3FOOD

Third Industrial Revolution Consulting Group
1.2.1.4 Benefits of a LuxSEF Application
In the context of sustainable energy finance, a series of SEF’s capitalization mechanism are
offered on a routine basis. Such a strategy has the following benefits:
Extra savings for program participants: Under SEF program mechanics, ESCOs are
incentivized to underestimate savings in order to meet established guarantees and avoid
shortfall penalties. Typically, ESCOs guarantee about 96% of estimated savings. 240
Remaining performance benefits program participants. Additionally, savings continue to
accrue beyond term of debt service to the benefit of program participants.
Non-energy benefits accrue to participants: Non-energy benefits (e.g., operational savings
or deferred maintenance) can be as much as 40% or more of the total economic savings
generated by such projects. 241
Avoidance of interest cost penalties for small program participants: Through pooled
financing, the program avoids possible interest cost penalties for small jurisdictions. 242 This
is also recognized in Luxembourg’s Third National Energy Efficiency Action Plan (p. 31): “To
date, the municipalities in particular have been reluctant to use energy savings contracts.
This may be explained, among other things, by the often small structures of many
Luxembourg municipalities, as in general the economic benefits of savings contracts can
only be achieved above a certain energy cost threshold.”
Overcomes geographic segmentation: Overcoming issuer size segmentation can also
overcome geographic segmentation as pooled financing opens access to
national/international markets to attract capital and enables rural and urban
participation. 243
Economies of scale open technology options: Pooled financing realizes economies of scale
in the procurement of energy conservation and renewable energy technology. Advanced,
higher cost technologies become available.
240 Shonder, J. (2013). Beyond guaranteed savings: additional cost savings associated with ESPC projects. Oak Ridge
National Laboratory, ORNL/TM-2013/108.
241 Larsen, P.H., Stuart, E., Goldman, C.A. (2014). Current policies and practices related to the incorporation of nonenergy
benefits in energy saving performance contract projects. American Council for an Energy Efficient Economy
Summer Study 2014.
242 Empirical evidence for the interest cost penalty for smaller jurisdictions is provided by: a) Simonsen, B., Robbins,
M., & Helgerson, L. (2002). The Influence of Jurisdiction Size and Sale Type on Municipal Bond Interest Rates: An
Empirical Analysis. Public Administration Review, 61(6), 709-717. doi:10.1111/0033-3352.00141; and, more
recently, b) Bastida, F., Guillamó, M.-D., Benito, B. (2014). Explaining interest rates in local government borrowing.
International Public Management Journal, 17:1, 45-73. Doi: 10.1080/10967494.2014.874257
243 Bastida, F., Guillamó, M.-D., Benito, B. (2014). Explaining interest rates in local government borrowing.
International Public Management Journal, 17:1, 45-73. Doi: 10.1080/10967494.2014.874257
275