12 january 2012...escos and epcs, past, present and future presented by charles ogilvie and andrew...
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12 January 2012
...ESCOs and EPCs, past, present and futurePresented by
Charles Ogilvie and Andrew ShortisSerco Energy
Energy service companies
Serco Internal
Biogs
Andrew Shortis:
Engineering, and management consultancy background. Former VC
Experienced at delivering strategy lead growth and corporate recoveries
Appointed to develop the strategy and prove a new Energy business concept
Charles Ogilvie:
Lead Greg Barker’s policy team in opposition
Independent strategy consultant in new energy sector
Joined Serco as Head of Strategy in Energy business
Serco Energy Management Solutions partner with customers to deliver a phased programme of works that will not only deliver guaranteed energy demand reduction but also investigate, and where viable, integrate on-site renewable energy generation capacity.
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Serco Internal
Index
Brief history
Market drivers
Case study
Variations in the model
Conclusions
Public sector?
3
Serco Internal
Brief history
Oil shock
– Time Energy
Slow growth in US but model evolved
– Monopoly Utilities made model more ‘stable’
– Sector specialists
– By the 90s ESCO sector re-emerges in US, typified by Amaresco (2000)
Pioneered in the UK and Europe in the late 80’s and 90’s
– Limited by technology capability and costs – and stable low energy prices
– UK turnover mainly med/large CHP and chauffage- mostly in industry
– Utility competition and low energy prices meant little development of market in 1990s for smaller customers
– Now 50 ESCOs investing £100-200m pa total annual income of £1bn∼ ∼
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Serco Internal
US/UK sector growth
A Survey of the U.S. ESCO Industry: Market Growth and Development from 2008 to 2011, Satchwell, Goldman, Larsen, Gilligan, Singer- Berkeley National Laboratory, June 2010, Uk market DATA from ESTA and Sorrell 2005
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~$700m~$950m
Serco Internal
Drivers
Rapidly rising energy prices – ROCS etc!
Pressure on Governments and private companies to reduce spending
Finance looking for more market insulated investments
Increasing legislative support (for efficiency, reduced CO2 emissions, encouraging renewable energy)?
Lower tech costs: BEMS price down tenfold (capex/ kWh saved)
Replacement of aging infrastructure
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Serco Internal
Drivers
DECC forecast central price scenario for energy consumption assumes a 30% saving on energy consumption across economy by 2020 and a 40% saving by 2030- this includes transport where energy consumption will rise with electrification
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BAUBO
Em
Case study: Logistics Company
Reduce energy consumption and carbon emissions in UK cold stores – energy significant proportion of operating costs
LED replacement lighting pilot proven substantial savings
– Lower energy consumption
– Less heat produced – reducing thermal load on the chillers
– Switchable by sensors – saving energy in lighting and refrigeration
– Longer operating life and less maintenance
Potential 85% cut in lighting energy costs – better working conditions
£xxxm needed to fund an initial roll-out to xx sites – then further xxx
Serco Internal
Case study: Paid from savings model
SPV funds the implementation of
the energy efficiency projects
SPV is paid a share of the
energy savings achieved
Capital is invested into SPV
Investor receives share of the
energy savings achieved
Investor Finance
Special Purpose Vehicle
Customer
Project Company
During project
After project
Before project
Energy costs
Savings retained by customer
Savings retained by investor
Serco Internal
Case study: How this would work
Financier
Serco Lighting Co
Special Purpose Vehicle
Logistics Co
Share of energy savings
Equity investment
Procurement & installation
Energy Performance
Contract
Investment return
Performance guarantee
Serco Internal
Case study: Features and benefits
Investor funds full cost of the project – no Customer capital contribution
Return is entirely contingent on realised energy cost savings
All of the risk is with the investor delivering the service (not assets)
No minimum funding payment to make – no savings, no repayment
Investment can be held off-balance sheet – confirmed at outset
Enhanced Capital Allowances can be paid-on to the Customer
Customer have a right to purchase the assets at any time during the Energy Performance Contract (EPC)
Simple, straightforward and quick realisation – 6-8 weeks
Serco Internal
Case study: Investment proposal
Four year Energy Performance Contract (EPC)
– 43% of saving comes from lower energy consumption of lamps
– 13% through sensing and switching
– 22% due to the lower thermal load on the chillers
– 18% through lower maintenance costs and less down time
– 4% from saving in Carbon credits
Customer gets at least 20% energy cost savings during the EPC – and all of the energy cost savings in excess of the ROI
Serco and Lighting Co make up any shortfall in the expected ROI
Measurement at one site will be used to help confirm savings made
At the end of the EPC, title and all the benefit transfers to Customer
Serco Internal
Variations in the model
Customers?
EG?
Serco Internal
PROs/CONs
CON
PRO
Serco Internal
More variations in the model
– M+V
– Asset ownership
– Flow of funds
– Risk/warranty/insurance
– Accountancy treatment
PLUS
-Policy complexity
Social housing project uses: CERT, CESP, RHI, FITs, ECAs, EIS etc – GD?!
-Planning.....
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Serco Internal
EG Monitoring and Verification
Description Typical Application
Partially Measured Retrofit Isolation
Savings are determined by partial field measurements of the energy use of the system(s) to which an ECM was applied. Some, but not all, parameters may be stipulated.
Lighting retrofit where pre-and post-retrofit fixture Wattages are measured. Operating hours of the lights are typically agreed upon
Retrofit Isolation Savings are determined by field measurement of the energy use of the systems to which the ECM was applied.
Variable speed drive on a pump. Electricity use is measured by a kWh meter installed on the electrical supply to the pump motor.
Whole Facility (Utilities)
Savings are determined by measuring energy use at the utility meter level. Bills may be corrected for weather.
Several ECMs affecting many systems in a building. Utility Bills are used
Simulation Savings are determined using building simulation. This option is rarely used, and is used primarily when there is no pre-retrofit utility data available.
Multifaceted energy management program affecting many systems in a building but where no base-year data are available.
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Serco Internal
Early conclusions
Sales only happen when customer and financier understand the deal
More measures, more savings, harder to sell
Few people have real track record, even those who say they have..
Customers spend ‘free’ money as carefully as their own
Approach to risk still reflects a very immature market
Every project need a good baseline but not every project needs 3 rd party M+V to recognise international standards.
No-one in the private sector is buying escos
Selling single intervention can start to develop a relationship
It’s just a deal
Serco Internal
What’s going to change?
Finance
Accept/ understand project risks
Cut Tx costs and reduce cost of capital
Learn to aggregate projects
OEM/Suppliers
Willingness to deliver wider range of solutions
Recognise and squeeze out best savings
Provide stronger performance guarantee
Customer
Awareness
Learning how to buy
Willingness to lose some op control EPC-ESCO
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Serco Internal
UK Trends/Forecasts
Utilities
– Model remains at odds with sales volume business model
– Sector changing as a result of regulation
OEMs
– Can grow market share with balance sheet financed deals and performance warranties on their own kit
– Will do well for narrower solutions and through procurement frameworks
Service companies
– Slow starters but no reason why they can’t perform as well as in US
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Serco Internal
How to accelerate deployment?
Stimulate
25% target – government buying
Accreditation for new tech/ solutions aimed at finance community
Experience sharing/ best practice/ procurement advice
Dampen
Competing Efficiency grant schemes? GD??
Picking winners
Overlooking novel tech and new entrants
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Serco Internal
Conclusions
Horses for courses- but which ones and why?
Utilities favour generation and full esco/chauffage model- why- sell kit and protect market share
OEMs look for tech (sales) driven projects initially focussed around their offering
Service Cos will make this feel like FM+
ESCOs? Consultants + finance + entrepreneurs. Will be drawn to complex solutions but initially struggle to deliver much third party funded projects outside single solutions (risk management)
Serco Internal
Public Sector?
Shares many challenges with private sector
– Understanding the solution
– Lack of clear executive focus on problem
– Operational concerns
But enhanced by:
– Restricted borrowing – but many authorities do have funds
– Lack of off balance sheet certainty – solvable?
– Frameworks restrict creativity
– Public procurement restricts speculative project development
– Procurement expertise limits speed of sale
Successes:
– LEEF has energised sector
Federal Energy Management programme – FEMP
– Enabling agency to build escos for separate departments
– Off balance sheet issues need to be addressed
-> HMG licence an ESCO assembler to procure on behalf of departmental projects and supply services through a service lease???
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