Multiple benefits of renovation in buildings - PU Europe

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Multiple benefits of investing in energy efficient renovation of buildings all or a share of the initial investment cost in return for the achieved energy savings going forward. The ESCOs thus have the potential to overcome the public regulation barriers where municipalities cannot borrow to finance investments, by taking on the entire upfront investment cost. Such EPC contracts are a significant step in the right direction, but are inherently difficult to monitor. Designing an EPC so the risk is distributed properly and the behaviour/outcome of the users is a difficult task. In addition, as ESCOs are still relatively unproven companies with significant credit risk, it may be difficult to obtain sufficient finance without straining their balance sheets. In Korea, e.g. ESCOs have an average debt load of 378 per cent compared with 160 per cent for manufacturing companies. 45 45 UNDP (2010), p. 44 36
Multiple benefits of investing in energy efficient renovation of buildings Box 3 ESCO partnerships in Europe The most common ESCO in Europe is an independent company specialising in providing services such as energy analysis and audits, project design and implementation and monitoring and evaluation of savings to name just a few. While 62 per cent of European ESCOs define themselves in this category, 17 per cent are Energy utility or supply companies, and about 16 per cent are public sector agencies or public-private joint ventures. Almost all companies provide financing services, 89 per cent offer guarantee of performance meaning that they are prepared to accept part of the technical and financial risk, and about 58 per cent offer insurance coverage. The vast majority of ESCO projects take place in either industry (50 per cent) or in the public sector (38 per cent). The choice of applied technology is more diverse and ranges from improved heating systems, heating ventilation and air conditioning to improved lighting and industrial processes and combustion improvement. The length of an ESCO partnership contract is typically 5-15 years. Germany was one of the first movers, and is currently one of the most mature ESCO markets in the EU. The focus has primarily been on public buildings in the commercial sector with building “pools” of up to 100 separate buildings in order to minimize transaction costs. In 1995 Berlin launched an energy saving strategy, and by an ESCO partnership managed to reduce the annual energy cost bill by almost €3 billion and to reduce CO 2 emissions by 25 per cent. In Nyköping in Sweden, an ESCO offered a contract covering 123 of the municipality’s buildings totalling an area of 257,000 m 2 . The improvements included the installation of a Building Management System in all buildings to monitor energy consumption, new heat pumps and solar panels, including sensor controlled lighting and heating/cooling. The project resulted in a reduction of 21 per cent in the municipality’s energy bill. The Royal Gwent Hospital in UK engaged an ESCO to renovate old infrastructure and ensure energy savings. The project introduced more effective energy and heating systems, a lighting retrofit and water conservation measures. The project has resulted in annual savings of at least €620,000. Source: DG JRC (2005) and www.EU-esco.org Energy costs are a small share of overall costs While the total value of energy savings at macro level might be substantial, energy costs account typically for a small part of overall costs for business and to a less extent households. 46 One study has found that the energy costs in commercial building in high cost city centres like London account for just 1-2 per cent of total costs. 47 Partly for the same reason, energy cost management is typically not centralised within a single unit that holds responsibility for the overall energy bill. Instead, energy cost management may be shared across different departments within firms and institutions. This gives little incentive to invest resources into reducing the energy bill, especially as these projects involve transaction costs of gathering information, inconvenience of installing new equipment etc. 46 For some households, especially low-income households, energy costs may be a substantial share of total costs. 47 European Commission (2012), citing Guertler, Pett and Kaplan (2005) 37
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Multiple benefits of renovation in buildings - PU Europe

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