firms that provide energy efficiency-related and other value-added services and for which performance contracting makes up a core part of its energy-efficiency services business. In a performance contract, the ESCO guarantees energy and/or dollar savings for the project and ESCO compensation is therefore linked in some fashion to the performance of the project." iv) World Energy Council (2007) "Energy service companies offer energy efficiency improvement or energy services , such as consulting firms and equipment contractors, by the concept of performancebased contracting, which means that the ESCO’s payment is directly linked to the amount of energy saved (in physical or monetary terms). They usually offer the following services: they develop, design, and finance energy efficiency projects; install and maintain the energy efficient equipment involved; measure, monitor, and verify the project’s energy savings; and assume the risk involved in the expected amount of energy savings. Therefore, they take financial, technical and other risks. " 55 v) Clinton climate initiative and American college & university presidents climate commitment (2009) An ESCO, or Energy Service Company, is a business that develops, installs, and arranges financing for projects designed to improve the energy efficiency and maintenance costs for facilities over a seven to twenty year time period. ESCOs generally act as project developers for a wide range of tasks and assume the technical and performance risk associated with the project 14.1.2. EPC i) Berliner Energieagentur GmbH (2011) "EPC is comprehensive energy service (planning, implementation, operation and optimization of building installations) that aims to achieve guaranteed improvements. [EPC] is based on cooperative work and contracts. Necessary investments are refinanced through guaranteed cost saving over the contract’s period " ii) Berliner Energieagentur GmbH (2010) "Energy Performance Contracting (EPC) is a proven and cost-efficient instrument for tapping existing energy saving potentials in the buildings sector. An Energy Service Company (ESCO) implements a customized energy service package, consisting of planning, building, operation & maintenance, optimization, fuel purchase, (co-) financing and user behavior. EPC deals with the optimization across the trades of automation installations in buildings and building operation by an ESCO in the form of a co-operation based on partnership. Performance components of the ESCOs services are financing, planning and installation of components for energy generation, distribution and usage as well as their operation and maintenance. Integration and training of the users are often part of EPC" iii) Ecole des Mines de Paris (2002) "EPCs are all types of Energy Performance Contracts. Energy performance contracting (EPC) is any mechanism, in which a third part opens opportunities for energy savings in conditions where it is not spontaneous. It ranges from a financing alternative to lower the financial burden for the facility owner to a full outsourcing to reduce the yearly operational costs for energy, for instance. The dominant model is a pure service where 56 the various components are unbundled (can be taken or not by the user) and the service company is judged (and paid) on each of the unbundled components : the economic efficiency in purchasing energy, the technical efficiency in continuous audit and maintenance, the financial efficiency in planning works on time, the technical and economic efficiency in proposing energy saving works repaid from benefits." iv) European Commission (2006) “Energy Service Directive” (2006/32/EC) " Energy performance contracting is a contractual arrangement between the beneficiary and the provider (normally an ESCO) of an energy efficiency improvement measure, where investments in that measure are paid for in relation to a contractually agreed level of energy efficiency improvement. " v) Graz Energy Agency (2009) "Energy Performance Contracting (EPC), the focus is on reducing final energy consumption through demand side energy efficiency measures. The scope is extended to the entire building or enterprise including measures such as technical building equipment, user behavior or the building envelope insulation. " vi) International Energy Agency Demand Side Management Programme (2013) "Energy Performance Contracting (EPC), the focus is on reducing final energy consumption through demand side energy efficiency measures. The scope is extended to the entire building or enterprise including measures such as technical building equipment, user behavior or the building envelope insulation. " vii) ICF International and National Association of Energy Services Companies (NAESCO) (2007) "EPC is a turnkey service, sometimes compared to design/build construction contracting which provides customers with a comprehensive set of energy efficiency, renewable energy and distributed generation measures and often is accompanied with guarantees that the savings produced by a project will be sufficient to finance the full cost of the project. A typical EPC project is delivered by an Energy Service Company (ESCO) which provides all of the services required to design and implement a comprehensive project at the customer facility, from the initial energy audit through long-term Monitoring and Verification (M&V) of project savings. " 57 viii) Johnson Controls (2010) "Energy performance contracting (EPC) is a proven and internationally-recognized procurement method for reducing the operating costs and environmental impacts of buildings at low risk to property owners. Under a performance contract, an Energy Services Company (ESCO) brings its technical know-how to provide complete turnkey responsibility for a comprehensive set of energy efficiency, water efficiency, operations and maintenance cost efficiency, renewable energy, and/or distributed generation improvement measures. The ESCO manages all aspects of the project from start to finish: building audits, detailed design and engineering, business case analysis, installation, commissioning, and ongoing performance measurement and verification. Importantly, the ESCO assumes performance risk for the project in the form of a longterm financial guarantee to ensure that the projected energy, water, and operational cost savings materialize and are preserved over time." ix) London Development Agen cyRE:FIT Programme "The reduction in energy bills and the carbon footprint of buildings is achieved by appointing an Energy Service Company (ESCo) to undertake energy efficiency measures in buildings. The ESCo guarantees a set level of energy savings, this offers a financial saving over the period of the arrangement. The risk associated with the delivery of energy savings is passed onto the ESCo rather than the owner of the building. This is known as Energy Performance Contracting (EPC). " x) World Energy Council (2004) "Energy Performance Contracting (EPC)56 is a contract on energy performance between a consumer and an Energy Service Company (ESCO) that uses cost savings from reduced energy consumption to repay the cost of implementing energy conservation measures. The ESCO, which is basically a supplier for building techniques, an engineering company or a utility, carries out a cluster of services and carries the risks of performance and operation. In this scheme, an energy agency can intervene to assist the public body in the collection of energy data, in the negotiations with ESCOs (tendering process) and in the follow-up of the project." 14.1.3. ESC