Berlin Energy Saving Partnership

(Business model: Energy Performance Contracting; see pages 33,34,35)

The Berlin Energy Saving Partnership was jointly developed by the Berlin Energy Agency and the Berlin's Senate Department for Urban Development in 1996. It’s a model for achieving energy sav- ings through Energy Performance Contracting (EPC), tapping into the potential for energy savings in a pool of public buildings with different properties. Since 1996, within the Berlin Energy Saving Partnership, 26 energy partnerships were launched, comprising more than 500 public buildings. Some of the earlier contracts have already expired by now, thus as of May 2011, about 375 building were under EPC contracts. The project is ongoing and the model has also been replicated in other regions of Germany. The latest building pool in Berlin was contracted in mid 2011. Examples of public buildings upgraded in the frame of the project in Berlin include town halls, schools, day nurseries etc.

In the set-up of the Berlin Energy Saving Partnership, the Berlin Energy Agency acts as the inde- pendent market and project facilitator, who moderates and manages the process, e.g. the negotia- tions on the contract, and puts the building pools out for bidding. The EPC contracts are imple- mented by private ESCOs (Energy Service Companies) which finance investments into energy sav- ings. The ESCOs undertake the upfront investment into energy saving measures and recover these initial costs through energy cost savings over the contract period, which is on average around 12 years. Average payback periods of the investments undertaken are about 5 years. Typical energy saving measures applied are efficient lighting, heating control systems, and energy consumption regulators; occasionally, insulation and CHP systems are applied as well.

The ESCO is also responsible for the planning, implementation and management of the energy sav- ings measures and bears all the operational and economic risk of the project over the entire project term. The contractor bears the responsibility for the operational performance of the technical sys- tems, including any risks caused by a breakdown of the systems. The ESCO legally guarantees a minimum level of energy savings. This implies that if the targeted energy savings are not achieved, the ESCO will still compensate the building owner for them (Berliner Energieagentur, 2006). Addi- tional cost savings are shared by the ESCO and the building owner, which is an additional incentive for the ESCO and the building owner to participate. Once the contract period ends, the full energy cost savings accrue to the building owner.

In the frame of the project, public buildings, typically from one administration, are ‘pooled’ to re- duce transaction costs. This also makes it possible to include less profitable buildings in the pool. Building pools that participate in the Berlin Energy Saving Partnership must have a minimum annual energy bill of approximately €200,000. The average energy cost baseline is about €1.8 million/a. The number of buildings per pool varies: some contracts include only one building, e.g. a hospital with significant energy use on its own; the largest building pool comprises of 73 buildings.

For the building owners, the advantage of the model is that they do not bear any investment costs, can outsource the implementation of the energy saving measures as well as the technical and eco- nomic risks, and realize energy cost savings.

The local government in Berlin subsidizes the services carried out by the Berlin Energy Agency by 50% (New York City Global Partners, 2011). This support is critical as otherwise most building own- ers would not be willing to engage in the EPC project (Berliner Energieagentur, 2007).

In the 26 building pools contracted under the Energy Saving Partnership overall about 11.3 m € of guaranteed annual costs savings are achieved, 2.7 m € of which are costs savings for the govern- ment of Berlin (Berger, 2011; Berliner Energiagentur, 2011). This is accomplished through overall contractually guaranteed minimum investments of 51.6 m €. An example building pool are 69 schools, kindergartens and gyms in Berlin’s district Steglitz-Zehlendorf (Berger, 2011). These 69 buildings have an energy cost baseline of 1.84 m €/a. The performance contract for the building pool foresees guaranteed savings of 29.4% or 541,679 €/a, achieved through an investment of about €2.8 m. The contract has a duration of 14 years and includes the following measures: new boilers in 11 buildings, a switch from coal / heating oil to gas, building automation, the modernisa- tion of lighting systems and investment of 100,000 into renewable energy technologies such as so- lar thermal systems. These measures lead to an expected CO2 reduction of 3,973 t/a (Berger, 2011). Energy Performance Contracting as undertaken by the Berlin Energy Saving Partnership is a well replicable concept which can lead to significant energy cost savings in public buildings without the need for up-front capital investments by the involved public building owners. However, it does re- quire independent facilitators to develop and facilitate projects, a functioning market of ESCOs which have sufficient access to capital to bear the significant up-front investment costs. And the concept normally does not extend to measures targeting the building shell or renewable energy carriers. Similar initiatives are being implemented outside of Berlin in other German regions, but also in Bulgaria, Slovenia, Romania and Chile. Moreover, know-how has been transferred to help initiate similar programmes in Central, Eastern and Western Europe.

(based on Berger (2011), Berliner Energieagentur (2006; 2007; 2011), New York City Global Part- ners (2011))