Energy finance for building retrofits: Energy Performance Contracting UK


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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 Verification

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Energy finance for building retrofits: Energy Performance Contracting UK

  1. 1. Energy Performance Contracting (EPC)Making energy savings work for your organisation
  2. 2. About Envido
  3. 3. 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
  4. 4. What have these buildings got in common? Empire State Gwent Hospital Strand Palace Hotel 38% saving 54,000t CO2e p.a. £125,000 p.a.
  5. 5. EPC can cover all projects Lighting replacement, Roof Insulation control systems & LEDs Ventilation fans Building Management Systems Damper control Solar gainminimization Wall Insulation Zone temperature control Voltage reduction Chiller upgrade/replacement & absorption cooling Plug load VSD motor control management On-Site Technical Resource Management High efficiency motors Boiler upgrades, controls Combined Heat & Power
  6. 6. EPC market & drivers Origin - US 1990s federal bodies Exponential growth in North £m 160 America, EU & UK following 140 120 Drivers 100 – Energy price forecasts +17% by 2020 80 – CRC liability 60 – Availability of internal capital 40 funding 20 0 2006 2007 2008 2009 2010 2011 2012 Source: BSRIA; Review of the European Performance Contracting Market; December 2006, Frost & Sullivan, Credo research and analysis
  7. 7. 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
  8. 8. Standard EPC Model Saving guaranteed – no repayment if target not met£ Guaranteed savings Guaranteed Energy savings savings Your repay improvement Energy and annual Your O&M costs Energy annual Energy Your costs today and costs and annual O&M during O&M costs costs EPC costs after EPC Before During After EPC EPC EPC
  9. 9. 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!!
  10. 10. EPC financing
  11. 11. About EnvidoIllustration of shared savings structure• 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. Example – A Public Sector Organisation Typical Impact on Energy Bills During and After Project During Project After Project • 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.
  12. 12. Commercial structure: Energy Performance Contract, including O&M ESCO and M&V and Performance Guarantee (See note 3) Shared Savings Payments Project Capex SPV Equity & Debt Investment Building Owner Energy Services Agreement Return Investors 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).
  13. 13. Case study – the strand palace hotel, the 6th largest hotel in london 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. Overview •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. Programme LED lighting installations, •SDCL has designed a financial solution for the project whereby the up-front capital costs of installing the energy efficiency of works voltage optimisation, the equipment and systems could be financed out of the savings achieved. The project is expected to be able to generate a sufficient installation of a building level of savings through reduced energy and maintenance costs and other benefits to cover the cost of implementing the project management system within approximately 4 years. Once an energy performance contract has been awarded to the winning ESCO, SDCL will then be and boiler plant in a position to arrange finance for the project in return for a share of the savings achieved. replacement. Results Savings Overall, the project is expected to save in •The programme of works is due to begin in Q1 2013, and will include LED lighting installations, voltage optimisation, the excess of 25% of the installation of a building management system and boiler plant replacement. hotel’s current energy •Overall, the project is expected to save in excess of 25% of the hotel’s current energy consumption, with estimated annual consumption, with savings expected of £125,000 per year. estimated annual •The project will enable the Strand Palace Hotel to reduce their energy costs and improve their environmental performance, savings expected of without the investment risk. £125,000 per year. Other benefits for the Strand Palace Hotel include: Outcomes The project will enable the Strand Palace Hotel •A turn-key solution based on in-depth knowledge of the whole process from project definition to delivery and finance; SDCL’s to reduce their energy expertise saves both operational and management time for the hotel costs and improve their •Access to a dedicated professional team focused exclusively on delivering energy efficiency opportunities environmental •Solution tailored to the specific needs of the building performance, without the •Reduced operating costs and improvements to the hotel’s asset value investment risk. •Frees up capital budget for the Strand Palace Hotel to use on refurbishing and upgrading facilities as part of their 5-year capital plan.
  14. 14. 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
  15. 15. 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
  16. 16. Developing an EPC
  17. 17. 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
  18. 18. 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 )
  19. 19. The importance of measurement and verification  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. IPMVP – the global energy verification standard
  20. 20. When to establish M&V procedures  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 IPMVP – the global energy verification standard period so only post retrofit values required Remember: If you don’t understand the M&V plan don’t sign it!!!
  21. 21. About Envido 0207 199 0090 |  |  | @envido Find out more about Energy Performance contracting