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Energy Performance Contracting

Marcel Didden

“Midi de l’éfficacité énergétique”Namur, 12 November 2002

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Small CV

Marcel Didden (marcel.didden@mech.kuleuven.ac.be)

1998 Master in electrical engineering, RWTH Aachen

1998 - K.U.Leuven, Energy InstituteDSM and IRP in a deregulated electricity market

2000 - K.U.Leuven, Energy InstituteCost benefit analysis of voltage sag immunization methods

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Outline

1. Introduction

2. Large customers without energy intensive process

3. Energy Performance Contracting

4. Conclusions and future perspective

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1. Introduction

Kyoto commitments in Europe

High expectations for energy efficiency

- High saving potential known (technical as

well as economic)

- Market barriers prevent the realization of

this potential

Governments should help to remove these barriers

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1. Introduction

Different approaches for different consumer-groups

1) Large consumers with energy intensive process

2) Large consumers without energy intensive process

3) Others: Small and Medium Enterprises, residentials

Presentation: focus on 2)

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6/16Large consumers without energy intensive process

Electricity: Huge savings potential

1) Motors (50% of overall electricity consumption)- Variable Speed Drives- High efficiency motors

2) Lighting (80% consumption in office environment)- 16 mm TL-lamps- Fittings

3) Process air

4) Cooling

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Large consumers without energy intensive process

Some market barriers in industry:

- Short term awareness / Bounded rationality

- Reluctancy to adopt new techniques

- Split incentives

- Disruption in routine

- Limited investment capital

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Large consumers without energy intensive process

Approaches:

1) Giving general information

2) Energy audit

3) Outsourcing

Company pays fix price for lighting or motors

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3. Energy Performance Contracting

4) Energy Performance ContractingThird party installs, maintains and bares risk for installation

and is only paid for by a part of the savings

To good to be true?

Some issues:a) stipulation / measurement of the savingsb) initial investmentc) general confidence in this type of contract

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3. Energy Performance Contracting

a) Stipulation of the savings

General question: how to measure savings ?

US: many argumentation about these savings

- Influence of the weather (especially in heating contracts)

- Influence of increase / decrease production

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3. Energy Performance Contracting

- Solution: measurement protocols for different retrofits

- 4 different types of measurement in the International Performance Measurement and verification protocol.

- Important: measurement costs are 1-10% of retrofit costs

For example: Protocol A

- If usage of application is constant or known in forehand

- Only measurement of power before and after the retrofit

- Measurement error to be expected: +/- 20%

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3. Energy Performance Contracting

b) Initial investmentSmall ESCO’s only get a high-risk loan at the bank

Options:

i) Guaranteed savings:- Company takes loan at the bank and ESCO gets part

of the savings- Savings lower: ESCO pays company extra- Savings higher: surplus is divided

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3. Energy Performance Contracting

ii) Shared savings- ESCO takes loan at the bank, company pays % of savings

Pay from savings- Almost the same as shared savings but the payments to the bank are proportional to the actual savings- Not often used since bank demands a very high intrest

Guaranteed Savings (GS) vs Shared Savings (SS)- Most contracts in the US are GS- GS paybacks up to 5 years, SS up to 3 years

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3. Energy Performance Contracting

c) General confidence

- ESCO’s in the US have bad name due to contracts in the

past

- Organization (US: National Association of ESCO’s or

NAESCO) gives accreditation to reliable ESCO’s

End goal:

- Tender by company where accredited ESCO’s can apply

- ESCO that proves the highest savings, is contracted

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4. Conclusions

- ESCO-market is a good method to overcome market barriers in

large companies without energy intensive production process

- Regulatory framework has to be set by the government to get a well

functioning market:

- measurement guidelines

- accreditation

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4. Future Perspective

Deregulation:

- ESCO-market is expected to grow in future

- Also alliances with utilities who want to gain consumers

Additional InformationNAESCO : www.naesco.org

International Performance Measurement and verification protocol

: www.ipmvp.org

IEA-DSM Agreement : dsm.iea.org library Task VI