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annual allowance energy cost budget energy cost of previous year cost saving due to energy saving periodic budget negotiations avoided costs budget allowance general budget not accessible initial/permanent or extra allow yearly price rise actual savings savings beyond payback add-on as incentive payback revolving fund receivables for former investments free capital client budget avoided budget increase energy purchase cost reductions achievable through energy savings spread of savings new investments expenses for core tasks Figure 9: connections between sub-budgets relevant to Internal Contracting Figure 9 shows the connections in the general budget. The sub-budgets (blue) within the general budget (yellow) result from the periodic budget negotiations. The value of actual cost savings made is considered within the present allowances of the energy cost budget (green outgoing arrow), although the present spending for energy purchases (left red arrow) has already decreased due to past energy saving investments. The savings are now transformable as income for other purposes (green arrows) – mainly to serve as payback to the fund. If the cost savings over the lifetime of an energy saving measure are higher than the required payback for its investment, the additional savings can be used for other purposes. Such an opportunity should be used to increase the contracting fund or to acknowledge the collaboration of the unit where the agreed energy saving measure has been implemented (client) by giving an incentive for free use. However, Infinite Solutions Guidebook – Internal Contracting 3 The financial demand on the feeding budget (i.e. the energy cost budget) cannot be reduced until contracting investments are paid back and other purposes have been served. Similar to the future costs, the returns of the revolving fund on former investments are not considered within the present general Monitoring and budget. annual report An Internal Contracting scheme has Council to decision keep track of an investment for more than just Pipeline of projects one budget period. 3 Internal Contracting is a scheme to holistically link the past, present and future. sweet fruits Hence, to operate a revolving fund, not only an initial budget, but also the ability to record costs savings as Moreover, energy improvements paybacks on former investments, generate “avoided future costs” (white bulk of fruits are essential. Whether energy horizontal arrow), since energy savings costs are accounted for centrally are not subject to energy price rises. or decentrally within individual However, transforming these avoided future costs into present financial low-hanging units fruits of the organisation is of no importance. After the start-up phase, resources may be impossible since the revolving fund can be operated avoided future costs are rarely subject entirely on on-going paybacks. If to budget negotiations. Such an further savings are available, the fund attempt would also increase the overall can be even increased. Furthermore, financial demand on the general budget. even if inaccessible, the avoided Thus, avoided costs can only be used as costs can be used as an argument to an argument to promote the benefits of promote the benefits of an Internal an Internal Contracting model. Contracting model when discussing its development in reviews. Annual rates Agreements Make it sustainable Make it revolving CO 2 -credits CO 2 -penalty Energy savings EU / National funding Internal Contracting Scheme Source of the fund Internal Target group Criteria
4 20000 2 10000 start-up difficulties to get into process 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Figure 10 illustrates the cash flow of the internal revolving fund for one example project with a payback time of 8 years and a project lifetime of 15 years. The payback time depends on the policy defined on how savings will be returned to the fund. If the savings are returned to the revolving fund in full, then the payback time will be 8 years. After that time, the financial department usually claims the savings and will reduce the client’s budget accordingly. However, savings can also be returned to the revolving fund beyond the payback time, until the end of the project lifetime. In this period, savings can be split between the beneficiary and the revolving fund or the total savings can be transferred to the revolving fund. Figure 11 shows the cash flow for the client of the Internal Contracting system. The client will see the energy costs decrease after the investment. Usually, savings are not only achieved for energy costs but also for operating and running costs (depicted as cost savings). The client will transfer the rest of the savings to the revolving fund. The duration of the savings transfer will depend on the agreement (or defined policy as stated above) between the revolving fund and the client. In this (somewhat ideal) case, the client will achieve the full potential of its savings after the payback time. Until Year 8, the major part of the savings will be transferred to the revolving fund and after that and until the end of the project lifetime, the client will reap the benefits of its investment. 18 17 16 1200000 15 14 1000000 13 12 800000 11 10 600000 9 8 400000 7 6 200000 5 4 30 2 1 0 -1 -2 -3 Million 60000 3 50000 40000 2 30000 20000 1 10000 00 Seed Y0 Energy costs savings beyond payback savings used for payback Invest cumulated savings incl. real price rise cummulated savings cummulated invest fund size, if all savings would flow back fund size cumulated paybacks Figure 10: revolving fund cash flow for a single measure value 4 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 3.2.5/ Investment strategy Y00 Y1 Y22 Y3 Y44 Y5 Y6 6 Y7 Y8 8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 year Energy costs Savings returned to RF Figure 11 : cash flow for Internal Contracting client 1200000 Savings returned to RF Payback time Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 80% expenses for 60% measures of 40% different years, percentage of 20% investment paid 0% back size of revolving fund yearly paybacks cumulated paybacks Project lifetime 1000000 800000 600000 400000 Payback time Project lifetime 200000 0 Seed Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Infinite Solutions Guidebook – Internal Contracting
Page 1 and 2: Infinite Solutions Guidebook Financ
Page 3: Table of Contents 1/ Introduction 2
Page 6 and 7: Infinite Solutions Guidebook - Inte
Page 12 and 13: 2.2/ Benefits of internal over exte
Page 14 and 15: energy prices is lowered. This is c
Page 18 and 19: This Internal Contracting developme
Page 20 and 21: energy cost budget energy cost of p
Page 24 and 25: In order to use the fund as efficie
Page 26 and 27: etrofits play a smaller role in big
Page 32 and 33: 4.1.2/ Organisational structure The
Page 34 and 35: 4 2 start-up difficulties to get in
Page 36 and 37: Executive Y Berlin 4.1.6/ Measures
Page 40 and 41: 4.2.2/ Organisational structure Udi
Page 44 and 45: GERMANY CITY GENERAL BUDGET approve
Page 48 and 49: 4.4.2/ Management of the fund Like
Page 52 and 53: 4.5.2/ Almada’s Climate Fund (r)e
Page 54 and 55: 4.5.4/ Legal Organisation and fund
Page 60 and 61: 3 Internal Contracting needs specif
Page 66 and 67: This financing scheme includes the
Page 68 and 69: Project cost-efficiency is calculat
Page 70 and 71: NOTES Infinite Solutions Guidebook
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NOTES Infinite Solutions Guidebook
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NOTES Infinite Solutions Guidebook
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