Integrated Energy Contracting

Description The Integrated Energy-Contracting business model is a hybrid of ESC and EPC

and combines two objectives:

1. Reduction of energy demand through the implementation of energy effi- ciency measures in the areas of building technology (HVAC, lighting), build- ing shell and user behavior.

2. Efficient supply of the remaining useful energy demand, preferably from renewable energy sources.

IEC is based upon the widespread Energy Supply Contracting business model and is supplemented by quality assurance instruments and deemed savings10 approaches for the energy efficiency measures. The latter serves as a substitute for the potentially complex and costly measurement and verification of energy savings undertaken in the EPC business model. Therefore IEC reduces transac- tion costs particularly for smaller projects.

As compared to standard Energy Supply Contracting, the range of services and thus the saving potential to be utilized is extended to the overall building or commercial enterprise (see Figure 4.9). The scope is not limited to the supply of heat energy. Instead the model is intended to be used for all energy carriers and consumption media such as heat, electricity, water or compressed air.

Figure 4.9 IEC-model: Schematic standard scope of services

As with ESC and EPC, the IEC business model offers the building owner the choice to outsource technical and economical risks associated with the imple-

10

Deemed savings are an approach to estimating energy and demand savings, usually used with programs target- ing simpler efficiency measures with well–known and consistent performance characteristics. This method in- volves multiplying the number of installed measures by an estimated (or deemed) savings per measure, which is derived from historical evaluations. Deemed savings approaches may be complemented by on-site inspections (source: http://www.epa.gov/statelocalclimate/resources/glossary.html).

mentation of RET and EE measures to a professional third party and to buy ser- vices instead of individual components. IEC may turn out to be particularly suit- able to combine supply from renewable sources with energy conservation measures and thus accelerate the uptake of RET, provided RET are cost com- petitive over the lifecycle of the project because ESCOs have an inherent inter- est to reduce life-cycle costs.

Market Segments

Since IEC builds on the ESC model, a similarly wide range of end-use sectors such as commercial and public buildings as well as the residential sector can be targeted. For more details please refer to the ESC model description.

Applicable technologies

IEC combines energy efficiency and RET measures. All technologies listed in the ESC and EPC business model descriptions are applicable.

Organisational and financial structure

The ESCO is responsible for the implementation and operation of the energy efficiency package at its own expenses and risk, according to the project specif- ic requirements defined by the client and the ESCO. Purchasing of final energy (electricity, fuels) mostly remains with the building owner. The standard busi- ness model scheme is displayed in Figure 4.10.

Figure 4.10 Integrated Energy-Contracting business model

Basically the IEC business model builds on the ESC with similar price compo- nents and is supplemented with a flat rate price for the energy efficiency measures. To avoid or at least to reduce the (potential) EPC problems, the sup- posedly exact measurement and verification of the actual savings under an EPC approach is replaced by quality assurance and simplified measurement and ver- ification procedures (e.g. deemed savings).

The individual quality assurance instruments (QAIs) for the installed EE measures secure the functionality and performance of the measures, but not their exact quantitative outcome over the entire project cycle. The objective is to simplify the business model and to reduce (transaction) cost by balancing measurement and verification cost and accuracy. Appropriate QAI’s need to be defined for each EE measure, e.g. a one-time performance measurement for a new street lighting or a one-time thermographic analysis for verifying the quali- ty of a refurbished building shell. These QAIs replace the annual measurement and verification of the EPC savings guarantee.

Contract term time EPC, Controlling of detailed planing

Commissioning, Thermographic analyses Energy book keeping Performance measurement

Quality assurance for energy efficiency measures (Examples):

Coaching + inspection of construction

Proof of user motivation Annaul audits with improvement propsals Ene rgy ef fic ie nc y + su pp ly m ea su re s

Contract term (e.g. 15 years) time

Optional: Capital cost(or in-house financing) (€/a)

To ta l e ne rg y co st

Service price Efficiency + Energy Supply (€/a)

Energy price (€/MWh) So ur ce : a fte r [B le yl 2 01 1] © G ra z e r E n e rg ie a g e n tu r G m b H

Discussion and conclusions

The IEC business model builds on the Energy Supply Contracting (ESC) model, which is known and applied in public, residential, commercial and industrial buildings. The scope of services and thus energy savings potential is extended to the overall building or enterprise and to all consumption media, such as heat, electricity and water. At the same time methodological problems of Ener- gy Performance Contracting (EPC) as mentioned earlier, e.g. related to creating and adapting baselines, are avoided or at least reduced, e.g. by avoiding the need for a baseline and its adaption in the course of the project.

The following are the main conclusions for the IEC ESCO model:

 IEC allows for combining energy savings and supply of energy in an integrat- ed approach. Therefore, in comparison to standard ESC, higher end-use en- ergy saving potentials can be achieved. Moreover, RET may play a key role.

 IEC is an innovative model. Practical experiences are still limited, but 8 pilot projects in Austria have proven the feasibility of the model (see case study LIG, Austria in Appendix A.1) Some experienced ESCOs have expressed in- terest in developing own products based on the IEC model.

For additional conclusions, please refer to the ESC model.