p2 e2 samhui

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Technology and market potential of energy performance contracting for buildings Conference on Pollution Prevention & Energy Efficiency (P2E2) U.S., Hong Kong, China Cooperation 9-10 May 2005 Dr. Sam C M Hui ASHRAE Hong Kong Chapter & Department of Mechanical Engineering The University of Hong Kong E-mail: [email protected] Hong Kong

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Page 1: P2 e2 samhui

Technology and market potential of energy performance

contracting for buildings

Conference on Pollution Prevention & Energy Efficiency (P2E2)U.S., Hong Kong, China Cooperation

9-10 May 2005

Dr. Sam C M HuiASHRAE Hong Kong Chapter &

Department of Mechanical EngineeringThe University of Hong Kong

E-mail: [email protected] Kong

Page 2: P2 e2 samhui

Agenda

• Introduction to EPC

• Market Potential

• Major Barriers and Risks

• Key Issues

• Conclusion

Page 3: P2 e2 samhui

Introduction to EPC

• Energy performance contracting (EPC)• = energy savings performance contracting• A financing technique to raise money for energy

efficiency investments based on future savings

• Energy service companies (ESCO)• Offer EPC services, without upfront capital on

building owners (e.g. by guaranteed saving)• Become an important trend in many countries like

USA and Japan

Page 4: P2 e2 samhui

Energy

+ O&M

costs $

Energy

+ O&M

costs $

Client’s benefits ESCO’s benefits

Recovered costs

Client’s benefits

Before EPC During EPC After EPC

契約終止後

Cost savings

Energy

+ O&M

costs $

Basic concept of energy performance contracting (EPC)

Before EPC During EPC After EPC

Page 5: P2 e2 samhui

Introduction to EPC

• Performance contract• Contract with payments based in performance• Can be used for energy conservation projects, to

mitigate indoor air quality concerns, to reduce water & sewage usage, or to implement renewable energy systems

• ESCO guarantees and takes the risk of not achieving savings; it is paid back out of the savings (around 4-10 years)

Page 6: P2 e2 samhui

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

Page 7: P2 e2 samhui

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

Page 8: P2 e2 samhui

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)

Page 9: P2 e2 samhui

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 equipment optimization, retrofitting or retrocommissioning

• Potential ESCO market• In HK, potential market around US$100 million

• Air-conditioning & lighting are major areas

• ESCO prefer owner-occupied or single-tenant

Page 10: P2 e2 samhui

Building Newly Completed in 1968-2000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

196

8

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0

Year

Combined residential &non-residential

Non-residential

Residential

1977-1992 (10 to 25 years old, from 2002)

Total floor area ('000 sq.m)

Building completed in 1968-2000 in Hong Kong

Page 11: P2 e2 samhui

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

Page 12: P2 e2 samhui

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

Page 13: P2 e2 samhui

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

Page 14: P2 e2 samhui

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

Page 15: P2 e2 samhui

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

Page 16: P2 e2 samhui

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 explore

creative financial tools

• Some clients may want to finance themselves

Page 17: P2 e2 samhui

ESCO (Project Developer)

Financier (Secured Party)

Customer (Project Owner)

Capital

Payments

Finance contract (lease or loan)

Energy services and savings

gurantee

Fees

Financial structure used by ESCO

Page 18: P2 e2 samhui

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

Page 19: P2 e2 samhui

M&V option Analysis techniques

Partially measured retrofit isolation

Engineering calculations using short term or continuous measurements

Retrofit isolation Engineering calculations using short term or continuous measurements

Whole facility Analysis of whole facility utility meter or sub-meter data using techniques from simple comparison to regression analysis.

Calibrated simulation Energy use simulation, calibrated with hourly or monthly utility billing data and/or endues metering.

M&V options and analysis techniques

Page 20: P2 e2 samhui

Conclusion

• EPC is a useful tool for promoting & delivering energy efficiency projects

• HK & Mainland China have market potential in existing & new buildings

• Some barriers need to be overcome & suitable skills should be developed locally