מצגת מבוא על אסקו

ECONOLERINTERNATIONAL

ESCO conceptESCO concept

State of IsraelState of IsraelMinistry of NationalMinistry of National

InfrastructureInfrastructure

December 13, 2004


Your TrainerYour Trainer

Pierre BaillargeonPierre BaillargeonProfessional Engineer

Vice-President Services & Technologies Econoler InternationalEconoler International

160 St-Paul street, suite 200, Québec, Québec, Canada, G1K 3W1

[email protected]

tel: (418) 692-2592fax: (418) 692-4899


Introduction and

Overview of the ESCO concept


The mission of an ESCOThe mission of an ESCO

Implement energy efficiency project, while

removing barriers


What is an Energy Service What is an Energy Service Company, an ESCO ?Company, an ESCO ?

An Energy Service Company provides: The identification of project The feasibility study The conception (engineering) The financing (sometimes) The implementation (management or direct) The measurement and verification of savings A form of guarantee of savings… By way of a contract between the ESCO and

the client, therefore…

it is a performance contract


What is an energy What is an energy performance contract ?performance contract ?

A project implementation contract With a guarantee that it will be reimbursed (in

part or in totality) from energy savings The guarantee can takes multiple form

Complete guarantee that all project cost and financing will be reimbursed from savings

Partial guarantee on the quantity of savings (ex; 80% of expected results)

Guarantee that the customer will not pay more than a certain amount over the cost of equipment financing


Why use an energy Why use an energy performance contract ?performance contract ?

It help the realisation of projects for which $$$ may not otherwise be available for customers Depend of financing scheme and guarantee

asked by ESCO

It mobilises private capital It insures that savings will be realised in

a certain time frame Customer may not be confident about

the quantity of savings


Energy performance Energy performance contracting is also known as:contracting is also known as:

Third party financing (Europe) Savings financing Sustainable mechanism Innovative financing


Do ESCO always Do ESCO always finance?finance?

The ESCO may provide the financing or arrange financing.

Provide = Internal funds or from his own financial institutionArrange = It help the customer to obtain a suitable financing agreement with lenders

Most ESCO do not have large internal financing resource. They are not banks.


The skills of an ESCOThe skills of an ESCOThe skills of an ESCOThe skills of an ESCOTechnical

IGAEngineering

M&V

Training andManagement

Support

ProjectManagement

ConstructionManagementOr Execution

FinancialDirect FinancingOr Arrangements

Operation &Maintenance

(Sometimes)

Risk ManagementFor guarantee of savings

And for cost and delaycontrol

DevelopmentSales

Marketing

LegalContracts

Local regulations


ESCO resourcesESCO resources Business administrators

Direction Sales and Development

Engineers and technicians Project Development engineers Energy specialists for feasibility study Designers for drawing and specification Project managers Operation and Maintenance

Workers Project implementation

Economist and Accountants Legal advisors (often external) Support personnel

Each ESCO select its business model and decide what services are provided by internal resources and which by external ones


Difference between auditsDifference between audits

Traditional energy audits Consulting engineers are typically paid for their advice

(energy audit) rather than being paid for the results their recommendations may yield. They are not liable of the final energy savings generated by a project.

Investment Grade Audit An ESCO offers performance based projects. The

payment is related to the amount of energy saved. The ESCO payment is at risk. A maximum cost may also be fixed by contract. The ESCO cost overrun risk also. They perform Investment grade audit

Investment grade audit cost typically 30% to 50% more than traditional energy audit


Focus on energy efficient Focus on energy efficient technologiestechnologies

An ESCO focus on high efficiency technologies: Efficient lighting Ice storage system Solar heat gain control film Low excess air burner Condensing boiler Variable Speed Drive Heat Pump Geothermal

So they often realize project more advanced in technology than engineering firms that specialize on building construction


Key attributes of ESCOsKey attributes of ESCOs

Flexibility: ability to offer various implementation and contractual services specific to a customer

Targeting: ability to target specific customer or group

Integration; ability to develop, implement and verify the result of a project


Is ESCO a proven concept?Is ESCO a proven concept?(short history)(short history)

80’s: Oil crisis Energy price increase Scarcity of energy sources General concern

Reaction: Energy savings introduced

Weather strippingRe-lampingRepairing HVACConversion of fuel sources: electricity, natural

gas and biomass Establishment of ESCOs


Context for the development of ESCOs: Promotion of energy savings by utilities Government interest to reduce energy cost or

importation of fuels. Excessive debt of enterprise: difficulty to

borrow Recession in America

Solutions implemented: Government: Support for energy efficiency

project Banks: research of new financing niche Utility: energy efficiency programme (DSM)



1980 Establishment of the first ESCOs in Canada, the UK and the U.S.A.

1982 Interest from the US Government 1983 NAESCO (USA) 1984 Europe : France – Belgium 1985 Spain and Portugal 1986 Asia : Singapour – South Korea 1987 CAESCO (Canada) 1993 Initiatives in federal buildings (Canada)



Actual status of ESCOsActual status of ESCOs

World Bank actively support the creation of ESCOs is several countries (China, India, Brasil)

200 million US $ invested in Europe by EBRD In Canada: Government program

Federal Building Initiatives (FBI): 70 contracts covering 6,500 facilities

30 active enterprises 280 million CDN $ invested 35 million CDN savings generated

150 millions CDN $ invested in Québec


Actual status of ESCOsActual status of ESCOs In USA

30 active ESCOs installed cost of ESCO projects : 2,3

billion US $ 350 millions USD invested with NAESCO

In the U.K. 20 active ESCOs total contracts : 300-500 million USD/year


ESCO success storyESCO success story

South Korea: Samsung corporation Launched in March 1989 Achievements :

first ice storage systems in South Korea lobbying with the government 1991 ice storage mandatory for new

buildings first implementation of efficient lighting:

32 W with electronic ballast start-up of local manufacturing for ice

storage systems and efficient lighting Awarded a presidential prize


What type of company What type of company become ESCOs ?become ESCOs ?

Engineering firms Contractors Equipment manufacturers Integrated Utilities Energy distribution company (gas,

electricity, district heating) Real estate management company Holding companies


Examples of ESCOsExamples of ESCOs Utility based ESCOs; EDP corporate

(Portugal), HEP ESCO (Croatia) Manufacturers: Honeywell Inc. and

Johnson Controls Inc. Energy Performance Services Inc.

(USA) Compagnie Générale de Chauffe

(District Heating), in France and 20 countries


Barriers to EnergyBarriers to EnergyEfficiency in Israel?Efficiency in Israel?


Barriers to energy Barriers to energy efficiencyefficiency

Client behaviour Lack of knowledge about, or

experience with, appropriate efficiency technologies

Lack of motivation Management priorities Energy constitutes only a small

portion of total cost: low priority


Barriers to energy Barriers to energy efficiencyefficiency

Financial

Limited availability of capital Looking for fast paybacks on

investments High transaction cost related to

identification and installation of energy efficient equipment


WorkshopWorkshop

Why a client should deal with an ESCO ?

Develop a marketing promotion rationale

15 minutes


Why a client should deal with Why a client should deal with an ESCO ?an ESCO ?

Resources Customer may have the skills or the

human resources but not the time Experience and focus

An ESCO is specialised in the packaging and the implementation of energy projects

Guaranteed results Payment is tied to project successful

completion and demonstration of energy savings


Why deal with an ESCO ?Why deal with an ESCO ?

Services offered by a single organization Proven concept

Proven approach for 20 years Project realisation by experts in energy

efficiency

Faster implementation Customer may realize project at his

own pace but ESCO can fasten the implementation and make the savings available earlier.


Why deal with an ESCO ?Why deal with an ESCO ?Why deal with an ESCO ?Why deal with an ESCO ? Customers react to different selling

rationales Control operating cost

Immediate and guaranteed savingsUtility cost reductionCost control instead of cost increase

Replace old equipment Low risk: monitoring of the measures

implemented Employee skill increase and improvement of

working conditions Added value for an enterprise


Why deal with an ESCO ?Why deal with an ESCO ?Why deal with an ESCO ?Why deal with an ESCO ? Selling customer react to different

stimulis (cont’d) Easier operation of facility with improved

control systems Lower maintenance Green image for the facility Objective fixed by the higher management Be the first to realize a project with an

innovative approach Solve comfort problem


Why a client should deal with Why a client should deal with an ESCO ?an ESCO ?

Financing scheme (if ESCO finance) No capital investment required immediately for the

customer Cash flow neutral Access to off-balance sheet financing (sometimes) His capital is available for other priorities

Financing should be the last reason to award an Energy Performance Contract. Every project should stand on its own merit. Financing allows the realisation of good projects in good organization for which $ would not otherwise be available


Integrated approachIntegrated approachof ESCOsof ESCOs

Traditional approach Step by step process for measure

identification, design, implementation Several smaller energy efficiency projects

ESCO approach Energy performance contracting, an

integrated solution Comprehensive project with all cost

effective energy efficiency measures implemented.


The traditional approachThe traditional approach

Professional consulting engineer

Contractors

Equipment manufacturers

Governments

Financial institutions

Energy Suppliers

Client


The ESCO approachThe ESCO approach

Professional consulting

engineer

Contractors

Equipment manufac-turers

Governments

Financial institutions

Energy Suppliers

Client

Integrated•Analysis•Design•Installation•Financing•Monitoring•Training•Guarantee

ESCO


Others services provided by Others services provided by ESCOsESCOs

Integrate in project the grant from DSM or government programs

Indoor air quality improvement Renewable energy and

cogeneration GHG reduction and carbon asset

development Technology transfer


Base requirement for Base requirement for a projecta project

Ability to clearly define and to precisely measure

monetary savings


Project stepsProject stepsProject stepsProject steps Preliminary audit Investment grade audit - analysis of

measures Investment program selection Financial evaluation and arrangements Implementation contract finalization Implementation of measures Reimbursement periods and M&V


Financial obligationsFinancial obligations

Phase Preliminary audit Investment grade

energy audit Esco declines client declines client accepts

Implementation

M&V period

Cost to clientUsually none

No charge to customerStudy cost to be paidcost rolled in project cost

Construction cost rolled into project costReimbursement from savings


Preliminary auditPreliminary audit

Actions On-site visit Analysis

Report

Letter of intent or study contract

Results Identify measures Technical and

economic feasibility Present project

opportunities Initiate Investment

grade audit


Preliminary audit : Preliminary audit : Spontaneous proposalSpontaneous proposalPreliminary audit : Preliminary audit :

Spontaneous proposalSpontaneous proposal

Preliminaryaudit

Potential ? End

Report

IGA contract

No

YesModality of the IGAand contract signature

YesYes

NoNoDecision


Preliminary study : Preliminary study : request for request for proposalsproposals

Preliminary study : Preliminary study : request for request for proposalsproposals

Preliminary

study

Potential ?Some

ESCOsabandon

Detailed proposition

Contractnegotiation

No

Yes

• Technical concept• Savings• Costs

Client select one ESCO

Difficult to establish equitable

criteria

Difficult to establish equitable

criteria


Preliminary audit overviewPreliminary audit overview

2 to 5 persons-day from ESCO Collection and analysis of utility bills Comparison with similar buildings Physical inspection and identification of

major systems Interviews with operators and managers Identification of measures Establish approximate savings and

payback


Energy auditEnergy auditEnergy auditEnergy audit

IGA Report

Finalisation of the implementation

contract

ResultsConfirmed ?

Payback or savings limit

The clientcan

abandon

No

Yes

Financing arrangements


Investment grade auditInvestment grade auditOverviewOverview

1 to 3 months-men for completion 13 000 USD to 27 000 USD

For a 250,000 USD- 500,000 USD project For an IGA, the key parameters must be

verified by measurements existing drawing and specs are not sufficient

Cost must be confirmed with contractors and suppliers


The Energy PerformanceThe Energy PerformanceContract (EPC)Contract (EPC)

The energy performance contract takes from 1 to 3 months to negotiate

It depends on the decision making process of the customer

It is a personal contract It is important to understand each

other’s responsibilities and concerns


Implementation of measuresImplementation of measuresImplementation of measuresImplementation of measures

Engineering(Drawings and Specifications)

Call for tenders

Construction(Supervision or Direct)

Work acceptation

ProjectManagement

Start the reimbursement period


Implementation overviewImplementation overview

Implementation = Installation May take up to one year Similar to the construction process

for others type of work Implementation of new operational

procedures Training of operational staff


Reimbursement period and Reimbursement period and M&VM&V

Reimbursement period and Reimbursement period and M&VM&V

Specifictraining

Generaltraining

EnergyCommittee

AwarenessCampaign

Optimisationmeasures

Energymanagement

Exploitationby the ESCO

Maintenance by the ESCO

SavingsEvaluation

(M&V)

Hands-ontraining

or

ORGANIZATION OPERATIONS FOLLOW-UP


Measurement and VerificationMeasurement and Verification(M&V)(M&V)

Measurement and Verification (M&V) methodologies Integral component of a successful

implementation of projects. Objective: determine energy savings

by comparing the baseline energy use with post-installation use.

Allow dispute-free, unambiguous calculations of savings

Help both the end-users and the financial community to understand this key dimension of performance contracts