Best practices to address non-technical barriers to the renovation of EU buildings

1
This project has received funding from the European Union’s Horizon 2020
research and innovation programme under grant agreement No 768287.
Speakers
Best practices to address
non-technical barriers to the
renovation of EU buildings
In cooperation with Leonardo
Energy and its Energy Innovation
Academy
With best practice learnings from:
18 June 2019
13h00 – 14h00 CEST
3rd STUNNING Webinar
Hugo Grasset
Solintel
Aristotelis Botzios-Valaskakis
CRES
Daniela Bachner
E7 Energie Markt Analyse
Nicolas Peraudeau
DOWEL
Moderator
Project
speakers

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Agenda
 Introduction of STUNNING (DOWEL - Nicolas Peraudeau)
 Establishment of Quality Assurance Schemes for Energy
Efficiency Services (Daniela Bachner – QualitEE)
 Identification of barriers that slow down replication and
potential solutions (Hugo Grasset – STUNNING)
 Energy Performance Contracting Plus (Aristotelis Botzios-
Valaskakis - EPC+)
 Wrap up (DOWEL - Nicolas Peraudeau)

3
Introduction of STUNNING

4
STUNNING at a glance
 “SusTainable bUsiNess models for the deep
reNovation of buIldiNGs”
 H2020 Coordination and Support Action
• Started on 02/10/17 - 2 years
 Objective:
• To accelerate the adoption of new business
models for energy-efficient buildings based on
integrated, adaptable and affordable
refurbishment packages
• To engage with the whole community of
stakeholders

5
Our approach
Refurbishment
packages database
Most promising
Business Models
Case Studies
Knowledge
Sharing
Plaform
Review of
refurbishment cases
and demonstrations
in Europe, and their
financing
mechanisms
Identification of
barriers that slow
down replication and
recommendations
Promotion of
novel Business
Models
Stakeholder
community

6
Our work on refurbishment packages
 Review of existing/emerging technical solutions for building refurbishment
• Integrated approach, i.e. combination of solutions that are implemented together to optimise energy efficiency
• Commercial packages
• Innovative solutions developed by EU projects
 Calculation of cost-benefit indicators
• Economic indicators for different types of packages, based on real data (renovation cases) or demonstrations.
 Presentation on the Renovation Hub

7
Our work on refurbishment packages
« Conventional » deep
retrofitting with ETICS
To be continued ….
X X XX or X or X Xand/orX
X
X
XX
X
X
XX
X X XX X
X
X
X X X
X XX
X
X X- type X Xand/orX

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Our work on business models
 Analysis of innovative business models for building refurbishment
 Selection and promotion of most promising ones
• Through the Renovation Hub, webinars, final joint event, etc.
 Concrete examples of implementation through case studies

9
Our work on business models

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Knowledge Sharing Platform – The Renovation Hub
Sustainable Collaborative Platform to share knowledge on renovation packages and
business models for energy-efficient building refurbishment
• Neutral and quality-checked information
• To be sustained beyond the end of the project
https://renovation-hub.eu/

This project receives funding from the European Union’s
Horizon 2020 research and innovation programme.
Establishment of Quality
Assurance Schemes for Energy
Efficiency Services
Daniela Bachner
18/06/2019

www.qualitee.eu
Status-quo energy efficiency services
Market development of energy efficiency services lags behind
expectations
Article 18, Energy Efficiency Directive describes measures to
strengthen the EES markets, inter alia through development of
quality assurance schemes
Especially for small contractors quality assurance of the service can
make a difference on the market
General aim is to increase market activity on the energy efficiency
service market in Europe to increase investments in energy
efficiency
Page 12

www.qualitee.eu
Value of energy efficiency improvements
Energy
Efficieny
Improvement
Energy security
Increase
productivity
Increase asset
value
Environmentally
responsible
Energy savings
Disposable
income
Page 13
Source: Trust EPC South, D4.2 Training modules
for tertiary sector actors, slide 13 [2016]

www.qualitee.eu
Energy efficiency services
EE services are performance-based contractual agreements between a building owner and a
provider over the implementation of energy efficiency improvement measures or/and
supplying energy efficiently.
Energy efficiency services - ‘energy service’ means the physical benefit, utility or good derived from a combination of
energy with energy-efficient technology or with action, which may include the operations, maintenance and control
necessary to deliver the service, which is delivered on the basis of a contract and in normal circumstances has proven
to result in verifiable and measurable or estimable energy efficiency improvement or primary energy savings [Article
2, Directive 2012/27/EU on energy efficiency]

www.qualitee.eu
Energy Performance Contracting: “EPC means a contractual arrangement between the
beneficiary and the provider of an energy efficiency improvement measure, verified
and monitored during the whole term of the contract, where investments (work, supply
or service) in that measure are paid for in relation to a contractually agreed level of
energy efficiency improvement or other agreed energy performance criterion, such as
financial savings.” (acc. to the EED - Directive 2012/27/EU of the EU Parliament of 2012,
Article 1 (27) )
Energy Supply Contracting: ”ESC means a contractual arrangement for the efficient
supply of energy. ESC is contracted and measured in Megawatt hours (MWh)
delivered”
Operational Contracting: Energy performance operational contracting (OC) is a type of
EPC without major investments
Integrated Energy Contracting: Integrated energy contracting (IEC) means a combination
of energy efficiency measures with energy supply contracting typically with short term
‘operational verification’ rather than ongoing measurement and verification
Targeted services

www.qualitee.eu
QualitEE project aims
Page 16
Increase investment in energy efficiency
services (EES) in the building sector
Increase
trust in
service
providers
Reduce
complexity
of EES
Standardise
quality-
related
aspects

www.qualitee.eu
C
B
A
Page 17
Innovation, best
available technology,
COP, η, ρ, λ, CO2,
GWh/a, kW, ...
€, €, €, €, €
?
Energy efficiency service

www.qualitee.eu
Scope of market research – Autumn ‘17
Interactive results at https://qualitee.eu/market-research/

www.qualitee.eu
Barriers to EPC business
What are the main barriers to EPC business based on the activities of
the last 12 months?

www.qualitee.eu
Barriers to ESC business
What are the main barriers to ESC business based on the activities of the
last 12 months?

www.qualitee.eu
Quality assurance schemes to
increase trust and reduce complexity
of EES
Quality
assurance
Quality Criteria
technical & financial
Active national promoters
Page 22

www.qualitee.eu
Application of quality criteria
A single common set of quality criteria is the basis for the general understanding of good
quality of a product or service.
The criteria are tailor-made for the application on energy efficiency services and
present guidelines
The relevant quality criteria can be applied by different stakeholders, such as
 clients by incorporating them into tender documents and assessing their fulfillment during and
after the project
 EE service providers by integrating them into their own product/service assessment or
 financial institutions by requiring quality criteria in projects to provide financing.
Quality criteria can also be used as a decision support
Page 23

www.qualitee.eu
Technical quality criteria for energy efficiency
services (EES)
Basis for the evaluation of quality in energy efficiency services and foundation of the national quality
assurance schemes
24

www.qualitee.eu
Categories of Quality Criteria
QC1
QC2
QC3
QC4
QC5QC6
QC7
QC8
QC9
Energy
efficiency
service
quality
Quality of implementation of
technical energy efficiency
improvement measures
Savings guarantee
Verification of energy
savings
Value retention and
maintenance
Communication between the
EES provider and the client
Compliance with users‘s
comfort requirements
Information and
motivation of users
Comprehensible contractual
stipulations for the definition
of specific regulatory
requirements
Adequate analysis

www.qualitee.eu
Financing Energy efficiency
Page 27
Replace your old carPROJECT Buy your new house Energy efficiency
FORM OF CAPITALS
Equity Equity Equity
+
Debt (Leasing) Debt (Mortgage)
+ +
Debt (?)
• Leasing and Mortgage are highly standardised
financial products.
• Clear collateral and securities
• No execution risks (the car and the house are
already built)
• Low level of standardisation
• What is the financial product?
What sort of debt capital?
• Leasing? Project financing like for
real estate development and
infrastructural projects?
Own financing
Third party financing

www.qualitee.eu
Financial products for EPC
 Project execution:
 Equity financing
 Quasi-equity financing
 Debt financing
— Loan
— Leasing
 Grants
Page 28
CONSTRUCTION /INSTALLATION PERIOD
Agreed in the EPC
Depending from project size and
complexity
Up to 20 years depending from measures and assets±10-20 months
PROJECT
DEVELOPMENT
EPC
ENDS
COMMENCEMENT
DATE
COMMISSONING DATE
END
WORKS
SERVICE PERIOD
Agreed in the EPC
±30 days
EPC
SIGNATURE
 Project service period:
 Quasi-equity financing
 Debt financing
— Loan
— Leasing
 Re-financing (project execution loans)
 Cession
 Forfaiting
 Securitized instruments
 Project development:
 Quasi-equity
financing
 Grants / technical
assistance
Short term financing Long term financing
Performing
EPCs

www.qualitee.eu
Financial Quality Criteria
Selection of financial quality criteria (FQC)
 Is the cashflow generated through reliable energy savings? (How big is the performance
risk?)
 What are the risks associated with potential failure or bancruptcy of EES provider?
 What are the risks associated with potential failure or bancruptcy of the client of the EES
project?
 To which degree can the technical equipment be used for collateralisation?
 What role play non-energy benefits for assessing the bankability of EES projects?
FQC 1: Quality of cash flow predicition
FQC 2: Incentive structure for cash flow generation
FQC 3: Exploitation of cash flows
FQC 4: Value and exploitation of assets (technical equipment)
FQC 5: Non-energy benefits of EES projects
Page 29

www.qualitee.eu
Summary and Conclusions
Financing energy efficiency projects is a key to achieving the energy
and climate goals
Financing instruments are available, but unevenly accepted in the
different countries
Financing is easy as long as customers is creditworthy (classic form
of collateralisation)
Critical aspects: Assessment and risks of energy efficiency projects
(cash flow as collateral)
Reliable and verifiable criteria required
Standardisationof projects and contracts reduces transaction costs
(Due diligence)
This allows smaller projects to be financed
Page 30

www.qualitee.eu
Literature
Bleyl, Jan W.; Bareit, Markus; Casas, Miguel A.; Coolen, Johan; De Bruyn, Benjamin; Hulshoff,
Albert; Mitchell, Sarah; Robertson, Mark 2017: Building Deep Energy Retrofit: Using Dynamic
Cash Flow Analysis and Multiple Benefits to Convince Investors. ECEEE summer studies
proceedings 6-369-17. pp. 1127-1137.
Bleyl-Androschin, Jan W.; Schinnerl, Daniel 2010: Financing Options for Energy-Contracting
Projects – Comparison and Evaluation. A Manual for ESCos, ESCo Customers and ESCo Project
Developers including Good Practice Examples and Calculation Tools. 2nd Edition. IEA DSM Task
XVI report. Graz.
Böttcher, Jörg; Blattner, Peter 2010: Projektfinanzierung. 2nd Edition. Munich.
CEN/CENELEC 2015: Sector Forum Energy Management (SFEM). Working Group on Financing
Tools for Energy Efficiency. Brussels.
Energy Efficiency Financial Institution Group (EEFIG) 2017: EEFIG Underwriting Toolkit. Value and
Risk Appraisal for Energy Efficiency Financing.
Environmental Defense Fund (EDF) 2014: Investor Confidence Project. Project Development
Specification. Version 1.0.
EVO 2009: International Energy Efficiency Protocol. Standardized Concepts. Washington D.C.
OECD/IEA 2014: Capturing the Multiple Benefits of Energy Efficiency. Paris.
Page 31

www.qualitee.eu
Partners
Page 32

Thank you
www.qualitee.eu
The QualitEE project receives funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 754017. The sole responsibility for the content of
this presentation lies with the authors. It does not necessarily reflect the opinion of the European Union. Neither the EASME nor the European Commission are responsible for any use that may be
made of the information contained therein.
1st June 2017 to 30th June 2020
Klemens Leutgöb, e7 Energie Markt Analyse GmbH

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Speaker
Place
Organisation
Identification of
barriers that slow
down replication
and potential
solutions
18/06/2019
Hugo Grasset
SOLINTEL

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Content
 Identified barriers
 Contextualization process
 Contextualization of barriers and solutions
1
18/06/2019

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18/06/2019
Barriers that limit uptake of refurbishment solutions at the decision making level for homeowners, buyers
or end-users.
Barrier Typology Barrier Description
Technical
Performance Gap and uncertainty
Difference between simulated or predicted savings with savings during actual building operation
Hinders the appeal and formulation of financial approaches and incentives such as EPCs.
Need for materiels and technologies that can be implemented faster (ie prefab solutions...) in order to limit the obstructiveness of
renovations.
Lack of technological and product developments Need for digital technologies as well as materials and equipment aiming benefits such as shortened renovation times
Embedded market inefficiencies Split Incentives and conflicts of interest
Oversizing of equipment,
Tenant vs owners
Informative
Lack of knowledge dissemination and convincing
end users of the benefits of deep renovations
Lack of information and awareness in relation to:
• non-energy and non-financial benefits that result from refurbishments (comfort, spillovers on productivity, health...)
• Financing options
• Expert and unbiased advice to help small owners to balance between financial and technical risks/benefits
• Uncertainties about contractor reliability
Difficulties in conveying non-energy benefits of
retrofits
non-energy and non-financial benefits that result from refurbishments (comfort, spillovers on productivity, health...)
Financial
Investment approach and perspective
Opportunity costs too high
Limited impact of Energy Performance Certificate improvements on property value
Lack of integration of life cycle costs in financial decisions
Limited financing
Lack of incentives and access to capital:
• Limited involvement of third parties and banks to provide loans in energy performance contracts.
• Limited ability for ESCOs to offer financing for energy performance contracts.
High risk perception and high interest rates/discount rates/ Paybacks periods and ROIs vary and can be long.
Externalities Price of energy and its volatilities

37
18/06/2019
Barriers that prevent stakeholders taking part in the renovation process (architects, ESCOS, construction
companies...) to implement with ease successful business models.
Barrier Typology Barrier Description
Organization and structure of the EE renovation
market
Fragmentation of the construction and renovation market
Short term coalitions and ad-hoc subcontracting leads to:
• Lack of communication and poor coordination
• Adversarial relationships
• Inhibited learning opportunities
• Short term vision with lack of life cycle cost integration in project process
• Country specific cultural, industry and standardized processes
Contract structures (PPPs…)
Time and pressure on profit margins
Contractors are selected through competitive tendering with price being one of the main drivers
Leads to reuse of bids and cookie cutter project approaches
Public procurement barriers (especially towards SMEs)
• Insufficient resources on part of SMEs to tender for public procurement schemes
• Sub-division of contracts into lots leads to unstable partnerships and difficulties for efficient teamwork
Regulatory
Lack of supportive regulation
Lack of subsidies
Minimum energy performance standards
Renovation obligations
Normative barriers
Local norms impeding the implementation of the optimal solutions or penetration of innovative
technologies
Difficulties of complying building codes
Knowledge-informative based Lack of skills/ Lack of training
Insufficient knowledge on EE refurbishment technologies, design approaches, contracting and when and
how to implement existing solutions.
Lack of specialized SMEs or other relevant companies

38
Contextualization process
18/06/2019
Survey breakdown
2
3
3
4
13
7
Municipality/ Social landlord Financial entities
ESCO Construction
Regulatory bodies/ Research centres Architect

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18/06/2019
DB breakdown
Contextualization process

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Contextualization key findings and solutions
18/06/2019
 Financial barrier typology
 Solutions:
• Associations and clusters capable of bringing
support towards ESCOs, in EPC contract
modelling among other aspects
• Certifications and official qualification seals
• Eurocontract EPC model
• Informational campaigns on financing
opportunities
• Public regional rent control indexes

41
18/06/2019
 Organizational and structural shortcomings of the
energy efficiency renovation market barrier typology
 Solutions:
• Sub-division of contracts into lots
• Training and guidance on tendering
• Pushing for national SME and corporate clustering
and cooperation along with enhanced possibilities
for one stop shop business models

42
18/06/2019
 Regulatory barrier typology
 Solutions:
• Continuous communication initiatives between
public authorities and EE renovation SMEs
• Pushing for national SME and corporate clustering
and cooperation with integration of public entities

43
 Embedded market inefficiencies - Split incentives
18/06/2019
 Solutions:
• Rent indices
• Energy costs savings share
• Increase energy performance certificate property value impacts

44
Thank you
18/06/2019

This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 649666.
The content here included reflects only the authors’ views and the EASME is not responsible for any use that may be made of the information it
contains.
ENERGY PERFORMANCE CONTRACTING PLUS (EPC+)
www.epcplus.org

46
HORIZON 2020 Project
(03/2015 – 04/2018)
Main target group:
• SME’s (both for demand
and supply)

47
PUBLIC SECTOR
• EPC has seen significant progress with municipal street lighting projects.
• There has been some progress in the building sector, although many of the
implemented projects relied on subsidies from national or European funds.
PRIVATE SECTOR
• Few projects by multinational companies in very large buildings of the
tertiary sector.
• Very little progress in the last 20 years……….“More presentations than
projects”.
• ESC on the other hand is implemented widely in many countries
EPC Market Reality in the EU?

48
Some of the main reasons which impede a real breakthrough of EPC methodology in
the private sector and, more specifically, SMEs, include:
SME clients
• They do not usually have the possibility or are not willing to supply the necessary
guarantees requested by financial institutions in order to obtain credit financing.
Large Energy Service Providers with access to equity or credit financing
• EPC goes against the business logic of energy companies (utilities) who have the
added advantage of the energy supply contract with the client.
• Investments, project sizes and profit magnitudes are too small to attract big
multinational ESCOs who have large overhead costs. On the other hand, large
investments (i.e. deep renovation) with greater profit magnitudes have very long
payback periods which are also not attractive.
Barriers - I

49
Barriers - II
Financial Institutions who can provide credit financing
• Credit financing for small private sector projects is difficult, as the high due
diligence costs and financial risks are deemed prohibitive by the financial
institutions.
• Leasing of equipment significantly restricts the type of measures that can be
implemented (i.e. cogeneration)
• The EPC contract itself is not usually acceptable as a (partial) guarantee for
credit financing.
Small ESCOs
• Credit financing for small ESCOs is not a possibility due to balance sheet
overload.
• Complex projects with a wide variety of energy efficiency measures have very
high transaction costs for the procurement of the energy services and a high
cost of measurement and verification.

50
The main objectives of the EPC+ project were:
• The simplification of existing EPC models (so far tailored to large-scale projects) through
the creation of simple, standardized technical solutions with simple monitoring and
verification procedures that can be more easily financed by either the client or the small
ESCO.
• The provision of these energy service by SME Partnerships.
Objectives

51
Technical solutions
Energy efficiency measures
1. Indoor lights: LED lights + control
systems
2. Hydraulic adjustment of heating
system
3. Modernization of pumps
4. Modernization of electrical motors
5. HVAC control systems
6. Programmers of BMS-systems of
different suppliers
7. Renovation/replacement of heating
boilers
Renewable energies
(in conjunction with an energy
efficiency measure)
1. Solar water heaters
2. Biomass heating systems
3. Micro CHP
4. PV-panels
5. Small wind turbines
6. Heat pumps

52
“SME Partnerships for the provision of Energy
Services (SPINs)”
SPINs are organized clusters of SME’s of
complementary expertise, which jointly supply
energy services and have a structured, long-term
collaboration with commonly agreed objectives.

54
Cherry picking
(low-hanging fruit)?

55
Cherry picking
Yes…absolutely!

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Cherry picking
Yes…absolutely!

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• 25 implemented projects in 2018.
• The total investment of the implemented projects
amounts to more than 3.3 Mio. Euro, with annual
energy savings of 2.4 GWh and thermal energy
savings 6.7 GWh.
Results

58
• SME partnerships cannot work if there is no mutual trust between
all the partners.
• SME clients want to work with people they trust and who belong to
their local/regional community.
• Quality certification is important to clients as they are usually not
very familiar with energy services.
• Very often, the non-energy benefits of energy efficiency measures
prove to be more convincing (i.e. lighting in commercial shops,
thermal and visual comfort in buildings)
• Cession and forfaiting of contracts seems to be the best solution for
financing of EPC by small ESCOs.
Important Lessons Learnt

Contact information
Centre for Renewable Energy Sources and Energy Saving
19th km. Marathonos Avenue,
Pikermi, Greece
Email: (abotzios@cres.gr)
59

60
Conclusions & wrap-up

61
Conclusions & wrap-up on refurbishment packages
 Most of the barriers to energy renovation are non-technical
• Financing,
• Information, acceptance by building owners & decision-making process,
• Skills of contractors/ SMEs,
• …
 In order to allow the massification of renovation, successful refurbishment
packages must:
• Be developed with a systemic, integrated and user-centered approach, from
design to operation
• Be combined with training activities to build up skills
• Be implemented in a coordinated approach involving all actors
• Be supported by innovative business models and smart financing

62
Conclusions & wrap-up on Business models
 Innovative business models and smart financing are required to support and accelerate the
deep renovation of the EU building stock
• Move risk and financial burden from owners to institutional investors or banks
• Better account for non-energy benefits (e.g. property value) to decrease risk and payback time
 What needs to be taken into account by a successful BM?
• Be user-centered
• From pains to gains:
• Focus attention more broadly on the multiple benefits of energy renovation.
• Disconnect from the “kWh” and “payback” rationale: co-benefits such as comfort and health.
• Develop collaboration models at all levels
• Partnerships between manufacturers
• Involvement of third parties financiers and banks, or ESCO providing financial support
• Alliances for economies of scale
• Raise awareness
• Pilot projects
• Replication

63
Conclusions & wrap-up on Business models
 Optimal business models depend on the country (legal and fiscal context, market readiness), but also
the typology of building/ type of ownership,
18/06/2019
…
NOVICE (Energy Performance Contracting
+ Demand Response)
EuroPACE (Home-based financing
attached to the property)
Other to be assessed

64
Renovation hub

65
How you can contribute
 You want to share your success story / renovation case, advertise an innovative business model or
present a new refurbishment package?
 You would like to follow the progress of the project, attend our workshops and webinars?
Become a STUNNING stakeholder and join our stakeholder community!
https://renovation-hub.eu/register/
Contribute to the Renovation Hub
by suggesting improvements or publishing articles

66
Save the date !
 Webinar:
• Presentation of final STUNNING results – September 2019 [BUILD UP]
 Final event

67
Nicolas PERAUDEAU
Project team
e-mail : nicolas.peraudeau@dowel.eu www.stunning-project.eu
https://twitter.com/stunning_eu
https://www.linkedin.com/in/
stunning-project-063b82159/
Thanks for your attention !
Questions?

Best practices to address non-technical barriers to the renovation of EU buildings

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