Energy Performance Contracting               Energy Services Companies (ESCO)                            Webinar 5 April 2...
Energy Performance Contracting    Energy Services Companies (ESCO)    By Pierre Langlois    President    Econoler    Webin...
PRESENTATION STRUCTURE    1.   EE benefits and barriers    2.   The EPC concept    3.   EPC contractual approaches    4.  ...
1. EE PROJECTS       BENEFITS AND BARRIERS4
END USER BENEFITS     ›   Lower operational costs     ›   Optimization of equipment operation     ›   New and modern equip...
BARRIERS                     Awareness                     Knowledge                   Lack of capacity         Lack of co...
2. ENERGY PERFORMANCE CONTRACTING7
ENERGY PERFORMANCE CONTRACTING     A contractual arrangement between a     beneficiary and a provider (called an Energy   ...
ENERGY SERVICE COMPANY     A firm that provides integrated solutions     for enhanced energy cost reductions     and whose...
THE EPC APPROACH                                            Contractors     Client                                Equipmen...
THE SKILLS OF AN ESCO              Development                  Technical                     Sales                      I...
Figure 1: Overview of Comprehensive Project Service Sales Process (continued)           ESCO                              ...
Figure 1: Overview of Comprehensive Project Service Sales Process (continued)     ESCO finalizes            all project   ...
3. EPC Contractual Approaches14
Guaranteed Savings Concept     Achieved energy savings                  Client retains 100%                               ...
Shared Savings Concept                           ESCO     Client                          Financial                       ...
“Chauffage” Concept                ESCO supplies              ESCO implements                 energy from               pr...
CURRENT USE OF THE CONCEPTS      The more the country is developed            Guaranteed savings      The less the country...
EPC AROUND THE WORLD     More used around the world     Greatly underdeveloped world wide     Important barriers in the pu...
EPC AROUND THE WORLD         Concept is expending in many countries         North America still the biggest market        ...
4. MEASUREMENT AND VERIFICATION21
A NATIONAL BASELINE          1,000,000                                            Baseline + Adjustments              750,...
INTERNATIONAL PERFORMANCE       MEASUREMENT AND VERIFICATION PROTOCOL     › The most known protocol on M&V     › Produced ...
5. ESCO: Different Models24
ESCO: DIFFERENT MODELS     › Utility-based ESCO (the cases of Croatia and       Uruguay)     › Government-based ESCO (the ...
ESCO: UTILITY BASED ESCO     › Utility-based ESCO (the cases of Croatia and       Uruguay)     › Owned by Utility     › Ta...
ESCO: UTILITY BASED ESCO     › Advantages      ›   Client data base available      ›   Available financing source      ›  ...
ESCO: GOVERNMENT BASED ESCO     › Government-based ESCO (EESL: the case of       India)     › Established by Government to...
ESCO: GOVERNMENT BASED ESCO     › Advantages      › facilitate preparation of energy efficiency projects      › Partner wi...
ESCO: PRIVATE SECTOR ESCO     › Private sector ESCO (the case of China)     › Owned by private companies: vendors of energ...
ESCO: PRIVATE SECTOR ESCO     › Advantages      › Very flexible EPC following client criteria      › Ability to develop an...
6. EPC: Public procurement32
PUBLIC PROCUREMENT FOR EPC         Although EPC may be well suited to         address the challenges of improving public  ...
PUBLIC PROCUREMENT FOR EPC     A COMPLEX ISSUE     HTTP://www.esmap.org/filez/news/72720091058           11_P2E2_presentat...
7. Conclusion35
CONCLUSION:     IS EPC IS THE SOLUTION FOR EE?      Limitation of the concept       › Size is an issue       › Credit risk...
THANK YOU     Pierre Langlois     President     Econoler     planglois@econoler.com37
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Course on Regulation and Sustainable Energy in Developing Countries - Session 9

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Session 9 is devoted to Energy Services Companies (ESCOs). First, it introduces the Energy Performance Certificates concept and EPC contractual approaches. Then, it presents the need for measurement and verifications (M&V). It presents different ESCOs models:

the utility-based ESCOs with the cases of Croatia and Uruguay;
the Governement-based ESCO with the case of India;
the private sector ESCO with the case of China.
It concludes with the examples of institutional development schemes in Tunisia and Ivory Coast.

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Course on Regulation and Sustainable Energy in Developing Countries - Session 9

  1. 1. Energy Performance Contracting Energy Services Companies (ESCO) Webinar 5 April 2012 Pierre Langlois President - Econoler Course on Regulation and Sustainable Energy in Developing Countries – Session 9 www.leonardo-energy.org/course-regulation-and-sustainable-energy- developing-countries1
  2. 2. Energy Performance Contracting Energy Services Companies (ESCO) By Pierre Langlois President Econoler Webinar April 5, 20122
  3. 3. PRESENTATION STRUCTURE 1. EE benefits and barriers 2. The EPC concept 3. EPC contractual approaches 4. EPC financing structures 5. Measurement and verification 6. ESCO: different models and examples3
  4. 4. 1. EE PROJECTS BENEFITS AND BARRIERS4
  5. 5. END USER BENEFITS › Lower operational costs › Optimization of equipment operation › New and modern equipment (increased value) › Improved competitiveness › Improved product quality › Higher comfort level › Green image5
  6. 6. BARRIERS Awareness Knowledge Lack of capacity Lack of confidence in project results and Financing6
  7. 7. 2. ENERGY PERFORMANCE CONTRACTING7
  8. 8. ENERGY PERFORMANCE CONTRACTING A contractual arrangement between a beneficiary and a provider (called an Energy Service Company) for the implementation of an EE project, where the global investments have to be paid for through a contractually agreed level of energy cost reduction.8
  9. 9. ENERGY SERVICE COMPANY A firm that provides integrated solutions for enhanced energy cost reductions and whose payments are directly linked to project performance.9
  10. 10. THE EPC APPROACH Contractors Client Equipment manufac- turers Governments Financial ESCO institutions Guarantee •Analysis Professional •Concept consulting •Installation engineer •Financing Energy •Monitoring Suppliers •Training10
  11. 11. THE SKILLS OF AN ESCO Development Technical Sales IGA Marketing Engineering M&V Financial Project Construction Direct financing Management or arrangements Management or execution Legal Risk Management Contracts For guarantee of savings Local regulations and for cost and delay control Training and Operation & Management Maintenance Support (Occasionally)11
  12. 12. Figure 1: Overview of Comprehensive Project Service Sales Process (continued) ESCO Customer provides establishes Preliminary survey and energy bills and preliminary scope walk-through of customer operating cost data and budget for facility potential project ESCO Verification of energy understands and validates savings methodology, customer procurement process, customer Customer verifies concerns and spending categories and ESCO findings issues as well as other project financial needs parameters ESCO creates proposal summarizing all info from previous Preliminary proposal Customer reviews step; preliminary budget estimates used ESCO signs Letter of Intent (LOI) Customer signs12
  13. 13. Figure 1: Overview of Comprehensive Project Service Sales Process (continued) ESCO finalizes all project parameters incl.: ops, energy, & cap (if any); financing; Conduct implementation detailed engineering study, ; Customer reviews schedule; contract initiate contract and preliminary development starts start financing discussions contract ESCO conducts a complete review of job Risk review estimates and risks; contract finalized ESCO prepares presentation with Customer reviews final project Proposal presentation contract and parameters financing and benefit statements Energy Service ESCO signs Agreement (ESA) Customer signs Project implementation13
  14. 14. 3. EPC Contractual Approaches14
  15. 15. Guaranteed Savings Concept Achieved energy savings Client retains 100% of savings Bank loan to Client pays ESCO during client which implementation provides Client guarantees Client BANK reimburses loan directly ESCO reimburses for to the bank underperformance of ESCO the project Financial institution15
  16. 16. Shared Savings Concept ESCO Client Financial institution16
  17. 17. “Chauffage” Concept ESCO supplies ESCO implements energy from project and owns the facility energy facility Typically pays 10% - 30% equity share Customer pays ESCO ESCO for energy Energy Bank lends 70% - Customer 90% of project facility costs to ESCO ESCO is the borrower BANK ESCO assigns receivables from customer directly to bank (sometimes pays via bank) Lending Loan is usually secured with energy assets institution17
  18. 18. CURRENT USE OF THE CONCEPTS The more the country is developed Guaranteed savings The less the country is developed Shared savings It should actually be the reversed18
  19. 19. EPC AROUND THE WORLD More used around the world Greatly underdeveloped world wide Important barriers in the public sector du to procurement issues No good information on the market size available19
  20. 20. EPC AROUND THE WORLD Concept is expending in many countries North America still the biggest market EPC is used in many different forms Europe will use more EPC base on the current CC objectives and regulations (EC directives)20
  21. 21. 4. MEASUREMENT AND VERIFICATION21
  22. 22. A NATIONAL BASELINE 1,000,000 Baseline + Adjustments 750,000 Energy 500,000 Savings Baseline Period Reporting Period 250,000 Metered Energy22
  23. 23. INTERNATIONAL PERFORMANCE MEASUREMENT AND VERIFICATION PROTOCOL › The most known protocol on M&V › Produced and disseminated by the Efficiency Value Organization › Can be downloaded for free from EVO www.evo-world.org23
  24. 24. 5. ESCO: Different Models24
  25. 25. ESCO: DIFFERENT MODELS › Utility-based ESCO (the cases of Croatia and Uruguay) › Government-based ESCO (the case of India) › Private sector ESCO (the case of China)25
  26. 26. ESCO: UTILITY BASED ESCO › Utility-based ESCO (the cases of Croatia and Uruguay) › Owned by Utility › Targeted sectors: all sectors but mainly focusing on government facilities and institutions (schools, offices, universities, hospitals, industries, etc) › Maximum payback period : Variable, Private 5 years, Public 8 years(Croatia) › Project’s range: USD 100,000 to 2 Million (Croatia) › Utility financing: › Croatia : 7 million › Uruguay: 7.1 million26
  27. 27. ESCO: UTILITY BASED ESCO › Advantages › Client data base available › Available financing source › Easy access to clients › Client trust utility › Access to all sectors especially government › Disadvantages: › Not flexible and could not follow the fast changes as it is a part of big system › Difficulties to stimulate staff27
  28. 28. ESCO: GOVERNMENT BASED ESCO › Government-based ESCO (EESL: the case of India) › Established by Government to facilitate implementation of energy efficiency projects › Targeted sectors: Demand Side Measures including municipal functions, agriculture, public building, lighting etc. › EESL work as ESCO, as Consultancy Organization for CDM, as a Resource Centre for capacity building of State Designated Agencies, Utilities, financial institutions, etc.28
  29. 29. ESCO: GOVERNMENT BASED ESCO › Advantages › facilitate preparation of energy efficiency projects › Partner with private ESCO’s and other companies to promote energy efficiency. › Assists and help for project financing › Capacity development and activities support to potential ESCOs in the market › Disadvantages: › Longer delay for project development and implementation › Rigid procedure29
  30. 30. ESCO: PRIVATE SECTOR ESCO › Private sector ESCO (the case of China) › Owned by private companies: vendors of energy- efficient equipment or subsidiaries, companies with innovative proprietary technology, companies with special skills in diagnosis of energy efficiency. Some ESCOs have evolved from local energy conservation technical centers, etc › Targeted sectors: industrial enterprises are the dominant clients with building sector and commercial › Payback period : The focus on commercial clients has helped lead to a fast-paced business centering on projects which can conclude within three years or less › Number: registered ESCOs in China reached over 900 by the end of 201030
  31. 31. ESCO: PRIVATE SECTOR ESCO › Advantages › Very flexible EPC following client criteria › Ability to develop and adjust to a win-win approach › Full services project or focus on a single technology or system renovation › Disadvantages: › Required important fianancial capacity › Limited access to gouvernement facilities › Limited support form governemental institutions31
  32. 32. 6. EPC: Public procurement32
  33. 33. PUBLIC PROCUREMENT FOR EPC Although EPC may be well suited to address the challenges of improving public sector energy efficiency, rigid administrative systems are quite poorly suited to efficient procurement of energy services Helping public agencies manage the EPC process is a difficult task Solutions must be country specific33
  34. 34. PUBLIC PROCUREMENT FOR EPC A COMPLEX ISSUE HTTP://www.esmap.org/filez/news/72720091058 11_P2E2_presentation_REV_3.pdf34
  35. 35. 7. Conclusion35
  36. 36. CONCLUSION: IS EPC IS THE SOLUTION FOR EE? Limitation of the concept › Size is an issue › Credit risk in the private sector is a limitation Focused Markets › Public sector has always been the favorite › Limited use in the industrial sector Case studies › Successes: Canada, China, Croatia, Germany › Failures: Egypt, Tunisia, Poland › Mixed successes: Brazil, India36
  37. 37. THANK YOU Pierre Langlois President Econoler planglois@econoler.com37
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