ENERGY PERFORMANCE CONTRACTING (EPC) FOR PUBLIC BUILDINGS

Transcription

1 ENERGY PERFORMANCE CONTRACTING (EPC) FOR PUBLIC BUILDINGS One-day training seminar for practitioners and decision makers. Status: January 2017

2 DISCLAIMER: Neither GIZ nor any other consortium member nor the authors will accept any liability at any time for any kind of damage or loss that might occur to anybody from referring to this document/materials/presentation/event. In addition neither the European Commission nor the Agencies (or any person acting on their behalf) can be held responsible for the use made of the information provided in this document/materials/presentation/event. Please, proceed to the next slide only after carefully reading this disclaimer!

3 Slide N 3 Seminar concept The one-day seminar is typically peformed in 4 Modules (~75 minutes per Module): Module I: Module II: Module III: Module IV: EPC concepts and business models Design of EPC business cases Tendering and contracting of EPC services Measurement and verification of savings in EPC projects Hands-on materials (guidelines, templates, and related links) are provided in the seminar manual, which may be downloaded from handed-out to all trainees and integrated into the training sessions by the trainers. Instructions to trainers: The following slides are providing a wide selection off optional inputs to the seminar. Trainers shall select the appropriate slide sets (~15-20 slides per Module) according to the specific needs and interests of the group trainees participating in a seminar. It is recommended to reserve 50 % of the seminar time to participants questions and answers as well as to round table discussions among participants and with trainers. The full slide set may be provided to the participants for repetition and further training.

4 Slide N 4 Module I: EPC CONCEPTS AND BUSINESS MODELS Basic concept of EPC for public buildings Definition of EPC for public buildings Basic concept of EPC Success factors for EPC on the market place EPC business models Overview of major business models Basic differences Selection of EPC projects and of appropriate business models Economic basics Practical examples

5 Actual annual energy cost Slide N 5 The basic concept of EPC for public buildings An ESCO provides an agreed service-package, including technical improvements (investments) on the basis of an EPC contract. Implementation of energy saving measures agreed in the energy performance contract Saved energy cost of the building owner may compensate (in whole or in part) for EPC fees End of EPC contract Continued savings of the public building owner Source: GIZ ESCO = Energy Service Company EPC = Energy Performance Contracting EE = Energy efficiency EPC guarantee period time

6 Advantages of EPC for the public building owner Slide N 6 Major advantages of EPC compared to traditional owner-directed ways of project implementation are: The building owner transfers its investment risk to the ESCO. Energy efficiency improvements are guaranteed by the ESCO, and the payment of EPC service fees is linked to the achievement of these guarantees.. The ESCO's technical know-how and professional energy management services are used by the building owner. The building owner is relieved of essential planning and operating tasks. Authorities doing EPC on a regular basis appreciate also the model's flexibility. (source of arguments : Transparense 2011)

7 Success factors for EPC on the market place (checklist) Political will at national level No legal barriers prevent public authorities from using EPC services. Transparent permitting procedures and clear permitting criteria apply for EPC projects in public buildings. Political will at local level Commitment to the European Covenant of Mayors Local Energy Action Plan (LEAP), Sustainable Energy Action Plan (SEAP), or European Energy Award (EEA) in place. Energy efficient refurbishment of public buildings is a priority in the agreed LEAP/SEAP/EEA. Energy audits and/or Energy Performance Certificates are established for local public buildings. Municipal energy accounting, or energy management system are established and functional. The concept of EPC is accepted in general, including private sector involvement and long-term contract relations. Suitable project Energy audits or energy performance certificates indicate a high potential of energy savings. Energy audits propose economically viable energy saving measures (maybe different scenarios). Number of buildings to be included in an initial project is relatively small (<10). EPC facilitators and service providers are available and interested in EPC projects in public buildings on site. Available know-how Own staff or contracted local facilitators are able and willing to prepare and develop EPC projects. Comparable reference projects are known either in the own country/region, or abroad Approved templates for tender documents and contracts are available and applicable Available resources Sufficient financial means are available to pay for facilitators support during project preparation, tendering and contracting. Sufficient qualified staff (own staff or contracted experts) is available for the management, controlling and monitoring of EPC preparation, development, tendering, contracting, and implementation. If any of these success factors are missing, it is recommended to first develop those factors prior to entering into the development of EPC projects. Slide N 7

8 Slide N 8 Different EPC business models Guaranteed energy savings (compared to baseline) No investment cost (prior to investment stage) Planned investments

9 Slide N 9 Specific features of different EPC business models EPC light EPC basic EPC Plus Scope of investment No investment, only energy management services Investments only in fast-paying energy saving measures. Comprehensive rehabilitation (deep renovation) of buildings including non-energy related measures. Energy savings achieved Typically % Typically 20-60% ideally >70% Contract duration In most cases 2-3 years In most cases 5-15 years Often >15 years Payment of the contract price EPC fees equivalent to guaranteed energy savings in the baseline year EPC fees equivalent to guaranteed energy savings in the baseline year EPC fees plus subsidies, or building owner s payments on top.

10 Selection of EPC projects/business models Slide N 10

11 Slide N 11 Economics of EPC projects Economics of EPC projects can be assessed from two different points of view: From the Building owner s point of view: Comparison of annual EPC service fees and the value of guaranteed savings: EPC is the most attractive if annual EPC service fees are less or equivalent to the monetary value* of annual guaranteed savings. From the ESCO s point of view: Assessment of net present value (NPV) of cash flows during contract duration: EPC is the more attractive the higher the total NPV of all cash flows in the project. Assessment of the internal rate of return (IRR) of the EPC is the more attractive the higher the IRR of the project. * The monetary value of guaranteed savings is in EPC contracts in general calculated on the basis of energy prices actually paid in the baseline year (fixed price basis).

12 Slide N 12 Calculation of Net Present Value (NPV) of guaranteed savings Guaranteed annual savings (üt) = 100, , , , ,000 Discount rate (i) = 1% 2% 3% 4.0% 5% Contract duration (n) = PV of guaranteed savings in year 1 =üt*(1+i)^-1 99,010 98,039 97,087 96,154 95,238 PV of guaranteed savings in year 2 =üt*(1+i)^-2 98,030 96,117 94,260 92,456 90,703 PV of guaranteed savings in year 3 =üt*(1+i)^-3 97,059 94,232 91,514 88,900 86,384 PV of guaranteed savings in year 4 =üt*(1+i)^-4 96,098 92,385 88,849 85,480 82,270 PV of guaranteed savings in year 5 =üt*(1+i)^-5 95,147 90,573 86,261 82,193 78,353 PV of guaranteed savings in year 6 =üt*(1+i)^-6 94,205 88,797 83,748 79,031 74,622 PV of guaranteed savings in year 7 =üt*(1+i)^-7 93,272 87,056 81,309 75,992 71,068 PV of guaranteed savings in year 8 =üt*(1+i)^-8 92,348 85,349 78,941 73,069 67,684 PV of guaranteed savings in year 9 =üt*(1+i)^-9 91,434 83,676 76,642 70,259 64,461 PV of guaranteed savings in year # =üt*(1+i)^-10 90,529 82,035 74,409 67,556 61,391 K = NPV savings years 1-10 =SUM(K01:K10 947, , , , ,173 Calculation of net present value üt = annual cash flow per period t t = year of contract implementation i = discount rate n = duration (number of years)

13 Influence of the discount rate on the minimum required contract duration Accumulated NPV of guaranteed savings (in 1,000 ) Total cost of a project (NPV) : 750,000 Value of guaranteed savings in the baseline year (= proposed service fee): 100,000 per year Accumulated NPV of EPC service fees Discount rate: 1% Discount rate: 3% Discount rate: 5% Total project cost (NPV in 1,000 ) Minimum required contract duration Slide N 13

14 Economic effect if the building owner shares in the savings during contract duration Accumulated NPV of future savings and fees (NPV in 1000 ) Slide N 14 Value of guaranteed savings in the baseline year : 100,000 per year Agreed EPC service fee: 80,000 per year (i.e. 80% of the value of guaranteed savings in the baseline year) Accumulated NPV of guaranteed savings (based on prices paid in the baseline year) Discount rate: 3% Accumulated NPV of agreed service fees Discount rate: 3% Total project cost (NPV in 1,000 ) Building owner takes 20% of the guaranteed savings on its own account during contract duration. Pronlongation of necessary contract duration Necessary contract duration (in years)

15 Slide N 15 Economic assessment of EPC projects (an Excel training tool) Challenge: In order to attract qualified bids, projects must be economically feasible from a commercial point of view. A demonstration tool for the pre-assessment of economic feasibility of EPC projects from a commercial point of view is available for free download from

16 Economic assessment of EPC projects (an Excel training tool) Economically feasible project (from an ESCO s point of view): Accumulated total revenues (NPV) exceed accumulated total cost (NPV) during contract duration (12 years). Cost (NPV) accumulated Revenues (NPV) accumulated Economically not feasible project (from an ESCO s point of view): Accumulated total revenues (NPV) are less than accumulated total cost (NPV) during contract duration (8 years). (Results of a sensitivity analysis performed by means of the EnPC-INTRANS demonstration tool. Same project, different contract durations) Cost (NPV) accumulated Revenues (NPV) accumulated Slide N 16

17 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC Basic in in Oberndorf (Germany) Slide N 17 A pool of seven municipal buildings Contracted measures: Establishment of a building management system Different renovation measures per building, including e.g.: - Replacement/renovation of HVAC units (central heating / cogeneration / biomass) - Rehabilitation of lighting systems in a sports hall - Replacement of thermostats in a conference building - Insulation of the upper ceiling in a school Contract-related figures: Total bid price: Million Euro Guaranteed savings: Million Euro (i.e. ~ 64%) less energy cost per year Contracting period: 11 years and 8 months Source of information: KEA

18 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC Basic in the University of Hohenheim (Germany) Slide N 18 Contracted measures: Installation of a combined heat and power (CHP) station Renewal of the cooling and air conditioning at the computer centre Replacement of heating technology in a workshop hall Installation of a new cooling system at the biotechnology centre Contract-related figures: Prior demand: heat 47,674 MWh; electricity 18,708 MWh Baseline energy cost: 3.9m per year Guaranteed savings: 960,000 per year (i.e. ~25%) less energy cost per year EPC fee: 960,000 per year Contracting period: 6.5 years Investment: 4.4m CO 2 reduction: 6,140 tons per year Source of information: KEA

19 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC Basic in the municipality of Murrhardt (Germany) Slide N 19 EPC in two municipal buildings plus heat supply to a nursery centre and a housing area. Contracted measures Establishment of a district heating network with a wood-chip-fired boiler (400 kw) and low temperature gas boilers (2 x 500 kw); enhancement of the heating central in a school by means of a small combined heat and power unit Hydraulic optimization of the heat supply network and installation of energy efficient pumps Renovation of the ventilation systems and installation of heat recovery units Renovation of lighting systems Installation of a web-based building management system for all buildings Contract-related figures: Contract duration: 15 years Total bid price: Million EUR (Contribution from the nursery centre: 152 keur) Guaranteed savings: 96,000 EUR/y (i.e. 66% of total energy consumption) Source of information: KEA

20 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC Basic in the town of Plešivec (Slovakia) Slide N 20 Energetic modernization of the psychiatric ward in the town. Contracted measures Reconstruction of heating and hot water systems, installation of heating controls and of an intelligent monitoring and regulatory system Reconstruction of laundry washing systems complex reconstruction Use of own drinking water source installation of new technology for the safety use of the water from own well Contract-related figures: Contract duration: 10 years starting in 2013 Guaranteed savings: 148,000 EUR/y Total investment: 1.22 Million EUR Financing: 40% EU grants (EESI) + 60 % EPC supplier (Siemens s.r.o.) Source of information: e-code

21 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC Basic in Osychkivska secondary school in Odessa region (Ukraine) Slide N 21 Contracted measures: Thermal insulation of the building walls Contract-related figures: Total heated area. 1,781 m2 Initial energy consumption (baseline): Coal t/year, wood m3/year, electricity 18,288 kwh/year Initial energy costs (baseline):* Coal 14,126 EUR/year, wood 353 EUR/year, electricity 1,403 EUR/year Guaranteed savings of energy resources 28% or 4,447 EUR/year Initial CO2 emissions: 300 t/year Reduction of CO2 emissions: 80 t/year Total investment: 33,056 EUR* Annual EPC service fee: 4,003 EUR/year* Contract duration: 10 years * investments and costs are based on the exchange rate 28.5 UAH/EUR Source of information: FIATU LLC

22 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC Plus in the Hanzehal Zutphen (The Netherlands) Slide N 22 Large sports and events facility building with a floor space of around 3,700 m² Contracted measures: Roof renovation and insulation Wall insulation Solar PV / solar water heating Sensor lighting Building management system Contract-related figures: Contract duration: ~11 years Total bid price: Approx. 500,000 EUR of which 210,000 EUR for energy saving measures (paid back from energy savings). Initial energy costs (baseline): 65,000 EUR/y Guaranteed savings: 19,000 EUR/y (i.e. 30% (gas) and 7% (electricity)) Reduction of CO2 emissions: 40 t/y (guaranteed) Source of information: Transparense

23 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC Plus in the municipality of Pfinztal (Germany) Slide N 23 Modernization of energy supply in 5 municipal buildings and renovation of a public swimming pool Contracted measures Installation of a 500kW wood-chip boiler, plus oil-fired peak supply and controls Installation of a heat supply pipeline (350 m) from the heating central in the swimming pool to the city hall and another pubic building Renovation of the hot water supply system (new storage system) Installation of a new ventilation system (6,500 m³/h) in the swimming hall Heat insulation of the upper ceiling and rehabilitation of the swimming pool Contract-related figures: Contract duration: 9 years Total bid price: Million EUR (Contribution from municipality: 450,000 EUR) Guaranteed savings: 140,000 EUR/y (i.e. 65% of total energy cost) Source of information: KEA

24 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC Plus in the city of Malacky (Slovakia) Slide N 24 Modernization of municipal buildings Contracted measures City sports hall modernization of heating systems, ventilation and lighting City cinema optimization of heating systems, insulation of walls and roofs, replacement of windows and doors Centre of social services optimization of heating systems Contract-related figures: Contract duration: 10 years starting in 2014 Guaranteed savings: 148,000 EUR/y Total investment: Million EUR The city s share in investment cost: Million EUR.) Source of information: e-code

25 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC/ESC in the Municipality of Kranj (Slovenia) Integrated concept for energy services for the improvement of EE in 18 municipal buildings Contracting models applied: Energy performance contracting (EPC) Energy supply contracting (ESC ) Concession for heating and cooling Energy management services (EMS) Contracting period Initial contract in 2002 for 15 years duration Further contracts in 2007, 2008, 2011, 2012 Types of buildings included in the contracts Office buildings; elementary schools; sports halls; sports complex with Olympic pool Contracted measures New district heating substations Hydraulic balancing & pipes insulation New controls systems Boiler replacement Lighting in the sports hall Source: IJS, mag. Damir Staničić, ManagEnergy; Petrol d.d. Changebest (IEE) Slide N 25

26 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC/ESC in the Municipality of Kranj (Slovenia) cont. Phase 1: Contracting Period (EPC/ESC) 14 buildings (offices, schools, sports hall, public swimming pool) District heating substations; hydraulic balancing & pipes insulation; controls systems; boiler replacement; lighting in the sports hall Total investment 318,7750 EUR Guaranteed savings: 57,500 EUR/year Phase 2: Contracting Period (EPC/ESC) 2 buildings (schools) included New boiler houses & training of staff Total investment: 230,000 EUR Phase 3: Contracting Period (EPC / ESC) 1 building: Sports hall with Olympic swimming pool Ventilation system; pool water preparation; fuel switch from fuel oil to natural gas; remote controls (SCADA) Floor space: 22,200 m² Total investment 780,000 EUR 50% less heat consumption; 70% less water consumption 15% more electricity consumption (additional compressors & pumps) Phase 4: Contracting Period (ESC) 1 building: City hall Boiler house (750 kw); central cooling (250 kw); CHP 50 kwel; heating/cooling installations (fan coils); south/north orientation control; ventilation systems; solar PV power plant 49 kwp; central energy management system; windows shading Source: IJS, mag. Damir Staničić, ManagEnergy; Petrol d.d. Changebest (IEE) Total investment 1,500,000 EUR 10% less energy consumption, higher comfort level Slide N 26

27 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC plus in the Municipality of Celje (Slovenia) Slide N 27 EE improvement in a sports hall Contracted measures: Renovation of glass wall façade, lighting system, ventilation with heat recovery; energy management Contract-related figures: Baseline energy consumption Electricity: 1,252,000 kwh/year Heat: 442,000 kwh/year Guaranteed savings: Electricity: 626,000 kwh/year (i.e. 50%) Heat: 44,200 kwh/(year (i.e. 10%) Contract duration: (15 years) Source: Blaženka Pospiš Perpar, Eltec Petrol d.o.o.;.emilie project

28 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC plus for University Hospital Centre Split Križine (Croatia) EE renovation of hospital buildings, floor space m2 - Contracted measures: Wall insulation & roof renovation and insulation Replacement of outdoor windows and doors Renovation of heating substations Installation of new combined heating system Installation of thermostatic valves on radiators Water heating based upon solar collectors and heat pumps Compensation of reactive energy Renovation of indoor lightning system Installation of energy efficient lightning objects Building management system Renovation of building water supply system - Contract-related figures: Prior demand: heat MWh/y, electricity MWh/y Initial energy cost (without VAT): million /y Guaranteed energy savings: MWh/y (i.e. ~56%) Reduction of CO2 emissions: 58% Renewable sources (guaranteed): 11,31% Total investment ( without VAT): million Financing: 60% ESCO, 40% Croatian EE Fund Annual EPC service fee (without VAT): million Contract duration: 15 years Data soure: EIHP, APN Slide N 28

29 PRACTICAL EXAMPLE OF EPC IN PUBLIC BUILDINGS EPC plus for General Hospital Karlovac (Croatia) EE renovation of hospital buildings, floor space m2 - Contracted measures: Wall insulation & roof renovation and insulation Replacement of outdoor windows and doors Renovation of heating substations Installation of new combined heating system Installation of thermostatic valves on radiators Water heating based upon solar collectors and heat pumps Compensation of reactive energy Renovation of indoor lighting system (incl. EE lamps) Building management system Renovation of building water supply system - Contract-related figures: Prior renovation energy demands: 13,343 MWh Initial energy cost: (without VAT) 0,977 million /year Guaranteed energy savings: MWh/year (~53%) Reduction of CO2 emissions: t/year Renewable sources (guaranteed): 25,32 % Total investment (without VAT): million Financing: 60% ESCO; 40% Croatian EE Fund Annual EPC service fee (without VAT): million Contract duration: 15 years Data soure: EIHP, APN Slide N 29

30 Module II: Development of EPC business cases CONTENTS OF THIS MODULE: Project identification Data collection Energy Performance Indicators Strategic decision making Financing models for EPC projects Risk mitigation strategies from the banks points of view from the ESCOs points of view from the building owners points of view Slide N 30

31 Slide N 31 Main stages of EPC project development Source of the underlying chart: Transparense.eu

32 Data collection (procedure) Initial question: Does an up-to-date energy audit exist for the building, which may deliver the necessary data on existing saving potentials? If an up-to-date energy audit exists, this is should provide A detailed review of past and present energy consumption data, and of the current status of the building including existing energy supply facilities and energy consumers. Proposals and recommendations for effective energy saving measures, and for optional bundles of measures. An overview of expected energy saving potentials resulting from each of the recommended (bundles of) energy saving measures. Investment cost estimations for the implementation of recommended (bundles of) energy saving measures. If the energy audit was performed in earlier years, the audit should be reviewed with updated information and data. If no energy audit exists, saving potentials may be assessed in 5 steps: Data collection and evaluation: Energy consumption and cost of the last 3 years. Building type, size (m² of total floor space), and shape. Type, profile and frequency of building use. On-site inspection of the building: Important energy facilities and energy consumers. Status of the building and of installed facilities, including rehabilitation needs. Use checklists (example included in the manual) in order to ensure systematic inspection. Calculation of energy performance indicators: Heating and electricity demand usually calculated in kwh/m²*y. Analysis of benchmarks and assessment of saving potentials Preliminary assessment of economic and technical feasibility of potential (bundles of) energy saving measures (scenarios). Slide N 32

33 Data collection (scope) Scope and analyses of saving potentials depends on the targeted EPC business model. Scope of the assessment of saving potentials (bottom-up analysis): Rehabilitation needs and saving potentials related to the deep renovation of the entire building, including walls, windows, roofs, structures, basements, installations, technical facilities etc. Rehabilitation needs and saving potentials related to energy supply systems and energy consumers, including rehabilitation potentials. Saving potentials resulting from an evaluation of energy consumption data, energy constrols, energy management, and user behaviour without any major investment planned. Building type, year of construction, shape, size, type of use, structural characteristics, installed technical facilities etc EPC light Energy management services EPC EPC basic Energy management services & Rehabilitation of energy systems EPC Plus Energy management services & Rehabilitation of energy supply systems and energy consumers & Deep renovation of building envelope, structures, ínstallations, facilities, interiors etc. Basic information on the building Slide N 33

34 Slide N 34 Data collection (checklist) The following data should be collected and evaluated: Building data (year of construction, construction plans, size of the building, quality of building parts ) Information on the type and profile of building use (type of use, daily opening/operating hours, seasonal opening/operating periods, number of user units e.g. beds in hospitals, number of students in schools ) Energy relevant measures performed during the last years Legal conditions and administrative orders for building management and use (e.g. minimum daily opening/operating hours, minimum room temperatures, local heating instructions, valid framework contracts for the procurement of energy services ) Floor plans Inventories, plans and schematics of Heating, ventilation, air condition (HVAC) systems Heat distribution networks Domestic hot water systems Electricity supply and consumers Light an power systems Other energy relevant facilities (supply and demand side) Maintenance contracts and protocols

35 Calculation of energy performance indicators (EnPIs) Slide N 35 An EnPI is calculated by dividing primary or final energy consumption by a metric unit, such as e.g.: total of square meters of gross floor space (for all types of buildings) total number of students (for schools) total number of hospital beds The most common EnPI for public buildings is: EnPI = Total energy consumption (kwh/y) Gross floor space of the building (m²) kwh/m²*y

36 Energy Performance Indicators (EnPIs) indicating energy saving potentials in public buildings (an example) How energy efficient is my building compared to other buildings of the same use? Least efficient buildings may have the highest energy saving potentials (in %). Slide N 36

37 Energy Performance Indicators (EnPIs) indicating energy saving potentials in public buildings (an example) Annual thermal energy requirements for heating (kwh/m²*y) Building purpose Prior to Continental Croatia Prior to Coastal Croatia Apartment buildings Family houses Non-residential public buildings Non-residential commercial buildings Building purpose Annual energy consumption for heating, cooling, domestic hot water, lighting (kwh/m²*y) Apartment buildings Family houses Non-residential public buildings Non-residential commercial buildings Data source: EIHP Slide N 37

38 Slide N 38 Strategic decision making of the building owner An decision has to be taken by the building owner whether to finance the investment Option 1: using the building owner s own financial resources (budget-financed), Option 2: through an EPC (ESCO-financed).

39 Slide N 39 Financing models for EPC projects Third party financing Credit of ESCO (pure credit or credit with sale of claims/forfaiting/factoring) Credit of building owner ESCO financing Financing with interal funds of the ESCO (own equity, loans, leasing, renting) Building owner s financing From the public building owner s internal capital expenditure budget and from existing lines of credit. In developed EPC markets, the most common financing model for EPC is third party financing.

40 Granting of a loan. Slide N 40 Third party financing (TFP) of EPC projects Credit of customer (building owner) Credit of ESCO Credit of ESCO (with sale of claims / forfaiting/factoring) Building owner Implementation of agreed measures. Guarantee of savings. ESCO Payment for services Investor/Bank Payment of loan from achieved savings. Building owner Implementation of agreed measures. Guarantee of savings. Granting of a loan. ESCO Investor/Bank Payment for services and repayment of investment cost. Payment of the loan. Building owner Implementation of agreed measures. Guarantee of savings. Granting of a loan. ESCO Payment for services Sale of claims Factoring agent Payment of loan from guaranteed savings (& objection waiver) Investor/Bank

41 Slide N 41 Potential risks and risk mitigation strategies Potential risk s from the bank s point of view Insolvency or bankruptcy of the lender, if the lender is the ESCO. Delay or cease of payment of annuities if the lender is the public building owner. Dispute between the ESCO and the building owner concerning delivery of agreed measures and/or the achievement of guaranteed savings in case of a sale of claims/forfaiting/ factoring) from the ESCO to the bank. Risk mitigation options Limit the duration of the loan (may result in a reduction of acceptable EPC contract duration). Include a risk premium in the interest rate (higher interest rate higher cost of the EPC). Request a high share of ESCO s own equity to be included in the financing concept (high equity/loan ratio may limit the ESCO s number of projects). Request for guarantees or collaterals/indemnity bonds. (maybe to be provided by the building owner). Request for guarantees and collaterals. Request an objection waiver from the building owner (put the risk of disputes on the building owner). Risk mitigation measures taken by the bank will in most cases increase the cost of EPC business models.

42 Potential risks and risk mitigation strategies Potential risks from the ESCO s point of view Risk mitigation options Change of political framework conditions. Cease of payment by the public building owner (e.g. if a new local government wants to terminate the contract). Delays in payments of the public building owner. Dispute between the ESCO and the building owner concerning delivery, or proper evidence of delivery, of agreed measures and/or guaranteed savings. Failures in achieving guaranteed savings. Use an insurance, if available. Incorrect baseline data lead to failures in calculating and achieving saving guarantees. Planning errors leading to increasing investment needs and cost, or impairments in building use. Failure of technical equipment or damage during installation or operation of facilities. Installation of new facilities or the change of building use lead to additional energy cost during the guarantee period. Opt for as short contract duration as possible. Include provisions for the compensation of the ESCO s losses in case of termination of contract prior to contract duration. Request for compensation in case of delay of payments to be established in the contract. Plausibility check of the requested performance guarantee. Involvement of a certified third party by contract agreement. Establishment of monthly installments to be paid by the building owner unconditionally during entire contract duration. Make penalties/incentives only after dispute being settled. Check of baseline data during project preparation and planning (prior to submission of the tender, if possible). Involving specialist engineers for specific facilities (HVAC, water and sanitation, structures etc.) in the planning process. Subcontracts specifying responsibilities and liabilities of subcontractors, including quality standards of applied equipment and qualification of assigned staff. Clear provisions describing reference equipment and use of the building, and methods and tools for compensations when calculating and verifying guaranteed savings. Risk mitigation measures taken by the ESCO will in most cases increase the cost, and may reduce the customer s acceptance of proposed EPC business models. Slide N 42

43 Slide N 43 Potential risks and risk mitigation strategies Potential risks from public building owner s point of view Bankruptcy of the ESCO prior to finalization and hand-over of equipment, facilities, and devices due for delivery according to the contract. Bankruptcy of the ESCO after the acceptance of due delivery of equipment, facilities, and devices, in particular in the case of claims sold by the ESCO to a bank/factoring agent. ESCO failing to deliver agreed measures and/or guaranteed savings. ESCO failing to provide any evidence of achieved savings within a certain period of time following the end of the agreed reporting period. Dispute between the ESCO and the building owner concerning proper delivery of agreed measures and/or the achievement of guaranteed savings. Risk mitigation options Request for a bank guarantee covering the cost of the building owner that might occur in this case. Request for a bank guarantee covering the cost of services to be provided by a substitute for the ESCO in order to ensure achievement of guaranteed savings. Establish strong penalties in the contract. Provide for the reduction of monthly instalments. Establish in the contract the right to cease or reduce payments until the ESCO provides proper evidence of achieved savings. Involve a certified third party by contract agreement Involve a certified third party by contract agreement. Establish in the contract the right to cease or reduce payments during the duration of the dispute, if this exceeds a certain limit. Risk mitigation measures taken by the public building owner may create additional barriers for ESCOs to enter the EPC market and/or to submit an offer for a specific project.

44 Module III: Tendering and contracting EPC services CONTENTS OF THIS MODULE: Legal background EU legislation National legislation European Code of Conduct for EPC Tendering procedures Model contracts Slide N 44

45 Legal framework at EU level EU Directives promoting EPC for public buildings Directive 2012/27/EC of the European parliament and of the Council of 25 October 2012 on energy efficiency, (Energy Efficiency Directive; EED) Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings (Energy Performance of Building Directive; EPBD) Directives 2009/72/EC and 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and gas EU Directive on public procurement Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement Slide N 45

46 Slide N 46 Legal background of EPC at national level Croatia: Laws and regulations promoting EPC in public buildings: Regulation on contracting and implementation of energy services in the public sector (OG 69/2012) Laws and regulations ruling over the public procurement process Regulation on the methodology for drawing up and handling tender documents and tenders, Official Gazette 10/2012 Regulation on public procurement notices, Official Gazette 10/2012 Regulation on control over the implementation of the Public Procurement Act, Official Gazette 10/2012 Ordinance on the list of entities bound by the Public Procurement Act, Official Gazette 19/2012

47 Slide N 47 Legal background of EPC at national level Germany: Laws and regulations promoting EPC in public buildings: Law on Energy Services Energiedienstleistungsgesetz (EDL-G) vom 21. April 2015 Laws and regulations ruling over the public procurement process Law against restraints in competition of 26 August 1998 Section 4 on public contracts Gesetz gegen Wettbewerbeschränkungen vom 26. August 1998 Vierter Abschnitt: Vergabe Öffentlicher Aufträge Law regarding modernisations of procurement regulations from December 2015 Vergaberechtsmodernisierungsgesetz VergRModG 12/2015 Services Tendering and Contract Regulations Vergabe- und Vertragsordnung für Leistungen (VOL/A) Construction Tendering and Contract Regulations Vergabe- und Vertragsordnung für Bauleistungen (VOB/A)

48 Slide N 48 Legal background of EPC at national level Greece: Laws and regulations promoting EPC in public buildings: Law 3855/2010 Measures to improve energy efficiency in end use, energy services and other provisions Ministerial Decision D6/13280/ (Government Gazette, Series II, No 228) entitled Energy Service Companies. Operation, Register, Code of Conduct and relevant provisions. Law 4342/2015 on Energy Efficiency Laws and regulations ruling over the public procurement process Ministerial Decision D6/Β/14826/ Measures to improve energy efficiency and energy savings in the central and general government Law 3855/2010 Measures to improve energy efficiency in end use, energy services and other provisions Law 4342/2015 on Energy Efficiency

49 Slide N 49 Legal background of EPC at national level Latvia: Laws and regulations promoting EPC in public buildings: Draft Law on Energy efficiency, 2nd reading in Latvia`s Parliament on , preparation for 3rd reading in process. Law on Energy efficiency of buildings of January 9, Rules of the Cabinet of Ministers of 9th July 2013 No. 383 Rules on energy certification of buildings. Rules of the Cabinet of Ministers of 25th June 2013 No. 348 Calculation method for building`s energy efficiency. Rules of the Cabinet of Ministers of 9th July 2013 No. 382 Rules on independent experts in field of energy efficiency of buildings. Rules of the Cabinet of Ministers of 28th September 2010 No. 907 Rules on inspection of residential buildings, their equipment and communication, on servicing and repair of buildings. Laws and regulations ruling over the public procurement process Public Procurement Law, of 1st May Public-Private Partnership Law, of 1st October 2009.

50 Slide N 50 Legal background of EPC at national level Romania: Laws and regulations promoting EPC in public buildings: Law 121/2014 regarding energy efficiency. Law no. 121/2014 Regulatory domain and objectives (Art. 1)? (1) The purpose of this law is to create the legal framework for the elaboration and implementation of national policies on energy efficiency in order to achieve the national target of increasing energy efficiency. (2) The policy measures regarding energy efficiency are applied to the entire chain: primary resources, production, distribution, supply, transportation and final consumption. (3) The national indicative target for reducing energy consumption is set to be 19% by the year 2020 Laws and regulations ruling over the public procurement process OUG 34/2006 on the award of public procurement contracts, public works concession contracts and service concession contracts, published in the Official Gazette no. 418 of 15 May The Emergency Ordinance is about to be modified by the introduction of efficiency criteria.

51 Slide N 51 Legal background of EPC at national level Serbia: Laws and regulations promoting EPC in public buildings: Law on Efficient Use of Energy, Articles 5, 66 and 67 Official Gazette of Republic of Serbia, No 25/2013 Ordinance on establishing the model contract on energy services for implementation of the measures for energy efficiency improvement in when the users are from the public sector Official Gazette of Republic of Serbia, No. 41/2015) Laws and regulations ruling over the public procurement process Law on Public-Private Partnership and Concessions Official Gazette of Republic of Serbia, No. 88/2011 Public Procurement Law Official Gazette of Republic of Serbia, No. 24/2012, 14/2015 and 68/2015

52 Slide N 52 Legal background of EPC at national level Slovakia: Laws and regulations ruling over the public procurement process Public Procurement is governed by Act No. 25/2006 on Public Procurement, as amended. Public procurement in Slovakia should reflect transparency, economy, efficiency and the absence of discrimination, and should respect ethical and moral values. The correct handling of public funds has always been and always will be a key factor in public satisfaction, will contribute to a peaceful social climate, and will also be reflected in other spheres of social, political and legal life.

53 Slide N 53 Legal background of EPC at national level Slovenia: Laws and regulations promoting EPC in public buildings: Energy Act (Energetski zakon EZ-1) Non-binding guidelines and rules Guidelines for the conduction of energy efficiency measures in public sector buildings with EPC (Smernice za izvajanje ukrepov izboljšanja energetske učinkovitosti v stavbah javnega sektorja po principu energetskega pogodbeništva) Rules on efficient use of energy in buildings (Pravilnik o učinkoviti rabi energije v stavbah - PURES) Technical Guideline Efficient Use of Energy (Tehnična smernica TSG-1-004:2010 URE) Laws and regulations ruling over the public procurement process Public Finance Act (Zakon o javnih financah ZJF) Public Procurement Act (Zakon o javnem naročanju ZJN-3) Public Private Partnership Act (Zakon o javno-zasebnem partnerstvu ZJZP) Services of General Economic Interest Act (Zakon o gospodarskih javnih službah ZGJS) Act Regulating Public Procurement in Water, Energy, Transport and Postal Services (Zakon o javnem naročanju na vodnem, energetskem, transportnem področju in področju poštnih storitev ZJNVETPS)

54 Legal background of EPC at national level Ukraine: Laws and regulations promoting EPC in public buildings: Law 327-VIII from «On implementation of new investment opportunities, safeguarding rights and legal interests of businesses for launching a large scale energy rehabilitation» Law 328-VIII from «On amending the Budget Code of Ukraine regarding implementation of new investment opportunities safeguarding rights and legal interests of businesses for launching large scale energy rehabilitation» Laws and regulations ruling over the public procurement process Law of Ukraine 1197-VII from On public procurement" Law of Ukraine 4851-VI from "On specifics of procurement process in certain spheres of economic activity» Law of Ukraine 2939-VI from On access to public information" Decree of the Cabinet of Ministers of Ukraine 835 from October 21, 2015 On approval of the datasets to be published in the form of open data Slide N 54

55 Legal background of EPC at national level Ukraine: Further regulations ruling over the public procurement process Order of the Cabinet of Ministers of Ukraine from May 20, Р " On implementation of the pilot project on introduction of electronic procurement procedures" Order of the Cabinet of Ministers of Ukraine from March 31, Р "About the experiment with the use of electronic means in the course of negotiating the procurement procedure Decree of the Cabinet of Ministers of Ukraine 117 from April 23, 2014 "On implementation of pre-payment of goods, works and services procured for public budget Decree of the Cabinet of Ministers of Ukraine 65 from March 01, 2014 "About budget saving and prevention of the budget losses Decree of the Cabinet of Ministers of Ukraine 631 from August, 2013 "On approval of public procurement audits by the State Financial Inspection and its territorial bodies and amendments to some acts of the Cabinet of Ministers of Ukraine Decree of the Cabinet of Ministers of Ukraine 603 from June 04, 2012 "On peculiarities of implementation of framework agreements Decree of the Cabinet of Ministers of Ukraine 602 from June 04, 2012"On approval of determining general customers and interaction of customers with the general customer for framework agreements" Slide N 55

56 Slide N 56 European EPC Code of Conduct The European Code of Conduct for Energy Performance Contracting (EPC Code of Conduct): A voluntary commitment. Not legally binding. Launched by the Transparense project in Endorsed by: European Association of Energy Service Companies (eu.esco) European Federation of Intelligent Energy Efficiency Services (EFIEES) More than 160 signatories across Europe, including 12 national associations of EPC providers The main role of the EPC Code of Conduct is to bring confidence to the EPC market in the EU taking into account its variety across the member states. Compliance of an ESCO with the European EPC Code of Conduct may be seen as a minimum guarantee of the quality of EPC services provided by such an ESCO.

57 Slide N 57 EPC tendering procedures Tendering procedures have to follow national rules. The EUROCONTRACT project developed models for: Two-stage negotiated tendering procedures One-stage negotiated tendering procedures One-stage non-negotiated tendering procedures. Please be aware: Single-stage non-negotiated tendering processesmay be formally the easiest to be implemented, but will definitely cause the highest tender preparation cost for the building owner, and may result in the highest risk to fail (i.e. not receiving any acceptable offer) in particular in newly emerging EPC markets (see the chart above).

58 Two-stage negotiated tendering procedure (based on EUROCONTRACT models) Supporting the build owner (project control committee), or acting on its behalf Invitation to tender, rough analysis, award of contract Fine analysis Start of Stage 2 of contract Project preparations Contracting local facilitators recommended Setting up of project control committee Selection of buildings Evaluation of Building data Determination of energy costs baseline Determination minimum saving guarantee requested * According to national legislation a minimum number of bidders and/or received bids may be requested at first and/or second stage of the tendering process. Compilation of tender dossier Project-specific adjustment of the EPC contract template Publication of contract notice Expression of interest from ESCOs Selection of 3-10 qualified bidders (short list)* Request for tenders if no qualified bidder Cancellation of the tendering procedure Tender preparation based on rough analysis and submission by ESCOs Vetting and assessment of received bids* Negotiations & selection of most economic offer(s)* if no economic offer Contract stage 1: Project planning contract Cancellation of the tendering procedure Stage 1: Fine analysis with regard to energy Detailed validation of potential energy and cost savings Comparison of results, final decision of client Non-confirmation of rough an analysis, or confirmation, but decision against EPC Contract Stage 2: Implementation of EPC Cancellation of the tendering procedure Compensation for planning cost Slide N 58

59 Tendering procedures Typical timeline (two-stage procedure experience of KEA) Tendering process step Preparation of tender dossiers Duration (source: KEA) 1-3 months Publication of the contract notice and invitation of expressions of interest - Call for expressions of interest and selection of tenderers months Notification of shortlisted tenderers and invitation to tender - Tender preparation and tenderers rough analysis of the project 2-4 months Evaluation of tenders, negotiations with best tenderers, selection of the winning tender Economic comparison of the EPC with standard solutions (own implementation) Selection of the winning tender and awarding meeting of the local council Approval of the supervising authority Notification of the winning tenderer of the award of contract, and contract signature Fine analysis including detailed planning of the project by the contractor Review, revision if necessary, and approval of the results of the final analysis Implementation of agreed measures and installation of facilities Minimum total duration from the start of preparation of tender dossier to start of the guarantee period months 0.5 months 0.5 months 1-3 months 2-4 months 1-2 months 4-12 months months Slide N 59

60 Supporting the build owner (project control committee), or acting on its behalf Invitation to tender and award of contracts Project preparations Alternative tendering procedures: Single-stage negotiated procedure (based EUROCONTRACT models) Contracting local facilitators Setting up of project control committee / Selection of buildings recommended Evaluation of Building data Determination of energy costs baseline Determination minimum saving guarantee requested * According to national legislation a minimum number of bidders and/or received bids may be requested. Compilation of tender dossier Project-specific adjustment of the EPC contract template Publication of contract notice Expression of interest from ESCOs Selection of 3-10 qualified bidders (short list)* Request for tenders if no qualified bidder among expressions of interest Cancellation of the tendering procedure Tender preparation by ESCOs including: Inspection of the buildings & validation of building data Rough analysis with regard to energy situation of the building Determination of energy and cost savings potentials Presentation of bids by ESCOs Evaluation of bids* Invitation of best bidders for contract negotiations Contract negotiations Selection of the most economic offer and comparison with non-epc options Signature of the EPC contract Planning, guarantees, implementation, if no economic offer, or if decision against EPC Cancellation of the tendering procedure Slide N 60

61 Supporting the build owner (project control committee), or acting on its behalf Invitation to tender and award of contracts Project preparations Alternative tendering procedures: Single-stage non-negotiated procedure (based EUROCONTRACT models) Contracting local facilitators Setting up of project control committee / Selection of buildings recommended More detailed project elaboration: Evaluation of Building data Determination of energy costs baseline Fine analysis or energy situation of the building Detailed project planning Determination minimum saving guarantee requested * According to national legislation a minimum number of invited bidders and/or received bids may be requested. Compilation of tender dossier Project-specific adjustment of the EPC contract template Publication of contract notice Expression of interest from ESCOs Selection of 3-10 qualified bidders (short list)* Request for tenders if no qualified bidder among expressions of interest Cancellation of the tendering procedure Tender preparation by ESCOs Including: Inspection of the buildings & validation of data from the tender dossier More detailed analysis with regard to energy situation of the building Detailed project planning Determination of offered saving guarantee, contract duration, and fees Presentation of bids by ESCOs Evaluation of bids* Selection of the most economic offer and comparison with non-epc options Signature of the EPC contract Planning, guarantees, implementation, if no economic offer, or if decision against EPC Cancellation of the tendering procedure Slide N 61

62 Compilation of tender dossier & Project-specific adjustment of the EPC contract template The content of the tender dossier should include: Key requirements Minimum share of savings on the energy consumption/energy costs Obligatory and/or recommended energy efficiency measures Information whether and under which conditions the ESCO is required to provide financing Deadline for the expiration of EPC contract Formal requirements for tender Organisational aspects What tasks should be carried out by the ESCO and by the client? Contract terms and conditions Exact definition of the contractual relationship Technical aspects Description of the buildings, Energy statistics (copies of invoices, data on energy consumption and cost min. 3 years back ) Calculation method for a baseline energy consumption Operation times, equipment, building use, required indoor climate (temperature, ventilation etc.) Current energy systems and energy management in place Technical aspects must be comprehensively and detailed elaborated in particular in tender dossiers provided for a one-step tendering procedure without negotiations. Slide N 62

63 Publication of contract notice & Selection of qualified bidders (short list) Recommended criteria for the selection of qualified bidders, for example: Qualification criteria: Economic capacity measured in turnover in energy services, and in particular in EPC. Number and relevance of,reference projects based on ESCO/EPC business models. Eligibility criteria: Professional or trade register extract, and legally required licenses and certificates Proof of liability insurance (with minimum coverage level) Corporate structure (legal status, statutes, shareholders) Declaration concerning payment of legal taxes and duties Number of employees, economic, technical, and financial capacities. Additional criteria, for example: Commitment to the European EPC Code of Conduct Clear information on the selection criteria and ratings must be included in the tender dossier, resp. in the Call for Expressions of Interest. Selection criteria for the identification of best tenders: PROPOSAL A (Source KEA) Project concept (weight 50%) Slide N 63

64 Slide N 64 Selection of best tenders PROPOSAL (Source Transparense): Actually applied criteria must be defined in advance and published in the tender documents.

65 Slide N 65 Contract negotiations Subject of negotiations with ESCOs shall be, for example: Extent and quality of the designed measures Preserving requested the parameters of internal environment, observing the existing standards and laws, compatibility with the existing equipment Time schedule of activities Calculation of guaranteed savings in referential and real prices Determining the reward for the applicant, and the share of the contracting entity on extra savings Contracting entity requirements, call to adjust the tender What else could be subject of negotiations with ESCOs? A negotiation protocol, i.e. a record of all agreed arrangements, shall be provided by the building owner, resp. by the involved facilitator, to each ESCO.

66 Slide N 66 Minimum contents of tender documents Key requirements Minimum share of savings on the energy consumption/energy costs Obligatory and/or recommended energy efficiency measures Information whether and under which conditions the ESCO is required to provide financing Deadline for the expiration of EPC contract Formal requirements for tender Organisational aspects What tasks should be carried out by the ESCO and by the client? Contract terms and conditions Exact definition of the contractual relationship Technical aspects Description of the buildings, Energy statistics (copies of invoices, and data on energy consumption in technical and monetary terms min. 3 years back ) Calculation method for a baseline energy consumption Operation times, equipment, building use, requirements (temperature, ventilation etc.) Conditions of energy system and energy management in place A sample of tender documents for an EPC project is presented in the training manual (Annex 1).

67 Slide N 67 Major components of EPC contracts Guarantee of savings Volume of investment Definition of a reference scenario (baseline) of the future energy consumption. Obligation of the ESCO to provide a report on yearly savings evaluation. Responsibility of the ESCO for design and implementation of the energy saving measures. Obligation of the client to provide proper conditions for realization of energy saving measures. Planned duration of installation of the investment Way of transfer of the installed energy saving technologies to the ownership of the beneficiary. Means of payment for the services and savings. Usually these are paid as a monthly fixed advanced payment agreed by both parties. Declaration of the purpose of operation of the facility on which the Energy Performance Contract is effectuated. Duration of the contract. Method of recalculation of the guaranteed savings in case any of the input parameters differs from the presumptions defined in the reference (baseline) energy consumption scenario

68 Module IV: Measurement & verification of savings in EPC projects Slide N 68 CONTENTS OF THIS MODULE Calculation of baselines Baseline step-by-step Step I: Collection and list of invoices Step II: Time correction for the baseline year Step III: Prices correction Step IV: Baseline calculation Step V: Baseline documentation Measuring & verification of savings Verification step-by-step Step I: Day adjustment Step II: Climate adjustment Step III: Utilisation adjustment Step IV: Price adjustment

69 Slide N 69 Calculation of baselines The last completed calendar year (1 st January 31 st December) preceding the EPC project is usually used as the reference year (baseline year). Alternatively, in order to make sure that the reference year is representative regarding energy consumption, the average consumption value of the three last completed years maybe defined as baseline consumption. The calculation methodology has to be defined in the EPC contract. Step I: Collection and list of invoices for energy consumption Step II: Correction for the reference year Fuel/heat consumption Climate adjustment kwh Heat consumption Utilization correction Electricity consumption kwh Electricity consumption Step III: Prices correction Step IV: Baseline calculations Step V: Baseline documentation

70 Slide N 70 Baseline step-by-step Step I: Collection and list of invoices for energy consumption Energy bills are a feasible base for baseline calculation due to their official, independent and testable character. They are collected and summarized in the baseline as follows: Collect all energy bills for each building with consumption in the baseline year, copy them for the tender documents (ESCOs will need them before final approval of the baseline). List meter by meter, building by building into one data sheet. Note extra information (provider, meter number, factors, date of fitting, extra meters..) in the data sheet. Compare to own meter readings of building management for verification.

71 Slide N 71 Baseline step-by-step Step II: Correction for the reference year Corrections may be requested with regards to: Adjustment of billing periods to reference year If the billing period (100 days billing period) exceeds the reference year (only 60 days of reference year covered by billing period): For electricity consumption: kwh baseline = kwh bill x 60 days/100 days For heat consumption: kwh baseline = kwh bill x Σ (median temperatures) 60 days / Σ (median temp.) 100 days Elimination of the influences of weather conditions It is very common to use the average consumption of the last three years as the baseline in order to eliminate influences of short-term weather events. Normalization of the utilization of the building If, e.g. because of building renovation, only a part of the building (e.g. 70% of floor space) is used/heated during the baseline year, but the entire building is planned to be used/heated in the future, consumption metered for the baseline year should be corrected accordingly.

72 Slide N 72 Baseline step-by-step Step III: Prices correction Reference prices are fixed for the whole EPC period to secure a constant calculation basis for investments. List prices in data sheets following the structure of buildings and meters (each building /meter) may have different prices. Take into account consumption and related fix prices (connection power). Metering prices, basic prices, which cannot be influenced by the ESCO may be left out of the calculation If necessary give a description of the price system in a comment Usually, reference prices are the actual prices paid during the reference year.

73 Baseline step-by-step Step IV: Baseline calculations Formula*: Baseline ( ) = kwh heat * Reference price heat + kw heat * Referenceprice kw + Fixprice heat + kwh electr * Reference price electr + kw electr * Referenceprice kw + Fixprice electr *for typical energy price structure Baseline is calculated net exclusive of VAT, VAT is just rated per each yearly accounting. Verification / plausibility check may be done by Comparison with other years, Comparison to benchmarks, Comparison to own meter readings of building management Slide N 73

74 Slide N 74 Baseline step-by-step Step V: Baseline documentation Part of the baseline documentation, beside its calculation, are Information about work time (opening hours for public buildings, work schedule, class schedule in schools), Scheme of yearly events, Information about facilities and technical equipment (large-scale consumers of power, IT equipment, lighting), Number of employees, pupil, students, hospital bed etc. in each building, Further special utilizations. In summary all equipment and activities in baseline year should be documented as a official part of the tender documents and EPC contract

75 Slide N 75 Measurement and verification of savings The ESCO has to provide a proof of saving based on energy bills for the contract buildings. It has to determine the adjusted net amount of saving actually achieved. The settlement method is analogous to that for baseline determination. Starting point: Collection and list of invoices for energy consumption Fuel/heat consumption Step II: Climate adjustment Step I: Day adjustment Electricity consumption Step III: Utilization adjustment Baseline cost Corrected energy cost - = Adjusted amount of savings kwh Heat consumption kwh Electricity consumption Step IV: Price adjustment (prices of baseline year)

76 Slide N 76 Verification step-by-step Step I: Day adjustment First, the energy consumption from different bills and meters are allocated to the settlement period (usually a calendar year) to adjust for different numbers of days. Step II: Climate adjustment In accordance with existing technical standards (e.g. German VDI 2067) the annual climate is characterized for example as the sum of the degree days. This has to be defined in the contract as the reference value for the adjustment for the reference year. The current annual sum of the degree days is then used to adjust the heat consumption (space heating share, e.g. 90% in schools) for the respective settlement period.

77 Slide N 77 Verification step-by-step Step III: Utilization adjustment If the utilization changes in a contract building, related changes of energy demand are to be determined and assessed under cost aspects. The client has to give notice in due time of any change of use. Methods of calculation for the most common changes in usage can be provided with the contract or the assessment is done based on existing technical rules and standards. If applicable the EPC contract should also contain appropriate calculation rules to account for changes of energy sources, or the use of CHP units in the settlement. Step IV: Price adjustment (prices of baseline year) Finally, the energy costs of the respective settlement year are calculated from adjusted consumption values of the supply bills and fixed reference prices

78 Measurement and verification of savings Slide N 78 Baseline cost Corrected - = energy cost Adjusted amount of savings The energy costs of the settlement year determined in the above listed four steps are deducted from the baseline. The difference between the two is the objective energy cost saving achieved in the settlement year. The values have to be determined for each individual building. After summing up the values for all buildings, the total remuneration is determined as the sum of basic remuneration for the guaranteed saving achieved and (if achieved) the proportional bonus remuneration for saving beyond the obligation.

79 Slide N 79 Formulas for adjustment calculations For example (more in the training manual Annex 3): Source: DENA