Economic Appraisal of introducing Energy Efficiency in the Public Sector: Overview of existing economic methods with ex-post application to sustainable energy management program in Croatia

Supervisor: Prof. Dr. Dieter PumpeEvaluator: Prof. Dr. rer. Pol. Detlev Stock

Mia Dragović for the Degree of MBA Renewables and Energy Efficiency, delivered by Beuth School of Applied Sciences and RENAC

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Abbreviations: Presentation content:oBackground

oCentral question

oLiterature review

oScientific method

oObserved project overview

oResults

oConclusion

ESD – Energy Service Directive 2006/32/EC

EED - Energy Efficiency Directive 2012/27/EU

EPBD - Energy Performance of Buildings Directive 2010/31/EU

UNDP – United Nations Development Programme

SEM – sustainable energy management

TRC – Total resource cost test

ZagEE – Zagreb Energy Efficient City, IEE MLEI project

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M&V

MEASUREMENT AND VERIFICATION

M&

MONITORING,Monitoring is the first step in achieving most effective savings.

BACKGROUND

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4

Energy savings after ESD were not being realized!

Source: Coalition for Energy Savings Gapometer showing the impact of the EED on reaching the EU energy savings target for 2020 (energycoalition.eu)

BACKGROUND

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Why does the EE potential remain unrealized?ALL BENEFITS ARE NOT EVIDENT SURVEY IN BELGIAN HOUSEHOLDS ON EE MEASURES

CENTRAL QUESTION

do not want to lose comfort

33%

do not think their actions change 'the

big picture'23%

can't afford EE measures

23%

seems as too much effort

20%

Source: World Business Council for Sustainable Development, 2008

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THERE ARE MULTIPLE/ADDITIONAL/INDIRECT BENEFITS TO IMPLEMENTING ENERGY EFFICIENCYMethods need to be developed and policies implemented for their measurement.

LITERATURE REVIEW

Source: Multiple benefits of energy efficiency improvements identified by International Energy agency (OECD/IEA, 2014)

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In 2015, Home Performance Coalition in US launched a program:oIts purpose: to “improve efficiency screening practices

throughout the United States, and to help inform decision-makers regarding which efficiency resources are in the public interest and what level of investment is appropriate”.

oProgram calls for a revision of standard testing practices of energy efficiency cost-effectiveness, concluding that “States have a tremendous opportunity to expand upon these benefits through ongoing and future energy efficiency initiatives” but that those tests are “out of date and do not address several of the key challenges facing regulators today”.

Challenges:

Technical (lack of knowledge)

Economic (lack of capital)

Legal (lengthy decision processes)

Rebound effect - comfort factor

Necessary:

• Financing;

• Government support;

• Methods to evaluate indirect savings and benefits.

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LITERATURE REVIEW

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From central question to meta questions:4 INTERCONNECTED PROBLEMS IDENTIFIED: 3 STEP SOLUTION PROPOSED:

FORMING RESEARCH QUESTION

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1. Predictions for EE investments in public buildings are not being realized;

2. Measuring EE on a project level is inconsistent - results in reduced ability to compare projects and demonstrate their cost-effectiveness;

3. Evaluating EE potential on a program level (evaluating entire building stock) is usually not done - results in less cost-effective projects;

4. Only direct benefits of energy and money saved are counted, resulting in mistrust among financial institutions (not appreciating indirect benefits, and fearing hidden costs).

1. Review existing EE cost-effectiveness tests and applying them to an existing EE public program in order to show whether it proves to be economically efficient, and under which conditions;

2. Propose a methodology in order to more accurately test the cost-effectiveness before new programs are introduced;

3. Propose further research on developing more accurate models for quantifying both direct and indirect costs and benefits. This would 1 and 1 to be more accurate and holistic in the future.

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The chosen methodo Prescriptive research a step further from evaluation; testing a set of concepts related with

energy efficiency measures, in order to describe actions to be taken to result with more accurate energy efficiency cost-effectiveness test on a program level, instead of a project-by-project level;

o Implementing existing methodology on a program realized in practice in order to come up with an improved method;

o Result - set of necessary steps for a comprehensive energy management program for public buildings;

o Show and categorize most common inaccuracies in calculation of energy and financial savings.

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SCIENTIFIC METHOD

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City of Zagreb public buildingsZAGEE PROJECT DATA

City of Zagreb and regional energy agency REGEA

Intelligent Energy Europe – 75 % grant

April 2013 through March 2016

Overall budget: 1.813.438 €

78 buildings chosen for reconstruction

ZAGREB NATIONAL EE PLAN DATA

902 public buildings

Data on energy consumption for 600 buildings available through EMIS software

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CASE PROJECT

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ZagEE buildings specific and total energy consumption

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RESULTS

- data clustering

0 50 100 150 200 250 300 350 4000.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

Police stations

Primary and secondary schoolKindergartens

Retirement homes

Health center

Local boards

Current Construction Act

Specific energy consumption for heating (kWh/m2)

Tota

l yea

rly e

nerg

y co

nsum

ption

for h

eatin

g (G

Wh)

0 50 100 150 200 250 300 350 4000.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

Police stationsquarter divisorquarter divisorPrimary and secondary schoolKindergartensRetirement homesHealth centerLocal boardsCurrent Construction Act

Specific energy consumption for heating (kWh/m2)

Tota

l yea

rly e

nerg

y co

nsum

ption

for h

eatin

g (G

Wh)

I.II.III. IV.

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ZagEE buildings findings:

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RESULTS

- Savings potential per quadrant

13

All Zagreb buildings

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RESULTS

0 100 200 300 400 500 600 700 800 9000

1000000

2000000

3000000

4000000

5000000

All Zagreb buildings

78 ZagEE buildings chosen for reconstruc-tionQ divisor at 900.000 GWh

H divisor at 180 kWh/m2

Toal

yea

rly e

nerg

y co

nsum

ption

for h

eatin

g (G

Wh)

0 100 200 300 400 500 600 700 800 9000

1000000

2000000

3000000

4000000

5000000

All Zagreb buildings

78 ZagEE buildings chosen for reconstruc-tionQ divisor at 900.000 GWh

H divisor at 180 kWh/m2

Toal

yea

rly e

nerg

y co

nsum

ption

for h

eatin

g (G

Wh)

+ZagEE buildings

Potential for savings!

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Total resource cost test

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CONCLUSION

TRC chosen from 5 EPA tests:

o PCT Participant cost testo PACT Program administrator cost testo RIM Ratpayer impact measureo TRC Total resource cost testo SCT Societal cost test

ZagEE 87 buildings Optimal 87 buildingsKuna Kuna

Investment for modest refurbishment (50% specific energy needs reduction)

174.025.730 277.004.230

Yearly savings 9.774.452 16.210.897

Discounted lifetime savings (25 y) with 5% DR and 3% cost increase

186.546.182 309.386.239

Net savings 12.520.452 32.382.009

Simple cost-benefit analysis for 25 years lifetime:

Test Benefits: Costs:

TRCBenefits and costs from the perspective of all utility customers (participants and

nonparticipants) in the utility service territory

Energy-related costs avoided by the utility (program administrator), capacity-related costs avoided by the utility, including generation, transmission, and distribution, additional resource savings (i.e., gas and utility) water if utility is electric), monetized environmental and non-energy benefits, applicable tax credits

Program overhead costs, program installation costs, incremental measure costs (whether paid by the customer or administrator)

For chosen ZagEE 78 buildings For optimal 78 building stock Rationalle: € Rationalle: €

Program overhead costs; cost of EE team in the City of Zagreb

Two employees, six months, 800 € net pay 18.947

cost

Program overhead costs; cost of EE team in the City of Zagreb

Five employees, six months, 800 € net pay 47.368

Cost of energy audits for chosen 78 buildings

5kn/m2 for detailed EPC. 207.000 m2 148.684

Cost of energy audits for entire building stock

5kn/m2 for detailed EPC. 1.429.454 m2 940.430

Cost of main refurbishment designs for ZagEE buildings

assumed at 1 % of investment 228.980

Cost of main refurbishment designs for optimal buildings

assumed at 1 % of investment 364.479

Program installation costs; refurbishing 87 buildings

From ZagEE technical documentation 22.898.026

Program installation costs; refurbishing 87 optimal buildings

Simulated from ZagEE data, as described in chapter 4.1 and 4.3.2. 36.447.925

Total costs: 23.294.638 37.800.203

Net energy savings for heating, (5% DR and 3% price growth) Taken from 87 energy audits 24.545.550

benefit

Net energy savings for heating, (5% DR and 3% price growth)

simulated from ZagEE data, as described in chapter 4.1 and 4.3.2. 40.708.716

Total benefits: 24.545.550 Total benefits: 40.708.716 CB ratio 1,05 CB ratio 1,08 Net CB 1.250.912 Net CB 2.908.513

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Recommendation Higher net benefit of optimal refurbishment could cover:

o Costs of EE team of 10 people for 10 years;

o Performing detailed audits for app. 2000 more buildings (e.g. schools 2000 m2 in size)

o Refurbishing at least 11 more buildings to a modest renovation level (average reconstruction in this case was 240.000 €)

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CONCLUSION• Start Sustainable energy management• Assign people into EE team• Assign budget• List goals

• List all buildings or spaces where energy is spent and directly paid for by the Administration;

• List most basic data connected to energy spending; who owns the building, when is it used, what energy is used for what activity, what is the area and heated area of the buildings

• At the least, energy bills should be collected for 3 years and entered into a spreadsheet;

• As the optimum, detailed energy audits should be performed).

• Remove from the list buildings that are at the end of their lifetime;

• Remove buildings that do not have all the licences and legal paperwork;

• Remove those that are not intended for further use.

Buildings are grouped into quadrants

• List buildings according to kWh/m2 and total energy consumption (preferably in monetary value) and graph them into four quadrants;

• Check for immediate fixes (e.g. water leaks, consumption that is overly high);

• Follow described steps for each Q and make a final list for further steps to be taken.

Technical documentation is procured • For the buildings that remained on the list, renovation plans and main designs should be obtained.

Refurbishment and monitoring• After the buildings are reconstructed, continuous

monitoring should be insured in order to record savings, and decetct any strange occupante behavior or irregularities in consumption.

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Next step:

It is economically justified to invest into a comprehensive, systematic approach to listing and overviewing entire building stock before reconstruction

Researching ways to quantify additional benefits (include more of the indirect benefits, and their relevant costs) would:

o Enable more programs to appear profitable and could improve the financial attractiveness of energy efficiency programs;

o Influence decision makers to focus more on energy efficiency measures, especially capitally extensive ones, with longer lifetimes;

o Spillover - Make both the decision makers and financial institutions more lenient towards supporting more of energy efficient programs, both in public buildings, but across all other sectors as well.

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CONCLUSION

Mia Dragović21 April 2016

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Thank you!Please, ask!