Energy Community Treaty (ECT) Contracting Parties from the Western Balkans have done much in recent years to reduce their energy intensity. However an area where there is still a lot to be done is in public sector buildings such as schools, town halls, hospitals, as well as in public services, such as street lighting.
Situation - Public and private sector buildings are characterised by under-investment in the building structure and services equipment (e.g. heating, lighting, ventilation and air-conditioning). This causes large energy inefficiencies.
Opportunity - These inefficiencies give rise to a significant energy saving and money saving potential.
Constraint - Realising this potential requires designing, financing and implementing energy efficiency investments. However public building owners (the ‘ESCO Client’, which could include central or local governments or their agencies) are often constrained by a (i) lack of technical knowledge needed for designing and implementing such energy efficiency investments and with strong links to actual performance and outcomes (energy savings); (ii) limited or no availability of funding for financing investments which is often due to the existing indebtedness or caps on new public debt.
Solution - A concept that addresses these constraints is the ESCO concept of Energy Performance Contracting (EnPC). Under this approach, ESCOs finance and implement energy efficiency investments with commercially acceptable paybacks (e.g. <10 years for building services equipment ) and are repaid from a share of the future energy savings. EnPCs can be applied to a wide range of energy efficiency projects including: street lighting, public buildings (such as schools, hospitals, kindergartens, administration buildings, water etc). A key feature of the EnPC is that savings are guaranteed by the ESCO – if savings are not realised, the ESCO does not get paid.
Benefits for ESCO Clients (beneficiaries):
1. The ESCO finances all the needed investments itself and takes the risk of achieving the contractually guaranteed energy savings, thereby freeing up the public sector’s debt capacity. If the public authority wishes to have a certain technology energy efficiency solution that has a proportionally higher investment cost than savings (e.g. in street lighting LED instead of high pressure sodium lamps), the public side can have these by co-financing the project;
2. The ESCO Client is guaranteed it will not consume more energy units than in its original energy bill before the investment (see diagram below);
3. EnPC introduces private sector expertise for project design helping to ensure the maximum level of energy savings are achieved for the minimum cost and the risk of design, implementation and financing are transferred to the ESCOs;
4. EnPC is a commercial mechanism that allows EU Structural Funds to be effectively leveraged and to provide much needed co-financing with commercial private sector finance. This combining of grants and private finance is also referred to as ‘financial engineering’ and is supported and actually encouraged by the EU (EU Council Regulation (EC) No 1303/2013); and
5. An EnPC programme offers a clear and measurable route to meeting the requirements for energy efficiency targets under the relevant EU Directives on Energy Efficiency (2012/27/EU).
6. An EnPC programme aims to increase the private sector’s involvement in the designing optimal energy efficiency investments.
Positive experience in EnPC exists since the 1990s in e.g. Germany, Austria and more recently Czech Republic and Bulgaria. The annual German market for ESCOs is up to €4 billion. Example: EnPC projects in 1,500 public buildings in Berlin resulted in more than €50 million efficiency investments financed by ESCOs.
Diagram: example of EnPC (public and private sector projects are almost identical, mainly investments, paybacks and project duration vary)
In case you are interested in receiving support for developing an ESCO project (street lighting or public buildings), please contact us at firstname.lastname@example.org