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  • 1.Conference on Pollution Prevention & Energy Efficiency (P2E2) U.S., Hong Kong, China Cooperation9-10 May 2005Technology and market potentialof energy performance contracting for buildings Dr. Sam C M Hui ASHRAE Hong Kong Chapter & Department of Mechanical EngineeringHong Kong The University of Hong KongE-mail: cmhui@hku.hk

2. Agenda Introduction to EPC Market Potential Major Barriers and Risks Key Issues Conclusion 3. Introduction to EPC Energy performance contracting (EPC) = energy savings performance contracting A financing technique to raise money for energyefficiency investments based on future savings Energy service companies (ESCO) Offer EPC services, without upfront capital onbuilding owners (e.g. by guaranteed saving) Become an important trend in many countries likeUSA and Japan 4. Clients benefits ESCOs benefitsClientsbenefits Recovered costsEnergy+ O&M Energy Energycosts $ Cost savings+ O&M + O&Mcosts $ costs $Before EPC Before EPCDuring EPCDuring EPC After EPCAfter EPC Basic concept of energy performance contracting (EPC) 5. Introduction to EPC Performance contract Contract with payments based in performance Can be used for energy conservation projects, tomitigate indoor air quality concerns, to reducewater & sewage usage, or to implement renewableenergy systems ESCO guarantees and takes the risk of notachieving savings; it is paid back out of thesavings (around 4-10 years) 6. Introduction to EPC Benefits of EPC for a business Reduced risk (contractor guarantees) Turnkey services (contractor provides all services) The business needs less internal expertise Project financing could be off balance sheet Advanced products & services can be used Savings can be much higher than done by itself Additional improvements to built environment 7. Introduction to EPC Typical saving measures include: Energy reduction via equipment retrofitting Such as replace lighting equipment, chillers & boilers Fuel saving measures Such as add window films, insulation or pool cover Load shifting Such as by energy management control systems Modification of operating procedures Water & resource efficiency measures 8. Introduction to EPC Different ways of structuring such a contract Guaranteed savings Most common; length 4-8 years Allow extra measures to be added Shared savings The Client & ESCO share the savings; up to 10 years Actual cost not included in contract Pay from savings Variation from shared savings; operates like a loan Chauffage or full services (ESCO takes over) 9. Market Potential External factors Large stock of existing buildings (esp.commercial) Energy cost is a concern for developers/owners Savings not difficult to obtain from equipmentoptimization, retrofitting or retrocommissioning Potential ESCO market In HK, potential market around US$100 million Air-conditioning & lighting are major areas 10. Total floor area (000 sq.m) Building Newly Completed in 1968-2000 5,0001977-1992 (10 to 25 years old, from 2002) Combined residential &non-residential 4,500Non-residential 4,000Residential 3,500 3,000 2,500 2,000 1,500 1,000 500 0 19681969 1970 197619771978 19791980 19811982 1983 19891990 19911992 19931994 199519961971 19721973 197419751984 19851986 19871988 19971998 19992000Year Building completed in 1968-2000 in Hong Kong 11. Market Potential Current EPC active players Automatic control companies Building services consultants/contractors Semi-government bodies (e.g. HKPC) Power companies (for demand side management) Private energy/environmental consultants Government energy projects Electrical & Mechanical Services Dept. (EMSD)is active in promoting EPC 12. Market Potential Prospects Growing concern on energy & environment Achieving sustainable performance! Saving energy & operating costs Policy tools & programmes by government Building energy codes (performance-based), energy labels, pilot renewable energy projects Water-cooled air-conditioning systems (converting of air-cooled systems) Need to maintain & upgrade existing buildings 13. Major Barriers & Risks Major barriers Weak awareness & experience Skepticism of stakeholders Problems with conventional procurement process Problems with measurement & verification Key factors for successful EPC ESCO has the technical, financial & mgt. skills Customer & ESCO have a partnership Good understanding of project goals 14. Major Barriers & Risks Typical EPC project stages Stage 1: The opportunity assessment Stage 2: Preliminary energy services Stage 3: Develop detailed proposal Stage 4: Project implementation Stage 5: Performance assurance + M&V services Risks associated with EPC Technical knowledge & management culture Financing risks & guarantees Argument on savings & responsibilities 15. Key Issues Choosing a contractor Equipment suppliers Best if their technologies are the main measures Fee-based ESCO Best for a wide range of measures or long-term facilities management Utility-based ESCO Best if focus on electricity or gas technologies International energy companies Best for international connection & overseas technology transfer 16. Key Issues Project financing By the ESCO itself As a loan from financial institution By working together with the client Under adverse economy The client may not have the project capital ESCO need to negotiate with bankers to explorecreative financial tools Some clients may want to finance themselves 17. ESCO CapitalFinancier(Project Developer) (Secured Party)Fees PaymentsEnergy services Finance contract and savings (lease or loan) gurantee Customer(Project Owner)Financial structure used by ESCO 18. Key Issues Measurement & verification (M&V) methods Deemed or stipulated savings Payments based on savings estimates, using measurements or audit + equipment characteristics Savings based on utility bills Past energy bills determine baseline consumption Measured savings Compare before & after measurements M&V options & techniques have matured Guidelines e.g. IPMVP and ASHRAE 14-P 19. M&V options and analysis techniquesM&V option Analysis techniquesPartially measured retrofit Engineering calculations using short termisolation or continuous measurementsRetrofit isolationEngineering calculations using short termor continuous measurementsWhole facilityAnalysis of whole facility utility meter orsub-meter data using techniques fromsimple comparison to regression analysis.Calibrated simulation Energy use simulation, calibrated withhourly or monthly utility billing dataand/or endues metering. 20. Conclusion EPC is a useful tool for promoting &delivering energy efficiency projects HK & Mainland China have market potentialin existing & new buildings Some barriers need to be overcome & suitableskills should be developed locally