Framework Conditions for Energy Performance Contracting

Transcription

1 November 2009 Framework Conditions for Energy Performance Contracting National Report Germany European Energy Service Initiative EESI IEE/08/581/SI November 2009 Authors: Susanne Berger, Moritz Schäfer Berliner Energieagentur GmbH Französische Straße Berlin Germany Telefon 030 / Telefax 030 / office@berliner-e-agentur.de Disclaimer: The sole responsibility for the content of this presentation lies with the authors. It does not necessarily reflect the opinion of the European Communities. The European Commission is not responsible for any use that may be made of the information contained therein. 1

2 November 2009 A. SUMMARY...3 B. FRAMEWORK CONDITIONS Political Framework National energy and climate policy EPC in National Energy Efficiency Action Plan Economic Framework Energy price development Legal Framework Communal budget law Communal law Guidelines for EPC Relevant quality standards Financing Framework Financing Principles Financial and Banking Sector...10 C. POTENTIAL FOR EPC Technical and Economical Potential Target Groups and Buildings for EPC Key Actors - ESCOs Activities in the National Market Planned or realized EPC projects Best practice examples Summary of the bottlenecks, challenges and opportunities Policy recommendations Literature

3 A. SUMMARY Germany has a growing market for Energy Services and is one of the pioneers for developing the European market for Energy Performance Contracting (EPC). There are already high market standards and consistent market volume and growth for both primary types of contracting Energy Performance Contracting and Energy Supply Contracting. There is an immense economic usable potential with about 1.4 million buildings or objects for Contracting, but only between 5 7 % is currently used. For the future the annual turnover is rough estimated between 1.8 and 4.5 billion in In recent years, the German EPC market has become a significant business for several energy service companies ESCOs, also called contractors in Germany. Of the 500 existing vendors for Energy Contracting services about two third are ESCOs and utilities. Some of the most important and well known large ESCOs and a lot of medium and small ESCOs are operating in Germany The share of EPC contracts is about 10 % of all Contracting contracts. There were more than 300 EPC agreements concluded since the mid 90s with high-tech and complex individual buildings like hospitals, as well as building pools of up to 100 separate buildings. The public sector remains the most favourable customer group for EPC. In view of the annual total energy costs for public buildings of almost 4 billion (3.58 billion in 2005) Performance Contracting can tap considerable cost-saving and investment potentials. There is a potential of investment volume for EPC in the public building sector of about 2 billion with an annual saving potential of more than about 200 million. The bottlenecks and challenges for a further development of EPC in the public sector are mainly lack of information, long project duration, the integration of constructional refurbishment measures, transaction costs, and the mere focus on financial aspects (self realisation). To achieve a stronger market development for ESCO services a further development of EPC models and contracts is necessary. This includes models that integrate the use of renewable energies and/or thermal insulation of the building shell. The same accounts for the provision of standardised single energy efficiency measures as a modular system (i.e. lighting contracting or compressed air contracting). Standardisation, simplification, transparency, flexibility, and further adaptation of customer needs are challenges for the actors of the energy service market. 3

4 B. FRAMEWORK CONDITIONS 1 Political Framework 1.1 National energy and climate policy In March 2007 the member states of the European Union agreed on future climate targets. By 2020 EU s greenhouse gas (GHG) emissions shall be reduced by at least 20 % compared to 1990 (even 30 % if developed countries in Asia and America also agree on ambitious climate targets). If the EU Member States agree to a 30 % reduction of European emissions, Germany committed itself in its Coalition Agreement to a total reduction of 40 % of its GHG emissions (compared to the 1990 baseline levels) by With this target Germany wants to meet its leadership in international climate protection. Besides the commitment for GHG emission reductions, renewable energies shall reach a share of 20 % of primary energy demand while energy efficiency shall be increased by 20 %. The national implementation is based on a wide range of measures. All energy saving measures are combined in the Integrated Energy and Climate Programme which was agreed on in August According to independent studies the so-called Meseberg -Act will lead to GHG emission reductions by around 36 %. A main part of the energy savings shall be achieved by the implementation of the Energy Saving Order 1 and the European Energy Service Directive. The implementation of national climate and energy policy holds great potentials for energy services in Germany. It is expected that the promotion and expansion of renewable energies in the private housing sector (for new buildings and refurbishments) will have influence on the development of the EPC market. So far Feed-in Tariffs based on the Renewable Energy Law and other support programmes have led to sustainable niche solutions, i.e. the introduction of small and micro Combined Heat and Power Plants (CHP). It can not be obtained that there is a political will to introduce renewable energies in the EPC market; however, given by the legal framework it can be assumed that there will be a broader combination in the future. This is also supported by the new renewable energies heat law 2. The law entered into force on January 1 st 2009 and stipulates a minimum share of renewable energies for the heat demand in new buildings. The use of renewable energies in old building refurbishment is currently only obligatory on regional level, i.e. in Baden- Wuerttemberg. It can be concluded that the current political framework and its legal implementation will most certainly have a positive effect on the German EPC market. 1 Verordnung über energiesparenden Wärmeschutz und energiesparende Anlagentechnik bei Gebäuden (Energieeinsparverordnung- EnEV) of October 1 st Erneuerbare Energien Wärme Gesetz (EEWärmeG) of January 1 st

5 1.2 EPC in National Energy Efficiency Action Plan In November 2007 the German Ministry of Economics and Technology published the National Energy Efficiency Plan (NEEAP) according to the European Energy Service Directive (2006/32/EC). The target of Germany s energy efficiency strategy is to double the energy productivity by 2020 (Basis: 1990). With respect to the Directive, Germany is planning to save at least 833 PJ ( 232 TWh) of energy until The recommendations of the Directive to achieve energy savings and the definition of terms are explicitly pointing at the realisation of EPC projects. The Directive names EPC as a possible instrument especially in the public sector 3. Additionally, barriers for energy services shall be reduced. Sequentially, the German NEEAP proposes repeatedly EPC as a concrete measure. Existing support programmes shall be further developed and supplemented by new measures. The NEEAP explicitly names EPC as an instrument for energy efficient refurbishments in national estate buildings, EPC campaigns for compressed air, lighting, and heating, and the modernisation of street and traffic lights. From the national action plan, the market actors are expecting a considerable stimulation of the market and an increased demand for energy services. The demanded precursor role of the public authorities with respect to the implementation of energy saving measures could lead to large-scale refurbishments of public real estate and would clearly push the EPC market. However, until now the federal government has not jet imposed a concrete agreement. There are also critical statements of ESCOs concerning the EU Directive. It is suspected that the Directive will lead to more administrative efforts and will therefore have rather negative effects for the market. 2 Economic Framework 2.1 Energy price development The most important condition on the energy sector with effect on the EPC market and investment decisions respectively are the increases in energy prices of the past years. Figure 1 shows the price trend of gas (+80 %), district heating (+62 %), and electricity (+44 %) in German households between 2000 and Annex VI of the Directive 5

6 Figure 1: Energy price development in private households Cent/kW h Electricity District heating Gas 25,00 20,00 15,00 10,00 5,00 0, Source: Data derived from BMWi 2009 In industry prices have increased by 81 % for electricity, 109 % for heating oil, and 64 % for gas within the same period. Increasing energy costs imply an increase in opportunity costs for the shortfall of EPC measures. It means that the failure to realise energy saving measures will lead to steadily increasing costs, while the implementation of such saving measures will lead to steadily increasing benefits. Hence, the stimulation of the market is mainly driven by the demand side. Many ESCOs, however, calculate with increasing number of contracts also derived from own acquisition. In the long term it can be assumed that the increasing energy prices will have a positive effect on the German EPC market. Despite the liberalisation of the electricity (1998) and gas (2006) markets, the German energy markets still show oligopolistic structures. Hence, (price-) competition is hardly visible and has not lead to significant energy price decreases. The Federal Government expected decreases in prices and more competition through an unbundling of the electrical grid from the energy suppliers. Currently, some of the large energy suppliers are preparing the sale of their grids. However, the effects for the EPC market cannot be answered sufficiently within the scope of this report. 6

7 3 Legal Framework Germany s energy law is mainly embedded in EU s environmental and energy policy. On EU level there are two Directives with direct and indirect influence on the German EPC market: the EU Energy Service Directive 4 (see chapter 1.2) and the European Energy Performance of Buildings Directive (EPBD). While the Energy Service Directive has not yet been implemented into a national energy efficiency law, the EPBD was implemented by an amendment of the Energieeinspargesetz (Law on energy savings). Since 2002 the Energy Saving Order combines all relevant ordinances for energy efficiency in buildings. It defines the energetic quality of buildings (new buildings, modernisation, and enlargement) and follows the targets of the Integrated Energy and Climate Programme. It also defines the permitted upper limit of annual primary energy demand, energy standards for thermal insulation, and the need for insulation of attics. The target of the Order is to reduce the primary energy demand by 30 %. As of 2012 energy standards will be tightened by further 30 %. 3.1 Communal budget law The legal framework for municipalities is generally based on the German constitution and the communal constitutions of the federal states (German Länder). According to the regulations of the communal budget law of the Federal and Länder Authorities the municipalities have to follow the principles of public budget law. 5 The preparation and performance of the budget has to follow the principles of economic efficiency and thrift. Additionally, for measures with exceeding financial relevance a cost-benefit analysis has to be carried out. Furthermore the principle of total coverage has to be followed which implies that all incomes have to cover the expenses. The capital budget is drawn up according to the principle of minimisation to reduce the expenses of the municipality to a minimum. For this reason comprehensive and cost intensive refurbishment measures are only implemented in few cases even if they are cost efficient. 3.2 Communal law Municipalities are supervised by certain federal state authorities or local authorities. These institutions approve communal budgets and loans. Contracts for energy services with private companies are furthermore subject to prior approval of the authorities. For the approval of EPC projects certain requirements have to be fulfilled: securing the competition of bidders before tendering, and a preliminary economic comparison with self financing. 4 Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services 5 6 Haushaltsgrundsätze-Gesetz HGrG; 7 Bundeshaushaltsordnung BHO/ Landeshaushaltsordnung LHO 7

8 In many German Länder the statutory provision exists, which asks for a preliminary economic comparison with self financing. An EPC project will only be approved if the own implementation is more expensive. Problematic is, however, that no consistent standards (or experience) on economic comparisons exist. 3.3 Guidelines for EPC In Germany several guidelines for performance contracting in public buildings exist, i.e.: Hessisches Ministerium für Umwelt, ländlichen Raum und Verbraucherschutz (2003) Leitfaden für Energiespar-Contracting in öffentlichen Liegenschaften UBA (2000): Energiespar-Contracting als Beitrag zu Klimaschutz und Kostensenkung Ratgeber für Energiespar-Contracting in öffentlichen Liegenschaften UBA (2002): Contracting für kommunale Sportstätten Strategien zu Klimaschutz und Kostensenkung Leitfaden Deutsche Energie-Agentur (2003): Leitfaden Energiespar-Contracting Arbeitshilfen für die Vorbereitung und Durchführung von Energiespar-Contracting in Bundesliegenschaften Deutsche Energie-Agentur (2008): Contracting-Lotse für Kommunen 3.4 Relevant quality standards DIN EN 15900: Guidelines of energy efficiency services (03/2009) DIN EN 16001: Requirements of energy management systems (08/2009) VDMA 24198: Terms and services of Energy Performance Contracting, explains the stages of project development and gives criteria for the assessment of EPC services. DIN : Definition of different types of contracting (11/2003) 4 Financing Framework 4.1 Financing Principles A fundamental characteristic and important element of the contracting service is the financing of the measures by the ESCO. The ESCO offers both, specialized technical implementation and financing. In comparison to other forms of third party financing (i.e. leasing) the remuneration is directly combined with the success of the implemented measures i.e. in an energy saving guarantee or in guaranteed energy supply prices. The target of EPC is the return on investment through energy cost savings. The ESCO realises energy saving potentials on its own risk within certain contract duration. The achieved energy cost savings determine the contracting rate. Generally, in EPC the following financing models are possible: forfeiting, credit financing, (partial) funding from own capital, building cost subsidy, or full funding of the customer. In practice, mainly forfeiting and funding from own capital apply. 8

9 Two different model contracts exist in EPC: the duration and the participation model. In the case of the duration model contract, the contractor is entitled to the energy cost savings to be achieved for the entire duration of the main obligation to perform, i.e. the client pays the contractor contracting rates the amount of which corresponds to the saved energy costs, and the contractor uses them to cover all his expenses, in particular his investment costs plus a reasonable return. Thus, the client can actually enjoy the cost savings only after the end of the contract period. Figure 2: Principle of the duration model in EPC Energy costs Saved energy costs = Contracting Rate Before saving measures After saving measures Start of contract End of contract time Source: BEA 2007 In the participation model (see Figure 3) the client participates in the energy cost savings from the commencement of the main obligation to perform. The amount of the client s participation is to be stipulated in the contract and usually is at least 10 % of the savings achieved from the commencement of the main obligation to perform. The immediate performance participation results in contract durations which are longer than in the case of an end-of-term model. However, the client s budget is immediately unburdened during the phase of the main obligation to perform. 9

10 Figure 3: Principle of the participation model in EPC Energy costs Saved energy costs Share of customer Before saving measures Saved energy costs Contracting-Rate After saving measures Start of contract End of contract time Source: BEA Financial and Banking Sector In Germany, the uptake of EPC in the public sector is mainly founded on the fact that customers lacked the necessary investment capital (or access to that capital) for energy efficiency upgrades in the building stock. Among the requirements for ESCOs to win a tender was and in most cases still is therefore the ability to organise the financing for the project making the ESCO the debtor. With more projects taken off ground, financing of energy services has become increasingly burdensome for ESCOs as well as their customers: Market partners reach their credit line limits; credit liabilities burden balance sheets. In addition international accounting guidelines and Basel II regulations cast their shadows. Basel II has an impact especially on smaller ESCOs, because their credit wishes will more likely have worse conditions where an increased need for asset backed securities arises. The equipment installed cannot in all cases be used as a collateral by the ESCO. The German Civil Code, for example, stipulates that equipment which is connected to a building passes into ownership of the building owner immediately when it is installed. The commonly used instrument today for re-financing (hardware costs) by the ESCO is factoring (in Europe: forfeiting). Forfeiting is the in case of EPC long-term sale of (future) receivables: when a bank loans money through a forfeiting mechanism, the bank wires euros to the ESCO at the time of completion of the project set-up, i.e. when the equipment has been installed The customer makes periodic fixed payments to the bank. For this, the customer signs an agreement on the amounts to be paid directly to the bank or financial institution. For the ESCO this may mean that the amount of security that it has to provide to the customer is increased. The normal practice could be for example to ask for 5% of the total savings guaranteed over the contract period to be backed by a bank guarantee. If forfeiting is applied, this amount increases to 10% as an additional security for the customer. Since forfeiting is an instrument to refinance the ESCOs hardware costs fast, it is today commonly used. 10

11 From a debtor s perspective, it is desirable to base any debt service on the project cash flow as opposed to basing it on the customer s creditworthiness alone. Debt should be repayable from future project income, the energy cost savings in the case of EPC. The savings generated are however, not always acknowledged as cash flow and therefore collateral. This is an issue that needs further to be worked on with regard to commercial banks. Commercial banks are interested in the business that can be generated in the field of energy services but there is still caution and barriers. Project Size: for many banks projects below an investment volume of three million Euros is too small to provide good conditions Financial strength of the ESCO: a small ESCO with less collateral acceptable to a bank will have larger overall capital costs, thus overall project costs will increase. If the value of the guaranteed savings were included and ranked higher in the due diligence this would improve the outlook on conditions for smaller companies. Creditworthiness of the building owner: In this respect there are no problems with public owners in Germany because of their commonly high and in many cases even AAA-rating Project risks and risk mitigation instruments: For all the abovementioned Among the suggestions for a future role of the financial sector is that loans need to be more specifically available for e.g. energy efficiency projects also by commercial banks. One focus needs to be also on smaller projects and their financing conditions. The set-up of energy funds for support of transaction costs or as a security backup could also be considered. Within the scope of the EESI project the influences of the current economic crisis and the possibilities of combinations between subsidy schemes and EPC will be on a more detailed research and announced in an update version of this report. 11

12 C. POTENTIAL FOR EPC 5 Technical and Economical The market for Energy Services in Germany is a well developed market with standard products and procedures. Within this market a lot of projects are realized. Nevertheless, only around 15 % of the entire contracting market in Germany is opened up. The public sector remains the most favourable customer group for EPC. In view of the annual total energy costs for public buildings of almost 4 billion (3.58 billion in 2005) Performance Contracting can tap considerable cost-saving and investment potentials. There is a potential of investment volume for EPC in the public building sector of about 2 billion with an annual saving potential of more than about 200 million. This figure is related to an estimated saving potential of 30 % energy costs in around 20,000 public buildings until 2016 with actual suitable framework conditions (such as building size, age, property conditions etc). With some changes in framework conditions for EPC another 18,000 would become favourable for EPC implementation. Taking in account these saving potentials an estimation of 1.14 million tons CO 2 per year for the 20,000 buildings has been published, with EPC implementation of the additional 18,000 buildings the CO 2 saving could be almost doubled. In the course of a research project for the Federal Environmental Agency all interviewed market players (contractors as well as customers) expect a positive market development. Calculations made within the study show that around 3,853 million Euros annual energy costs could be tapped through contracting services in all customer groups. Around 22 % of these i.e. 840 million Euros could be saved alone through EPC services annually. The following table shows the shares for the different customer groups. Table 1: Potential energy costs savings and CO2 savings in different customer groups 12 Savings [million /a] CO2-equivalent [t/a] Public sector 210 1,141,026 Hospital 360 1,956,044 Industry ,841 Street lighting ,200 Total 840 4,615,111 Source: BEA 2007 It is expected that the EPC market grows +7 % annually on average. The public sector as well as the market for EPC in hospitals is expected to grow stronger i.e. with +10 %. In industry and business, growth rates are assumed to reach an increase of +5 %. The other tertiary sector is not expected to increase by more than +2 % per year. An increase in projects will first and foremost take place in the regional hot-spots i.e. Baden-Wuerttemberg, Bavaria, Berlin, Bremen and Hesse. This will have a role model effect on surrounding regions. The next Land on the hot-spot list will most likely be Bremen.

13 6 Potential Target Groups and Buildings for EPC The customer groups for energy services including EPC projects can generally be classified into five main customer groups as shown in Table 2. Table 2: Ranking of EPC customer groups Customer Group EPC EDC Others* Municipalities, public Hospitals, medical facilities Industry Commerce, Trade, Services Social Housing Companies Shares of the total Contracting market ~ 15 % ~ 80 % ~ 5 % 100 % Source: BEA 2007 (*others: Operation Contracting etc.) The EPC focus is mainly on public buildings, which can be explained by suitable conditions in public buildings regarding constant energy use and possibilities for central energy management installations. There is also the fact that market development has been pushed considerable by energy agencies and comparable institutions that are in close connection to public administrations. The increasing financing problems for own investments by public budget and the reformatory efforts of the public administration are bringing an additional necessity for advanced private energy services by private companies. A desk research (EPC study for the Federal Environmental Agency) on existing EPC projects figures out around 75 % of EPC projects have been implemented in the public sector. There are around 200,000 public buildings in Germany. Most of these buildings are office buildings for administration, school buildings and sport facilities. Table 3: Building types and number of public buildings Number Administrative buildings 22,000 Comprehensive Schools 38,000 Vocational Schools 9,000 Kindergartens, Day-care centres 19,000 Advanced training facilities 3,000 Sports facilities 85,000 Others 20,000 Total ~ 200,000 Source: BEA 2007 (*others: Operation Contracting etc.) 13

14 The main part of the energy use (~90 %) and the energy costs (~80 %) is related to room heating. The remaining electricity is mainly used for lighting. Approximately 4 TWh of electricity are for example used for public street lighting. Within this sector there is another comprehensive saving potential of between 30 and 50 %. EPC could save another 1.2 TWh electricity in street lighting (approx. 700,000 tons CO 2 ). 7 Key Actors - ESCOs Activities in the National Market The market for Energy Services in Germany is a competitive market with around 500 ESCOs. Some of the most important and well known large ESCOs, a lot of medium and small ESCOs and other vendors are operating in Germany. ESCOs in Germany have different business background as shown in the figure. Figure 4: business background of German ESCOs Planner 8% Heating installers 14% Regional supply companies- 17% Plant engineering 4% Energy Agencies 4% Others 4% Utilities 19% ESCOs 30% Most ESCOs offer Energy Delivery Contracting, some of these ESCOs offer additional integrated building services like Facility Management (EPC is included) and some of ESCOs are specialized only for EPC (about 30 40). Large ESCOs with focus on EPC business are listed below (selection): 14

15 Table 4: Large ESCOs with focus on EPC in Germany GROUP 1: ESCOs active throughout Germany with constant project implementation Siemens AG, Industry Sector, Building Techlologies Division WISAG Energiemanagement GmbH & Co. KG HOCHTIEF Energy Management GmbH YIT Germany GmbH MVV AG / MVV Energiedienstleistungen GmbH Johnson Controls Systems & Service GmbH Evonik New Energies GmbH Cofely Deutschland GmbH Sauter FM GmbH Imtech Contracting GmbH & Co KG GETEC AG GROUP 2: ESCOs with sporadic, regional project implementation, and new providers of EPC HSG Wolfferts Gebäude- und Energiemanagement GmbH Vattenfall Europe Sales GmbH Honeywell Building Solutions GmbH Proenergy Contracting GmbH & Co. KG Dalkia Energie Service GmbH Kofler Energies AG several Stadtwerke (municipal utilities) Surrounding the ESCOs there are several consulting companies (energy agencies, planners) mainly assisting the public clients of EPC. Their services are project development, assistance in the tendering procedure and other project management tasks for EPC. Estimations of the BEA show that around 50 % of public authorities use external consulting for EPC implementation, the others have established own departments with special know-how on EPC. 8 Planned or realized EPC projects The realized EPC projects in the public sector make up a share of only ten percent of the total contracting market (around 150 Mio. Euro/a tied energy costs). As shown in the following table, the implementation of contracting projects is very diverse in the different federal states. The state of North Rhine-Westphalia clearly holds the leading position followed by further hot-spots in Bavaria, Hesse, and Berlin. 15

16 Table 5: Share of EPC and ESC projects in tendering of public buildings (08/2004 until 09/2006) Federal State Percentage North Rhine-Westphalia 22.5 Bavaria 18.2 Hesse 13.9 Berlin 12.6 Baden-Wuerttemberg 9.8 Lower Saxony 8.4 Brandenburg 4.6 Rhineland-Palatinate 3 Hamburg 2 Schleswig-Holstein 2 Mecklenburg-Western Pomerania 1 Saxony-Anhalt 1 Thuringia 1 Source: dena, 2007 The extension of EPC on federal state level depends on the different organisational forms of building management as well as different estimations of communal budget law and public procurement specifications. One of the main reasons for a more intensive implementation of EPC in some states is the strong support of local authorities and the participation of energy agencies in the project management. 8.1 Best practice examples The City of Berlin in partnership with Berlin Energy Agency (BEA) developed the so called Berlin Energy Saving Partnership (ESP), which offers efficient refurbishment of public and private buildings with the pivotal advantage to release building owner of any investment costs. Due to releasing building owners from expenses and delivering savings immediately, ESPs are very successful. An accredited Energy Service Company (ESCO), which is to be determined through tendering, finances and implements appropriate energy saving investments to achieve pre-defined energy and cost reductions. In their bids, ESCO s put together their investments targeted at delivering specified energy savings and respective CO2-reductions. 16

17 Until today, 1,300 buildings shared on 24 EPC contracts have been upgraded, delivering CO2- reductions of nearly 68,000 t/a. With these investments total guaranteed cost savings of about 11.3 m or 26% of usual energy costs (baseline) were realised. So far, ESCOs have invested about 49 m to refurbish different hardware components. To this objective, so-called Energy Performance Contracts (EPC) are set up between building owners and ESCOs. In average, ESCOs applying for retrofit tenders agree to realise annual savings in energy costs of 26%. To achieve this target, different hardware components such as automatic control engineering systems, heating control systems, lighting systems, ventilation and air conditioning systems can be installed. A further service is consultancy on consumer behaviour. BEA also assists building owners and ESCOs to decide on terms of repayment to ESCOs. Average payback periods are 8 to 12 years. In terms of energy performance contracting, the Berlin Energy Saving Partnership is an example for the participation model. In this approach the client benefits immediately from realised reductions of energy cost due to the start of main services. The level of the client s profit is specified in the contract. The application of this model is offering an immediate discharge of public budgets, thus it is very suitable for public administrations. The following two figures illustrate the idea and actor relationships of the ESP-model. Case studies from the Energy Saving Partnership are available on the EESI website ( 9 Summary of the bottlenecks, challenges and opportunities The bottlenecks and challenges for public authorities are mainly the following: lack of information, long project duration, the integration of constructional refurbishment measures, transaction costs, and the mere focus on financial aspects (self realisation). The lack of information and deficits in know-how with respect to EPC are probably the biggest challenges. Many potential customers do not know or mistrust the advantages of EPC. Many customers can not foresee the efforts needed and the amount of transaction costs which may arise during project preparation and implementation. The complexity of contracting is often misjudged. The integration of experienced consultants and project developers can help to avoid problems and uncertainties. The long project durations and the internal settlement (running costs vs. investment costs) play a mayor role for the initiation of an EPC project. Especially the management level opposes contract durations of more than five years. Investments in energy saving measures are always in competition with other (more profitable) investments. Many customers would appreciate a more flexible model. A further aspect is the mere financial focus. Many municipalities perceive the EPC model only as a financing instrument. The measures of the ESCO that exceed the financing of installations and the optimisation of operation management a major contractual service are often disregarded. The energy saving guarantee is ignored by the customer assuming that self-realisation is more cost efficient. This assumption is the main reason for small and medium municipalities to decide against EPC projects. Due to bottlenecks in financing and a shortage of qualified personal an internal implementation of energy efficiency measures fails in most cases and saving targets are not met 17

18 Many potential customers have the necessity to integrate building refurbishment measures. Within the classical EPC model measures in thermal insulation are basically excluded (too long payback periods due to high investment costs) and show the missing flexibility of the model. Buildings with a high demand for refurbishment are therefore in most cases not suitable for EPC. The reduction of heat demand of the building would lead to synergies with respect to the smaller dimensioning of technical installations (and hence less investment costs). The combination of building refurbishment and the modernisation of technical installations (EPC plus) leads to maximal energy savings and a short-term implementation of a larger package of refurbishment measures. The costs for the building refurbishment could be paid as building cost subsidy from the customer to the ESCO including i.e. low interest investments by KfW bank. In Germany no EPC plus projects have been realised until now. The experience of some EPC projects shows that support efforts of the customer were often estimated too low. In many projects several single adjustments were necessary. This is a crucial element for the acceptance of EPC projects within the institution. In general, external support by project consultants leads to fewer efforts for the customer and a more transparent view on project tasks. Energy agencies, other experts and mediators can support the building owners in the decision process to start with project preparation for EPC or other TPF model and to give support during preparation and implementation phase. There are a lot of such actors, networks and experts in Germany which are working in this field. Guidelines, standards, expert events and dissemination activities will support the further market penetration of energy services and the motivation of the German building owners. Probably the highest potential for EPC lies in increasing energy prices and the resulting need for energy efficient modernisation. EPC is a low risk and cost efficient way for the refurbishment and optimisation of energy systems in buildings. Not only energy costs but also greenhouse gas emissions can be reduced. This is an important issue with regard to climate protection targets and the role model function of the public sector. Although the German EPC market is one of the furthest developed in Europe, EPC is still an emerging model for energy efficiency and climate protection. In Berlin the first EPC contracts have expired and went for a re-tendering. With the experience of the first years EPC has developed to a sustainable and well-established model. With the realisation of successful projects and the presentation of good-practice examples EPC gains more and more attention and interest. Dissemination and capacity buildings (i.e. trainings) play a major role for a broader implementation of EPC. To achieve a stronger market development for ESCO services a further development of EPC models and contracts is necessary. This includes models that integrate the use of renewable energies and/or thermal insulation of the building shell. The same accounts for the provision of standardised single energy efficiency measures as a modular system (i.e. lighting contracting or compressed air contracting). Standardisation, simplification, transparency, flexibility, and further adaptation of customer needs are challenges for the actors of the energy service market. 18

19 10 Policy recommendations Policy recommendations on how to shape the future framework settings contain the strengthening of EPC in the national energy efficiency action plan as well as within public support programs. On national and regional level, a common viewpoint of the financial regulatory authorities is needed. There is an urgent need for common parameters for the handling of EPC with view to procurement and budgetary issues. This encompasses also a common standpoint on definitions, and contents. Moreover, it is assumed that public support of the project development phase as well as of EPC pilot projects is needed to further stimulate the market. An increase in information about EPC on the political level and a standardisation of EPC increasing market transparency, will support the further market development. Publicly funded consulting and information campaigns could contribute significantly to the neutral information/dissemination of the advantages for customers in all segments especially in industry and business. Public support for the financial insurance of privately owned buildings appear promising e.g. through part guarantees. State founded, regional customer networks could contribute to the continuous development of the EPC model and become a marketing tool towards new, potential customers. Finally, it should be envisaged on the political level to reach a legally framed balance of interest in the housing segment regarding contracting projects. There is an additional need for research regarding EPC in Germany among others the collection of neutral and reliable information about the effectiveness and the success factors of EPC projects. Furthermore, there is a need for the development of hands-on and user friendly guidelines for the successful EPC project implementation for the different customer groups and Länder. What s more, there remains a general lack of targeted information for the evaluation of EPC, specifically as is mentioned before by the central market players like the financial reagulatory authorities of the Länder. EPC is a cost-effective, saving oriented instrument for the reduction of the energy demand, costs, and CO 2 -reduction. EPC and ESCO services need to be promoted as cost efficient tools for the public sector helping them implementing not only the current Energy Service Directive, but also the EPBD that many public real estate owners are still struggling with. Wise and tuned actions between policy makers and contractors can stimulate the predicted positive market development in a way that EPC will become a central instrument for energy efficiency, cost cutting, and climate protection. 19

20 11 Literature [BEA 2007]: Berliner Energieagentur GmbH: Der Markt des Energiespar-Contracting in Deutschland. Status quo, Potenziale und Trends. October 2007 [BMWi 2009]: Bundesministerium für Wirtschaft und Technologie: Energiedaten - nationale und internationale Entwicklung. As of 03 September 2009 Online: [dena 2007]: Deutsche Energieagentur: Contracting-Potenzial in öffentlichen Liegenschaften. Marktstudie zur Potenzialbewertung in Liegenschaften des Bundes, der Länder und Kommunen. 20