energy finance for building retrofits: energy performance contracting uk
DESCRIPTION
An introduction to Energy Performance Contracting in the UK: - What is an EPC - Benefits & Challenges - Energy efficiency financing - What is the process - How to select your ESCo - The importance of Monitoring and VerificationTRANSCRIPT
Energy Performance Contracting (EPC) Making energy savings work for your organisation
Agenda
1.Introduction: what is and why choose an EPC, key benefits
2.Financing options
3.Q&A
4.From feasibility to guaranteed savings – the process
5.Select the right Energy Services Company (ESCo)
6.Q&A
What have these buildings got in common?
38% saving
Empire State
54,000t CO2e p.a.
Gwent Hospital
£125,000 p.a.
Strand Palace Hotel
EPC can cover all projects
Lighting replacement, control systems & LEDs
On-Site Technical Resource Management
Chiller upgrade/replacement &
absorption cooling
Building Management Systems
Zone temperature
control
Boiler upgrades, controls Combined Heat & Power
VSD motor control
Ventilation fans
High efficiency motors
Voltage reduction
Damper control
Plug load management
Solar gain minimization
Roof Insulation
Wall Insulation
0
20
40
60
80
100
120
140
160
2006 2007 2008 2009 2010 2011 2012
£m
Source: BSRIA; Review of the European Performance Contracting Market; December 2006, Frost & Sullivan, Credo research and analysis
EPC market & drivers
Origin - US 1990s federal bodies
Exponential growth in North America, EU & UK following
Drivers
– Energy price forecasts +17% by 2020
– CRC liability
– Availability of internal capital funding
What is an EPC?
Comprehensive set of energy efficiency measures
Accompanied with a savings guarantee
No up-front capital investment required
Benefits
• Permanently lower energy costs
• Permanently lower GHG emissions costs
• Accelerated project implementation
• Shorter procurement timescales
• Lower risk
Guaranteed savings
Energy savings repay improvement
Guaranteed savings
Energy and
O&M costs
Your annual costs during EPC
Energy and
O&M costs
Your annual costs after EPC
Your annual costs today
Energy and
O&M costs
Before EPC
During EPC
After EPC
£
Standard EPC Model
Saving guaranteed – no repayment if target not met
How is this possible?
Future energy savings finance upgrade
Building improvements generate sufficient energy savings to finance project costs
ESCo guaranteed energy and cost saving opportunities identified
Up front technology and equipment cost borne by ESCo, then offset by future energy savings
If your building wastes energy, you already have the budget for an EPC!!
EPC financing
About Envido
www.envido.co.uk
Illustration of shared savings structure
Example – A Public Sector Organisation
• A public sector organisation with an annual energy bill of £1m
reduces its electricity, water and gas bills by 25% by
implementing a variety of energy efficiency interventions
including lighting, insulation, plant upgrades, voltage
optimisation and building management systems (BMS).
• During the first 7 years, the public sector organisation benefits
from positive cash flow of £50,000, even after the ESA
payments are taken into account. In year 7 and beyond,
£250,000 in annual savings go straight to the bottom line.
Typical Impact on Energy Bills During and After Project
During Project After Project
• Financial Solution - We structure a financing solution to address the up-front capital costs of installing the energy efficient systems and
equipment. We take our returns out of the savings achieved through the project, therefore the risk sits with us, and not with the client.
• Shared Savings Mechanism - During the contract term, the client shares in the savings generated from the installation of the energy efficient
systems and equipment, ensuring they are in a cash positive position from Day 1.
• Long Term Benefit - At the end of the contract term, the client benefits from 100% of the savings achieved.
Commercial structure:
Equity & Debt
Investment
Shared Savings
Payments Project Capex
Energy Services
Agreement
Return
Features:
1. The Building Owner enters into an energy service agreement (ESA) with the Special Purpose Vehicle (SPV) under which the SPV funds and
implements the energy efficiency project in return for a share of the resulting energy savings.
2. The SPV sub-contracts the implementation to the ESCO through the energy performance contract (EPC) and its Investors provide debt and equity
capital to fund the project capex and other costs.
3. The EPC may incorporate the performance guarantee, on-going O&M and M&V services; alternatively some or all of these may be provided directly to
the Building Owner. The other terms of the EPC are designed to be back-to-back with the ESA, leaving the SPV with only the obligation to fund the
project and the ESCO with the obligation to deliver the project.
4. The Building Owner has the right to terminate the ESA at any time after implementation, for the present value of the future cash flow streams. In such
a case the O&M services contract and Performance Guarantee would survive such termination.
5. SDCL has worked with its professional advisers to design its ESA to maximise the likelihood that such projects may qualify for off balance sheet
treatment in the UK (for the Building Owner).
Building Owner
SPV
ESCO
Investors
Energy Performance
Contract, including O&M
and M&V and
Performance Guarantee
(See note 3)
The Challenge
•The Strand Palace hotel, situated in the heart of the West End, is the sixth largest hotel in London, with 784 rooms and an overall
capacity of 330,000 square feet.
•The hotel had received a Green Tourism award from ‘Green London’. However, the management team were keen to make a
further commitment to reducing their carbon emissions while also reducing their operating costs.
The Solution
•SDCL and its technical partners worked with the Strand Palace Hotel management team to identify energy savings opportunities
around the hotel, verify the opportunity, the costs and the benefits of the installations and design a programme of works.
•A competitive tender process has been run for Energy Services Companies (ESCOs) to install and maintain the equipment and
systems, ensuring energy savings are achieved at the lowest cost and to the highest performance standards.
•SDCL has designed a financial solution for the project whereby the up-front capital costs of installing the energy efficiency
equipment and systems could be financed out of the savings achieved. The project is expected to be able to generate a sufficient
level of savings through reduced energy and maintenance costs and other benefits to cover the cost of implementing the project
within approximately 4 years. Once an energy performance contract has been awarded to the winning ESCO, SDCL will then be
in a position to arrange finance for the project in return for a share of the savings achieved.
Results
•The programme of works is due to begin in Q1 2013, and will include LED lighting installations, voltage optimisation, the
installation of a building management system and boiler plant replacement.
•Overall, the project is expected to save in excess of 25% of the hotel’s current energy consumption, with estimated annual
savings expected of £125,000 per year.
•The project will enable the Strand Palace Hotel to reduce their energy costs and improve their environmental performance,
without the investment risk.
Other benefits for the Strand Palace Hotel include:
•A turn-key solution based on in-depth knowledge of the whole process from project definition to delivery and finance; SDCL’s
expertise saves both operational and management time for the hotel
•Access to a dedicated professional team focused exclusively on delivering energy efficiency opportunities
•Solution tailored to the specific needs of the building
•Reduced operating costs and improvements to the hotel’s asset value
•Frees up capital budget for the Strand Palace Hotel to use on refurbishing and upgrading facilities as part of their 5-year capital
plan.
Case study – the strand palace hotel, the 6th largest hotel in london
Overview
Programme
of works
LED lighting installations,
voltage optimisation, the
installation of a building
management system
and boiler plant
replacement.
Savings Overall, the project is
expected to save in
excess of 25% of the
hotel’s current energy
consumption, with
estimated annual
savings expected of
£125,000 per year.
Outcomes The project will enable
the Strand Palace Hotel
to reduce their energy
costs and improve their
environmental
performance, without the
investment risk.
Advantages of EPC
Risk Reduction
– Guaranteed savings
– Guaranteed min level of performance (and savings!!!)
– Performance and financial risk borne by contractor
– Single contractor
Financial
– Can be self-financing - no capital outlay
– Long-term reduction to operating overhead
– Can be off balance sheet
– Low cash flow impact - repayment aligned to savings
Environmental & reputation
– Hit energy and carbon reduction targets met
Deeper energy and carbon reduction possible
– consider projects with longer payback
An EPC guarantees predictable energy (and cost) savings
EPC challenges
An EPC is a complex project – Multiple decision-makers:
boards, facilities managers, “fiefdoms”
– Strong Leadership Required – champion needed to drive project
– Long, involved feasibility and assessment
– Low awareness of EPC
– Requires project management
The same applies when managing multiple, smaller projects but less risk involved
Developing an EPC
What to look for when choosing an ESCo
Can they capture the maximum level of savings • Guarantee, auditing, M&V, financing, project
management, design, construction/installation, commissioning
• Able to deliver a wide scope of measures (HVAC, lighting, renewables, controls, plant upgrades & specialty systems relating to your facility)
Ensure measured, sustained savings • Rigorous measurement and verification process (with an
up-front plan) to ensure ongoing savings
What to look for when choosing an ESCo
Do they combine technical & practical expertise • Able to design and implement
• Understand practicalities
• Expertise/experience in similar building/sector using measures you anticipate
• Review a sample audit
In-house capability • Energy assessors - identify and verify
projects
• Engineers design, install, commission and provide ongoing maintenance
• Project managers (PRINCE2 )
Evaluate performance of installed ECMs
Verify the energy savings guarantee
If guarantee is not met, M&V determines the energy savings shortfall. Envido repays the financial value to you.
The importance of measurement and verification
IPMVP – the global energy verification standard
Preliminary plan established at feasibility stage, then developed at IGP
Establishes any need for baseline measurements to establish energy use profile of plant or systems.
For example: IPMVP method B - single chiller – isolated
retrofit requires pre and post measurement
IPMVP method C – whole building
measurement – with several ECMs & 10% target, utility bill used for baseline period so only post retrofit values required
When to establish M&V procedures
IPMVP – the global energy verification standard
Remember: If you don’t understand the M&V plan don’t sign it!!!
About Envido
www.envido.co.uk
0207 199 0090 | [email protected] | www.envido.co.uk | @envido
Find out more about Energy Performance contracting