Finance Model used to Achieve the Bond in Lighting Retrofit. Declan Keogh Energy Engineer Carlow Kilkenny Energy Agency

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1 Finance Model used to Achieve the Bond in Lighting Retrofit Declan Keogh Energy Engineer Carlow Kilkenny Energy Agency

2 Municipalities Funding & Financing for EPC Projects Self Financing through own budgetary resources or savings made (e.g. maintenance) Loan to carry out retrofit (municipalities able to borrow at low interest rates) ESCO/EPC Depending on scale of the project or a mixture of all three options Regional A study commissioned in 2012 identified a number of regions in Ireland for the maintenance of public lighting. This regional structure would allow economies of scale from both a maintenance point of view and also make the case for energy retrofit through maintenance contractor and or a DBO style funded model with EPC stitched in. Kilkenny Pilot is informing this process as a result of EPC streetlight. National A business case is currently underway to identify the options of public lighting retrofit in Ireland to meet our 33% energy reduction target by This has identified the need to focus on 280,000 lamps in order to achieve this target. This is being explored on a Regional basis in the national context. EU Level EU funding opportunities could be used to fund the pilot project and also the regional or national project (ELENA, EEEF)

3 Funding & Financing for EPC Projects

4 Policy Recommendations Regional Level Procurement procedures introduced to allow for the introduction of ESCO/EPC projects All new private developments install LED lighting in line with municipal policy Detailed Measurement & Verification plans drawn up and signed off by all parties before project commences Updating the asset, need to consider the upgrading of 3-5% of the street lighting asset annually LED Maintenance policy; cleaning, changing the electronic drivers and electrical testing every 6 years National Level Asset ownership (clear definitions on who owns the asset, percentage rules etc.) A separate category for street lighting on the national energy efficiency register (Triple E) Business case for the retrofit of all Street Lights in Ireland by 2020 Establish accurate baseline National Standardised Public Lighting Inventory as first step A general lighting policy for all municipalities in Ireland needs to be generated and adopted to suit each municipal area EU Level Clear definitions of the financing rules for On Balance Sheet/Off Balance Sheet energy efficiency projects Make it easier to obtain both technical & financial supports for ESCO/EPC projects

Key Activities 1300 street lights in County Kilkenny

all stakeholders through Streetlight EPC Project Applied

project (30%) Project due to commence in July 2017

5 Key Activities 1300 street lights in County Kilkenny Procurement and contract award in Q Engagement with all stakeholders through Streetlight EPC Project Applied to National Energy Agency for grant aid/subsidy for the project (30%) Project due to commence in July 2017 Project Completion October year energy retention bond

8 Implementation of Pilot Project Inventories: Accurate inventory carried out in 2012 and revised in 2016 need to keep updated Auditing: Carry out energy saving calculations based on best practice, review once accurate designs are completed. Also review costings at this stage Tendering: Two stage tender process, stage 1 design and stage 2 project implementation Contract Preparation: Be cognisant of the time taken to develop contract documents Construction of Projects: Site supervision, LED delivery times, working on third party columns Payments: Need agreement on financial payment methods, penalties, time scales etc. Quality Control: Need agreement from all parties on the methodology for construction (pre), light levels (post verification) and energy savings (Implementing IPMVP protocols).

9 Bond Models in Ireland Performance Bond Retention Bond Bid Bonds Maintenance Bond Project Value Cover Level Required < 2.5million 25% 2.5 to 6.3m 20% 6.3 to 9.5m 17.5% 9.5m to 12.7m 15% Over 12.7m 12.5%

Traditional Construction Type Bonds in Ireland Retention bond held for construction works (Public Sector Project) The cost of the bond is a percentage of the capital cost of the

10 Traditional Construction Type Bonds in Ireland Retention bond held for construction works (Public Sector Project) The cost of the bond is a percentage of the capital cost of the project Cost of bond included in the contract price Planning/Development Bond Bond held for 10 years post construction Called upon if the developer does not meet his obligations

11 Energy Performance Bond Advantages Contractor puts a bond in place before contract starts The client has a bond that can be called upon if the energy savings are not achieved The terms and conditions are agreed between both parties on the structure of the bond A Measurement and Verification report is carried out every year, therefore verifying if the energy savings are achieved (bond is reduced on an annual basis on the recommendation of the Measurement and Verification report) If the Energy savings are not achieved as specified by the contractor, the council can call on the bond to compensate for this. The municipality will have dealt with bond on many different projects Energy Performance Bond Disadvantages The contractor is not liable for the guarantee Only the cost of purchasing the bond The cost of purchasing a bond is included in the contract, therefore the purchaser pays The performance is built into the cost of the bond rather than the contract Cost associated with a 5 year M&V plan can be significant, relatively simple for streetlighting projects Some smaller SME s may not be familiar with purchasing bonds

12 Energy Performance Bond (How the bond will work) The Surety undertakes to be bound to the Employer in the maximum sum of: 230,000 (a) 230,000 from the date of issue of the Completion Certificate up to and including the first anniversary and first measurement and verification report of such date at which date it shall be automatically reduced to the amount in paragraph (b) hereunder; and thereafter (b) X from the first anniversary of the date of issue of the Completion Certificate up to and including the second, third, fourth anniversary and second, third, fourth measurement and verification report of such date at which date it shall be automatically reduced up to and including the fifth anniversary and fifth measurement and verification report of such date, at which date this guarantee shall automatically expire and be cancelled.

13 Energy Performance Bond (How the bond will work) The bond reduction is based on 50 % of the estimated savings of 92,000 over 5 years. ( 92,000 * 50% * 5 years = 230,000) Reducing Bond Measurement & Verification Year 1: 230,000 Bond Year 1: Energy Savings: 92,000 Year 2: 184,000 Bond Remaining ( 46,000) Year 2: Energy Savings: 92,000 Year 3: 138,000 Bond Remaining Year 3: Energy Savings: 92,000 Year 4: 92,000 Bond Remaining Year 4: Energy Savings: 92,000 Year 5: 46,000 Bond Remaining Year 5: Energy Savings: 92,000 0 Bond 5 Year Energy Savings: 460,000

14 Energy Performance Bond (Example 1 ) If savings are not achieved the bond will have to reflect this For example 92,000 equates to 100% of the possible energy savings however if only 80,000 is achieved The bond will be reduced by 87% or 40,020 The duration of the bond may have to be increased or energy efficiency savings accounted for in the subsequent years. Energy Performance Bond (Example 2 ) If savings achieved are exceeded then the bond will have to reflect this also. For example 92,000 equates to 100% of the possible energy savings however if only 100,000 is achieved The bond will be reduced by 107% or 49,220 In certain cases the bond can be reduced faster than the 5 years anticipated

15 Issues Financing Model for Pilot EPC Projects National Energy agency could not facilitate Energy Performance Contracting payments in their grant payment mechanisms No provision for project in 2017 Kilkenny County Council budget, Cap Ex 1million Commitment made to delivery the project in 2017 Solution Engagement with banks and financial institutions Financing approved for client based on energy performance bond Other future option is ESCO applies for EE Grant in subsequent years at national / EU.

16 Summary Energy Performance Bond allows Energy Performance Contracting to form part of the final contract As the cost is less to the contractor it can facilitate more SME s to deliver these types of contract. The Measurement & Verification of energy savings post installation for 5 years gives comfort to the client In December 2016 The Roads Management Office (RMO) set up a Public Lighting Office to oversee Public Lighting Retrofit in Ireland CKEA assisting the RMO to apply for Elena funding for the delivery of 4 national ESCO/EPC projects CKEA facilitating at Local, National and EU level in streetlight retrofit to deliver change and recover lost savings to finance. In excess of 3,000 lights in 8 local authorities under going lighting retrofit in 2017

17 Thanks You for your time Declan Keogh Energy Engineer Carlow Kilkenny Energy Agency

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