re bizz final report

8/3/2019 RE BIZZ Final Report

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2 IEARETD/ECNE11057

AcknowledgementsThis report presents the outcomes of the project Business Models for Renewable Energy in the

BuiltEnvironment(REBIZZ),initiatedandfundedbytheIEAImplementingAgreementforRenew

ableEnergyTechnologyDeployment(IEARETD).Thisproject isregisteredatECNunderthenum

ber 5.1232. Contact person for this publication at ECN is Laura Wrtenberger

([email protected]).

TheauthorswouldliketothanktheprojectsteeringgrouprepresentedbyMichaelPaunescu(Nat

ural Resources Canada), KjellOlav Skjlsvik (Enova Norway), Milou Beerepoot (IEA Secretariat),

Walt Patterson (Chatham House), David de Jager (Ecofys, IEARETD Operating Agent), Kristian

Petrick(IEARETDOperatingAgent)fortheirreviewandguidanceduringthecourseoftheproject.

A special thankyougoes toKristianPetrick,whowasalwaysavailable for feedbackandvaluable

discussions. TheauthorswouldalsoliketothankRonvanderSteenfromFinancialConsultNeder

landforhishelpfulfeedbackandreview,andSytzeDijkstraatECNforcoreadingthereport.

AbstractTheprojectREBIZZaimstoprovideinsighttopolicymakersandmarketactorsinthewaynewand

innovativebusinessmodels(and/orpolicymeasures)canstimulatethedeploymentofrenewable

energytechnologies

(RET)

and

energy

efficiency

(EE)

measures

in

the

built

environment.

The

pro

jectisinitiatedandfundedbytheIEAImplementingAgreementforRenewableEnergyTechnology

Deployment(IEARETD). Itanalysedtenbusinessmodels in threecategories (amongstothersdif

ferent typesofEnergyService Companies (ESCOs),Developing properties certified with a green

buildinglabel,BuildingownersprofitingfromrentincreasesafterEEmeasures,PropertyAssessed

CleanEnergy(PACE)financing,Onbillfinancing,andLeasingofRETequipment)includingtheiror

ganisational and financial structure, the existing market and policy context, and an analysis of

Strengths,Weaknesses,OpportunitiesandThreats(SWOT).Thestudyconcludeswithrecommen

dationsforpolicymakersandothermarketactors.

About IEA-RETD

RETDstands

for

Renewable

Energy

Technology

Deployment.

IEA

RETD

is

apolicy

focused,

tech

nologycrosscuttingplatformthatbringstogethertheexperienceandbestpracticesofsomeofthe

worldsleadingcountriesinrenewableenergywiththeexpertiseofrenownedconsultingfirmsand

academia. IEARETD is a socalled Implementing Agreement, i.e. a platform where a number of

countriescooperateundertheframeworkoftheInternationalEnergyAgency(IEA).

The mission of IEARETD is to accelerate the largescale deployment of renewable energies (RE).

ThisisachievedbyprovidinginformationandrecommendationsonREtechnologycrosscuttingis

sues to policy makers and other stakeholders. To this end, IEARETD commissions annually 57

studies performed by consultancies and academia. The reports and handbooks are publicly and

freelyavailableontheIEARETDswebsiteatwww.iearetd.org.Inaddition,IEARETDorganizesat

least two workshops per year and presents at nationaland international events. IEARETD exists

since2005andhascurrently9membercountries(Canada,Denmark,France,Germany,Ireland,Ja

pan,Netherlands,

Norway

and

the

UK).


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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 3

Contents

1. Introduction 10

1.1 Background 10

1.2 Scopeofthereport 10

1.2.1 Technologicalfocus,marketsegmentsandcountryfocus 10

1.2.2

Howto

define

business

models

for

RET

in

the

built

environment

11

1.3 Readingguideandmethodology 13

2. OvercomingbarriersforthedeploymentofRenewableEnergyTechnologies(RET)inthe

builtenvironment 15

2.1 Currentbarriers 15

2.1.1 Marketandsocialbarriers 15

2.1.2 Informationfailures 16

2.1.3 Regulatorybarriers 17

2.1.4 Financialbarriers 17

2.2 Barriersfromabusinesscaseperspective 18

3. BusinessmodelsforanincreaseddeploymentofRETinthebuiltenvironment 21

3.1 Categorizingbusinessmodels 21

3.2

Productservice

system

business

models

22

3.3 Businessmodelsbasedonnewrevenuemodels 23

3.1 Businessmodelsbasedonnewfinancingschemes 24

4. Analysisofbusinessmodels 25

4.1 ProductServiceSystems:EnergyContracting(ESCOorEnergyEfficiencyServices) 25

4.1.1 Introduction,DefinitionandCommonKeyFeaturesofallthreeESCOModels 25

4.1.2 EnergySupplyContracting 30

4.1.3 EnergyPerformanceContracting 33

4.1.4 IntegratedEnergyContracting 36

4.1.5 SWOTAnalyses,DiscussionandConclusionsforallthreeESCOModels 38

4.2 Businessmodelsbasedonnewrevenuemodels 43

4.2.1 Makinguseofafeedinremunerationscheme 43

4.2.2

Developingproperties

certified

with

agreen

building

label

49

4.2.1 Buildingownerprofitingfromrentincreasesaftertheimplementation of

energyefficiencymeasures 57

4.3 Businessmodelsbasedonnewfinancingschemes 62

4.3.1 PropertyAssessedCleanEnergy(PACE)financing 62

4.3.2 Onbillfinancing 68

4.3.3 Leasingofrenewableenergyequipment 74

4.3.4 BusinessmodelsbasedonEnergySavingObligations 80

5. Synthesis:businessmodels,barriers,marketsegmentsandactors 85

5.1 Whichbarriersareaddressedbybusinessmodels? 85

5.2 Inwhichmarketsegmentscanthebusinessmodelsbeapplied? 88

5.3 Whoaretheactorsinvolvedinthebusinessmodels? 90

5.4

Conclusionand

further

considerations

92

5.4.1 Conclusions 92

5.4.2 Furtherconsiderations 93

5.4.3 Potentialforfurtherresearch 97

6. Recommendations forpolicymakersandmarketactors 99

6.1 Recommendations forpolicymakers 99

6.2 Recommendations forbuildingowners 103

6.3 Recommendations forothermarketactors 103

AppendixA Casestudies 105


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4 IEARETD/ECNE11057

A.1 LIG,Austria IntegratedEnergyContractingPilots 105

A.2 BerkeleyFIRST thefirstPACEfinancingprogramme 107

A.3 FinancingcommercialbuildingretrofitswiththehelpofanEnvironmental Upgrade

ChargeinMelbourne 108

A.4 PROSOL:SupportingmarketgrowthofsolarwaterheatinginTunisia 109

A.5 Greenchoice: SolarsupplycontractingintheNetherlands 111

A.6 AdaptationoftherentalpriceevaluationsystemintheNetherlands 112

A.7

Marketintroduction

of

small

and

micro

CHP

systems

114

A.8 Leasingofaheatpumpsystem 115


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List of tables

Table2.1 Barriersandmarketsegments 19

Table3.1 Listofanalysedbusinessmodels 22

Table5.1

Barriers

addressed

by

the

business

models

86

Table5.2 Marketsegmentsaddressedbythebusinessmodels 89

Table5.3 Actorsdirectlyinvolvedinthevariousbusinessmodels 91

TableA.1 SamplecalculationfortheinstallationofasolarPVplantonaresidentialbuilding

underthepilotBerkeleyFIRSTPACEfinancingprogramme 107

List of figures

Figure3.1 ScopeofservicesofdifferentESCOmodels 23

Figure4.1

Energy

Contracting:

A

modular

energy

service

package

with

guaranteed

results

fortheclient.(Note:Theaddedvaluefortheclientofenergycontracting

comparedtoinhouseimplementationisdisplayedinred.) 26

Figure4.2 EnergyContracting: Componentsofservicepackageandoutsourcingof

interfacesandguaranteestoanESCO 27

Figure4.3 EnergyContractingmodelwherebuildingownerfinancesRETequipment

throughaloanfromafinancialinstitute 28

Figure4.4 EnergyContractingmodelwhereESCOfinancesRETequipment(optionallywith

financialinstitute) 28

Figure4.5 ESCmodel:Schematicstandardscopeofservicesincludingrenewables 30

Figure4.6 EnergySupplyContractingbusinessmodel 31

Figure4.7 EPCmodel:Schematicstandardscopeofservices 33

Figure4.8

Energy

Performance

Contracting

business

model 34

Figure4.9 IECmodel:Schematicstandardscopeofservices 36

Figure4.10 IntegratedEnergyContractingbusinessmodel 37

Figure4.11 EnergyContractingmodels:summaryofSWOTanalysis 40

Figure4.12 Valuechainfromprimaryenergytoenergyservices 41

Figure4.13 Schematicdepictionofabusinessmodelbasedonafeedintariffand

productionexceedingownuse,smartmeteroptional 45

Figure4.14 Schematicdepictionofabusinessmodelbasedonafeedinpremiumand

productionlessthanownuse,smartmeteroptional 45

Figure4.15 Businessmodelbasedonfeedinremuneration summaryoftheSWOT

analysis 47

Figure4.16 Schematicdepictionofthebusinesscaseofdevelopingapropertycertified

according

to

a

green

label 51

Figure4.17 Countrieswithgreenbuildingcertificationprograms 52

Figure4.18 Voluntarygreenbuildingcertification summaryoftheSWOTanalysis 55

Figure4.19 Schematicdepictionofthebusinessmodel 58

Figure4.20 Businessmodelbasedonhigherrentsafterimprovingenergyperformanceofa

building summaryoftheSWOTanalysis 60

Figure4.21 SchematicdepictionofPACEfinancingforRET 62

Figure4.22 PACEfinancing summaryoftheSWOTanalysis 66

Figure4.23 SchematicdepictionofonbillfinancingofRET 69


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6 IEARETD/ECNE11057

Figure4.24 Onbillfinancing summaryofSWOTanalysis 72

Figure4.25 LeaseagreementwithoutinvolvementofanESCO 75

Figure4.26 LeaseagreementwithinvolvementofanESCO 75

Figure4.27 Leasingarrangementbetweenacompanydistributingaspecifictechnology

andabuildingowner 76

Figure4.28 LeasingofRET summaryoftheSWOTanalysis 79

Figure

4.29

Schematic

depiction

of

Energy

Saving

Obligations,

depicting

one

building

owner

whoprofitsfromtheobligationbylowerenergypricesafteraninstallationof

RET/EEmeasureandanotherbuildingownerwhoonlypaysahigherpricefor

hiselectricity. 81

Figure4.30 EnergySavingObligation summaryoftheSWOTanalysis 84

FigureA.1 SchlossRetzhof:SeminarHouseoftheProvinceofStyria 105

FigureA.2 OrganisationalstructureofthePROSOLbusinessmodel 110

FigureA.3 Netcostsandbenefitsofrenovationforlandlordsandtenants,undertheadapted

rentalpriceevaluationsystem 113

List of boxes

Box4.1 Caseinpoint:BerkeleyFIRST thefirstPACEfinancingprogramme 68

Box4.2 Caseinpoint:PROSOL 73

Box4.3 Caseinpoint:MarketintroductionofsmallandmicroCHPsystems 80

Box5.1 Caseinpoint:Wonen++conceptanexampleofsmallscaleenergyservices 95

Box5.2 Caseinpoint:CosteffectivenessofRETmayvary 96

Box6.1 SupportingEnergyContractingbusinessmodels 100

Box6.2 Considerationsforsupportingbusinessmodelsbasedonnewfinancingschemes 101


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Summary

The project Business Models for Renewable Energy in the Built Environment (REBIZZ) aims to

providepolicymakersandothermarketactors insight intothewaynewand innovativebusiness

modelscan

stimulate

the

deployment

of

renewable

energy

technologies

(RET)

and

energy

efficien

cy(EE)measuresinthebuiltenvironment.

Today,variousbarrierspreventanincreaseddeploymentofRETinthebuiltenvironmentincluding

Marketandsocialbarriers:pricedistortionthroughexternalities, lowpriorityofenergy issues,

splitincentives,etc.

Informationfailures:lackofawareness,knowledgeandcompetence

Regulatorybarriers:restrictiveprocurementrules,cumbersomebuildingpermittingprocesses

Financialbarriers:low(orno)returnsoninvestment,highupfrontcosts,lackofaccesstocapi

taletc.

Forthescopeofthisstudy,abusinessmodelwasdefinedasastrategyto invest inRET(andEE

measures),whichcreatesvalueand leadstoan increasedpenetrationofRET inthebuiltenvi

ronment.Successful

business

models

represent

approaches

in

which

the

financing

and

implemen

tationofRETorEEinbuildingsisorganisedinsuchawaythatcertainbarriersforthedeployment

ofRETareovercome.Basedonthemaindriversforvaluecreation,businessmodelsforRETinthe

built environmentcan begrouped in threecategories, inwhichoverall10businessmodelswere

analysed:

ProductServiceSystems/EnergyServiceCompanies(ESCOs):

1) EnergySupplyContracting(ESC):AnEnergyServiceCompany(ESCO)suppliesusefulenergy,

suchaselectricity,hotwaterorsteamtoabuildingowner(asopposedtofinalenergysuch

as pellets or natural gas in a standard utility contract). The ESC model is particularly well

suitedforgeneratingelectricityandheatfromRET.

2) EnergyPerformanceContracting(EPC):AnESCOguaranteesenergycostsavingsincompari

sontoahistorical(orcalculated)energycostbaseline.Foritsservicesandthesavingsguar

anteethe

ESCO

receives

aperformance

based

remuneration.

3) Integrated Energy Contracting (IEC): The IEC model is a hybrid of ESC and EPC aiming to

combinesupplyofusefulenergy,preferablyfromrenewablesourceswithenergyconserva

tion measures in the entire building. The model is currently being piloted in Austria and

Germany.

Businessmodelsbasedonnewrevenuemodels:

4) Makinguseofafeedinremunerationscheme:Throughafeedinremunerationschemethe

producer of renewable energy receives a direct payment per unit of energy produced. A

feedinschemeguaranteesaccesstoapredictableandlongtermrevenuestream,whichcan

serveasastablebasisforabusinessmodel.

5) Developingpropertiescertifiedwithagreenbuildinglabel:Greenbuildingcertificationsys

tems assessabuildingsperformanceaccording toenvironmental andwidersustainability

criteria.Inthisbusinessmodelapropertydeveloperorarchitectdesignsandbuildsbuildings

certifiedaccording

to

avoluntary

green

certification

scheme,

expecting

to

realize

asales

pricepremiumcomparedtoconventionalbuildings.

6) Buildingownerprofiting fromrent increasesafter the implementation ofenergyefficiency

measures: Building owners who do not occupy a building themselves or housing corpora

tionscanprofitfromadditionalrevenueopportunitiesafterundertakinginvestmentsinRET

andEEmeasuresiftheyareallowedtochargehigherrentfromtheirtenantsafterthereno

vation.

Businessmodelsbasedonnewfinancingschemes:


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8 IEARETD/ECNE11057

7) PropertyAssessedCleanEnergy(PACE)financing:PACEfinancingisamechanismsetupbya

municipalgovernmentbywhichpropertyownersfinanceRETandEEmeasuresviaanaddi

tionaltaxassessment1ontheirproperty.Thepropertyownersrepaytheassessmentovera

periodof15to20yearsthroughanincrease intheirpropertytaxbills.Whentheproperty

changesownership,theremainingdebtistransferredwiththepropertytothenewowner.

8) Onbillfinancing: Utilitiesprovidefinancing(i.e.aloan)forRETandEEmeasures.Thebuild

ingowners(orbuildingusers)repaytheloansviaasurchargeontheirutilitybills.

9) Leasingof

renewable

energy

equipment:

Leasing

enables

abuilding

owner

to

use

arenewa

bleenergy installationwithouthavingtobuy it.The installation isownedor invested inby

anotherparty,usuallyafinancialinstitutionsuchasabank.Leasingcanbeacentralcompo

nentofthebusinessmodelofanESCOorofacompanythatintroducesanewtechnologyto

themarket.

10)BusinessmodelsbasedonEnergySavingObligations:EnergySavingObligationsareapolicy

instrumentthatobligesenergycompaniestorealiseenergysavingsatthelevelofendusers.

It stimulates business models based on financial incentives offered by energy suppliers to

buildingowners,rentersorenergyservicecompanies.

Theanalysisofthebusinessmodels includedananalysisoftheorganisational andfinancialstruc

ture,theexistingmarketandpolicycontextandananalysisofStrengths,Weaknesses,Opportuni

ties

and

Threats

(SWOT).

Some

of

the

analysed

business

models

are

specific

to

a

certain

market

segment (e.g. new vs. existing, owneroccupied vs. rented, residential vs. commercial buildings),

whereasotherscaneasilybegeneralised.Practicalexperiencewiththemodelsvariesamongcoun

tries.

Strongroleofpolicymakersrequired

Thestudydemonstratesthatbusinessmodelscanplayanimportantroleinincreasingthedeploy

mentofRETinthebuiltenvironment.Theyprovideopportunitiesforbuildingowners,e.g.facilitat

ingaccesstocapital,financingofupfrontcosts,outsourcingoftechnicalandeconomicrisks,and

offeringfurtherenergyrelatedservices.Inmanycasesbusinessmodelsrequireonlyasupporting

rolebygovernment,e.g.throughchangesof legislation. However,businessmodelsalonewillnot

lead toasignificantly increaseddeploymentofRET.Theanalysedbusinessmodelsgenerallyonly

lead to a deployment of costeffective technologies because they are unable to improve the re

turnson

investment

of

RET

and

EE

measures

by

themselves.

Moreover,

business

models

cannot

addressallbarriers,e.g.nobusinessmodeladdressesthebarrieroflowpriorityofenergyissues,

whichkeepsbuildingownersfromtakingaction.Thisimpliesthatastrongroleofpolicymakersis

stillrequired.

Inwhichmarketsegmentscanthebusinessmodelsbeapplied?

ThebuiltenvironmentisacomplexsectorwherebarriersforanincreaseddeploymentofRETdiffer

amongmarketsegments.Theresultsshowthatinexistingandnew,largecommercial,residential

andpublicbuildings,ESCOmodelscanaddressthebarriersofhighupfrontcostsandaccesstocap

ital.InsmallresidentialandcommercialbuildingsthiscanbeachievedbyPACEoronbillfinanc

ing.Thesebusinessmodelsmakealifecycleapproachpossiblewherebuildingownerscanspread

theinvestmentcostsacrosstheprojectlifetime. Forbusinessmodelstoworkinrentedbuildings,

thesplit incentivesbarriermustbeaddressed.Onewayofdoing this inregulatedrentalsectors,

especially the social housing sector, involves a change in legislation, allowing building owners topassonthecostoftheinvestmenttothetenantthrougharentincrease.Tocushionthesocialef

fectsofthemeasure, thebenefitsofenergysavingsshouldbehigherthantherentincreaseforthe

tenants.Businessmodelshavetheadvantagethattheycanworkwellforexistingbuildingswhere

1 Taxassessmentsarecomparabletoloansasthepropertyownerpaysoffitsdebtininstallmentsoveraperiod

ofvariousyears.


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asbuildingcodes/obligationssofartendtobe limitedtonewbuildingsandsubstantialrenova

tions.

Businessmodelsfornoncosteffectivetechnologies

Today, there are already many costeffective opportunities for a deployment of RET and EE

measures (e.g. insulation of buildings, solar water heating in sunny climates), although cost

effectivenesslargelydependsonthebackgroundsituation.Fortechnologiesthatarenot(yet)cost

effective,business

cases

may

be

based

on

supporting

policy

measures

such

as

feed

in

remunera

tionschemes. Greencertificationofbuildingscanstimulate investments inRETevenwhenthey

are not costeffective. However, becausesuch certification is voluntary, it typically onlyworks in

nichemarkets.

EnergysavingobligationsareintroducedbygovernmentstostimulateEEmeasuresandenergyser

vices through theparticipationofenergy suppliers. Inpractice, thispolicymeasurepromotes for

exampletheroleofESCOsandonbillfinancingbutoriginally itonlyfocusedonEE.Thescopeof

energysavingobligationscouldbebroadenedtoincludeRETinthebuiltenvironment.

Recommendationsforpolicymakers

PolicymakersshouldfirstanalysethecosteffectivenessofRET/EEmeasures indifferentmar

ketsegments

of

the

built

environment

within

their

jurisdiction.

To support costeffective RET in existing and new large commercial, residential and public

buildingspolicymakerscanstimulateESCOmodels,e.g.bysupportingmarketfacilitators,facili

tatingaccesstofinanceandchangingprocurementrulesforpublicbuildings.

To support costeffective RET in smaller residentialandcommercialbuildings, policy makers

canstimulatebusinessmodelssuchasonbillfinancingorPACEfinancing,e.g.by

- decidingonthemostpromisingmodelbasedonastakeholderanalysis(whichactorshavean

interestinRET,theabilitytoofferaccesstocapital,thetechnicalcapacityandaccesstothe

decisionmakers)

- mandatingorstrongly incentivisingutilities,e.g.throughenergysavingsobligationstotake

anactiverole

- clarifyingoutstandinglegalissues,e.g.onlinkingliabilitiestoaproperty.

Toaddresssplitincentivesinrentedbuildings,dependingonhowtheirrentalmarketisregulat

ed,policy

makers

may

change

rental

legislation

to

make

rent

increases

possible

after

RET

or

EE

investments.

Recommendationsforbuildingowners

Publicbuildingownersplayaspecialrole,astheycanserveasarolemodelandameanstodrive

the implementationofgovernmenttargetsforRETdeploymentandenergyefficiencyinthebuilt

environment.Governmentscanbeproactive inapplyingsuitablebusinessmodels.Publicbuilding

ownerscanforexample:

Applycertificationwithvoluntarygreenbuildinglabelstonewbuildingsandduringsubstantial

renovationofexistingfacilities,and;

DirectlysupportESCObusinessmodelsbyusingthesemodelsinthepublicbuildingstock.This

mayrequireachangeinpublicprocurementrules.

Thisprovides

aunique

opportunity

for

local

governments

to

become

active

in

increasing

the

de

ploymentofRETinthebuiltenvironment.

Theanalysisalsoshows thatoftenbusinessmodelsare mostsuccessfulwhen theyarebasedon

partnershipsbetweenactorswithcomplementary expertiseandresources,e.g.regardingaccessto

capital,technicalexpertiseandaccesstotheclients/buildingowners.


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10 IEARETD/ECNE11057

1. Introduction

1.1 Background

TheImplementingAgreementonRenewableEnergyTechnologyDevelopmentoftheInternational

EnergyAgency(IEARETD)hastheobjectivetosupportasignificantlyhigherutilisationofrenewa

bleenergytechnologies(RET)byencouragingmorerapidandefficientdeploymentofthesetech

nologies.RETare increasingly recognized for theirpotentialrolewithinaportfolioof lowcarbon

andcostcompetitiveenergy technologiescapableofresponding to thedualchallengeofclimate

changeandenergysecurity.Moreover,REThavethepotentialtoreduceenvironmentalpollution

causedbyfossilfuelbasedenergysources.

The building sector presents a large opportunity for reducing CO2 emissions in a costeffective

manner.About40%offinalenergyconsumptiontakesplaceinexistingbuildings,andbuildingsac

countforabout24%ofglobalCO2emissions.2Atthesametime,thebuildingsectorofferssomeof

thelargestpotentialsforreducingGHGemissionsatnegativecosts.TheIPCC(2007)estimatesthat

globallyabout30%ofthebusinessasusualCO2emissionsinbuildingsprojectedfor2020couldbe

mitigated

in

a

costeffective

way.

There

is

a

large

potential

for

meeting

the

energy

demand

ofbuildings by means of district heating and cooling schemes or through the direct use of RET in

buildings(IPCC,2011).

However,as illustrated inpreviousstudiesby the IEA(IEA,2007; IEA,2008; IEA,2010, IEARETD,

2007) and other organisations (e.g. WBCSD, 2010; Wuppertal Institute et al., 2010; European

Commission,2010/11)variousbarrierspreventtheaccelerateduptakeofRETandenergyefficiency

measures inthebuiltenvironment.Newand innovativebusinessmodelsmayhelptoexploitthe

potentialofasustainableenergyinthebuiltenvironmentbyaddressingoneormoreofthesebar

riers.

The IEARETD thereforecommissioned theproject Businessmodels forRenewableEnergy inthe

Built Environment (REBIZZ) to gain insights into the way new business models and/or policy

measurescan

stimulate

the

deployment

of

renewable

energy

technology

(RET)

and

energy

efficien

cy (EE) in the built environment. The project aims at providing recommendations to both policy

makersandmarketactors.Thisreportpresentstheworkundertakenwithinthisproject.

1.2 Scope of the report

1.2.1 Technological focus, market segments and country focus

Thestudy focusesonbusinessmodels for increasing thedeploymentofRET in thebuiltenviron

ment.Wherenecessary,thereportalsoaddressenergyefficiencymeasuresandhowenergyeffi

ciencymeasuresrelatetothedeploymentofrenewableenergy,asenergyefficiencyplaysan im

portantroleinreducingenergyuseinbuildings.Inaddition,manyexistingstudies,forexampleon

barriersfor

reducing

GHG

emissions

from

buildings,

focus

on

energy

efficiency.

Previous

research

commissionedbytheIEARETD(IEARETD,2010)suggeststhatthe lessonsfromthepromotionof

residentialenergyefficiencymay largelybetransferredtoprogrammespromotingtheresidential

useofrenewableenergy.

2 Thisisthecaseinmostcountriesoftheworld,i.e.bothglobally(UNEP,2007)andinOECDcountries(IEA,2008;

EC,2011).


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Theanalysiscoversrenewableelectricity,andheatingandcooling.Thefollowingrenewableenergy

technologies inbuildingsfallunderthescopeofthestudy:

SolarPV

Solarthermalforwaterandspaceheating(solarboilers)

Smallscalewindturbinesontheroofsofbuildingsforelectricitygeneration

Biomassheating(e.g.woodpellets)

Heatpumpsandsmallscaledistrictheating/CHPplantsbasedonrenewableenergy(e.g.when

installedbyapropertydeveloperonalargehousingorbusinesscomplex)

Heatandcoldstoragesystems

MicroCHPsystemsmaybeincludedbecause,althoughtheyarenotaRET,amicroCHPsystem

isgenerallymoreefficientthantraditionalelectricityandheatproduction,andmaybebasedon

renewableenergyinthefuture.

EEmeasuresarenotanexplicitfocusofthereport.However,wheretheanalysisdoesrefertoEE

measures,thesecouldincludethefollowing:

Insulation(wall,roof,floor,window,heatingandwaterpipes,cracksealing)

Lowtemperatureroomheating

Heatingboilercontrols

Heatrecoverysystems(ventilationsystem,shower)

Other(water

saving

shower

heads,

weatherstrips

etc.).

Thestudydistinguishesbetweenthefollowingmarketsegments:newvs.existingbuildings,owner

occupied versus rented, and commercial vs. residential (if needed further split into multifamily

dwellings,de/attachedhomesandstandalonehouses).Withinthesegmentofcommercialbuild

ings,whererequired,thespecificroleofpublicbuildingownersisaddressed.

Somepartsofthestudy includecountryspecificexplanations.Casestudiesfromacountryorre

gionareusedto illustrate thebusinessmodels.Inaddition,thebusinessmodelsareput intothe

contextofthecountryspecificregulatoryenvironment.Wherethisisthecase,theIEARETDmem

bercountries,i.e.Canada,Denmark,France,Germany,Ireland,Japan,Netherlands,Norway,United

Kingdom,areexamined.Thestudymayalsorefertoothercountriesandcountrysituationswhich

couldbepotentiallyinterestinginthelongtermforthebusinessmodelsevaluatedsuchas,butnot

limitedto,ChinaandtheUnitedStates.

1.2.2 How to define business models for RET in the built environment

Research on business models originated during the rise of ecommerce and the development of

other internetbasedcompanies inthe1990sandearly2000s.Sincethen,businessmodelshave

becomeanincreasinglypopularconceptinmanagementtheoryandpractice.Today,theconceptis

being applied to an ever wider range of sectors and topics (Wuestenhagen, 2004; Osterwalder,

2005).

Alargenumberofstudiesonthetheoryofbusinessmodelsexist,butsofarthere isnogenerally

accepteddefinitionofwhatabusinessmodelis,althoughthedefinitionsgenerallystatethatitde

scribes

how

a

business

creates

value

(Osterwalder,

2005,

Osterwalder

et

al

2005,

Porter

2001,

Shaferetal2005).Theapproachforvaluecreationcanthenbesplitintodifferentaspects,includ

ingforexamplethestrategicobjectiveandvalueproposition,sourcesofrevenue,criticalsuccess

factors,corecompetencies,customersegments,saleschannels(WeillandVitale,2001)andkeyac

tivitiesandresources.Otherdefinitionsaresimpler,e.g.definingabusinessmodelasthemethod

ofdoingbusinessbywhichacompanycansustainitself,thatis,generaterevenue(Rappa,2001).


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Basedontheseconsiderations,werecognizethefollowingdistinctionbetweenabusinesscaseand

abusinessmodel:

Abusinesscasecapturesthelogicandreasoningforinitiatinganactivity,suchasaninvestment

inRETinthebuiltenvironment.Thereasoningincludesafinancialcalculationdemonstrating

theprofitabilityoftheplannedinvestment.

Abusinessmodeldescribesthestructureandstrategybehindabusinesscase,andincludesel

ementssuchasvalueproposition,keyactivities,keyresources,coststructureandrevenue

streams.Theaimofabusinessmodelistohelpstructureaninitiativeinawaythatleadstoapositivebusinesscase,onethatleadstoinitiatingtheactivity.

Forthescopeofthisstudy,abusinessmodelisdefinedas:

astrategytoinvestinRETandinEEmeasures,whichcreatesvalueand

leadstoanincreasedpenetrationofRETandEEmeasuresinthebuiltenvironment.

Researchonbusinessmodelsgenerallyfocusonthestrategyatacompanylevel.However,forthe

concretecaseofdeploymentofRETinthebuiltenvironment,webroadenthedefinitionofabusi

nessmodeltoalso includestrategiesofnoncorporateactors.Thebuiltenvironment isanexcep

tionally multifaceted system, including different market segments and market actors. The World

Business Council for Sustainable Development (WBCSD) (2009) in its Roadmap for a Transfor

mationof

Energy

Use

in

Buildings

identifies

for

example

seven

different

group

of

actors

in

the

sec

tor:governmentauthorities;buildingdevelopers; investors;occupiers;suppliersand manufactur

ers;architects,engineers,contractorsandcraftsmen;andutilities.Inaddition,energyservicecom

paniesmaybeinvolved.Atleastfiveofthese,i.e.buildingdevelopers,investors(i.e.buildingown

ers),occupiers,energyservicecompaniesandutilitiesmaybedirectlyinvolvedininvestinginRET

inthebuiltenvironment,andcreatingvaluefromthisinvestment.

Business models vary from being relatively simple to being complex. More simple models exist

whenanactortakesadvantageofanexistingincentiveschemeforRET3,whilemorecomplexmod

els includeEnergyServiceCompanies (ESCOs)offeringenergyservicesranging fromproviding in

formationandadvice,identifyingpotentialREorEEmeasures,implementingthem,andundertak

ingoperationandmaintenanceservicesandfinancing.

Today, various barriers prevent an increased deployment of RET in the built environment (seeChapter2).Successfulbusinessmodelsrepresentsituations inwhichthefinancingandimplemen

tationofRETorEEinbuildingsisorganisedinsuchawaythatcertainbarriersforrealisationofre

newable energy are (to some degree) overcome. Financial barriers such as long payback times,

(perceived)highcostsandaccesstocapitalaremajorbarriersfortheimplementation ofRET(see

Chapter2).Thereforethefinancialstructureofthebusinessmodelsisanimportantelementinthe

descriptionandanalysisofbusinessmodelsinthisstudy.

Inaddition,theregulatoryenvironmentplaysacrucialroleforbusinessmodelsforthe increased

deploymentofRET.Policy interventions addressthebarriersforan increaseddeployment,either

bydirectincentives(e.g.subsidiesorpreferentialpricing),orbychangingtheregulatoryframework

(e.g.minimumtechnologystandards,obligations).Policyinterventions involvingfinancialincentives

usuallydirectly

stimulate

the

financial

structure

of

the

business

model.

Policies

in

the

category

of

regulatoryschemestendtobe indirectlybeneficialtobusinessmodels,e.g.bychangingthecom

petitivenessversusconventional energy.Inpractice,businessmodelsmaydependonmultiplepoli

cies,includingboth incentivesandfavorableregulatoryschemes.Thisstudyanalysesunderwhich

regulatoryenvironmentbusinessmodelsareviable.

3 Wuestenhagenetal.(2005)forexampleconsider intelligentmanagementofavailablesubsidiesapotentially

importantelementofbusinessmodelsforsustainableenergy.


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1.3 Reading guide and methodology

Thisreportconsistsofsixchapters:

Chapter1presentssomebackgroundtotheprojectanddescribesthescopeofthereport.

Chapter2 identifiescurrentbarriers to introducingRET/EEmeasures in thebuiltenvironment

anddescribeswhatthesebarriersimplyfromabusinesscaseperspective.

Chapter3presents categoriesof business models for sustainable energy in the built environ

mentand

introduces

the

new

and

innovative

models

that

are

analysed

in

the

report.

Chapter4describesandanalysesthesebusinessmodelsindetailwithrespecttotheirpotential

forsupportinganincreaseddeploymentofRETinthebuiltenvironment.

Chapter5presentasynthesisandconclusionsofthebusinessmodelanalysis.

Chapter6givesrecommendationsforpolicymakersandmarketactors.

TheidentificationofcurrentbarriersforanincreaseddeploymentofRET/EEmeasuresinthebuilt

environmentinChapter2isbasedonaliteraturereviewofrecentstudies.Barriersaregroupedin

4categoriesbasedonIPCC(2007),UNEP(2007)andIEA(2008).Thecategoriesofbusinessmodels

presentedinChapter3arederivedbasedonthetaxonomyofbusinessmodelsinexistingstudiesin

general,andspecificallyoncategoriesofbusinessmodelsforenvironmentalservicesandsustaina

bleenergy.Businessmodelscanbecategorizedaccordingto themaindrivers forvaluecreation.

For

environmental

services

and

sustainable

energy,

three

main

categories

were

identified

based

on

Wuestenhagen(2005)andCOWI(2008).Thesecategorieswereconfirmedbyareviewofexisting

andplannedbusinessmodelsconfirmingthatallpotentialbusinessmodelscanindeedbesumma

rizedunderthesecategories.

Toselectconcretebusinessmodelsforfurtheranalysis,informationonawiderangeofexistingand

plannedbusinessmodelswascollected.Inaddition,thestudyconsideredhowexistingandplanned

legislationandotherpotentialdriversforbusinessmodelssuchasan increasedawarenessofcli

matechangemay leadtonewbusinessmodels.Wealsoconsideredhowcurrentbarriersforthe

deploymentofRETcouldtheoretically beovercomebybusinessstrategies,andhowcertainbusi

nesscasesincludingRETbecomemoreviableiffossilfuelpricescontinuetorise.Basedonalonger

list,incollaborationwiththeProjectSteeringGrouptenbusinessmodelswereselectedforfurther

analysis.

Methodologyforbusinessmodelanalysis

The analysisof these business models (see Chapter4) follows the same general template for all

businessmodelstoensurecomparability.OnlyfortheEnergyContractingmodels(seeChapter4.1)

somepartsoftheanalysisarepresentedatthegenerallevelofEnergyContractingmodels,whilst

otherelementsareexplained for thespecificsubmodels inordertoavoid lengthyrepetitionsof

information.Thetemplateforthebusinessmodelanalysiscontainsamongstothersadescriptionof

theorganisationalandfinancialstructureandananalysisofStrengths,Weaknesses,Opportunities

andThreats(SWOT).Strengthsandweaknessesconsiderthebusinessmodelassuch,whileoppor

tunitiesandthreatslookattheconditionsforeffectiveimplementation andtheimpactofexternal

developments.

Theorganisationalandfinancialstructureofthebusinessmodelsisillustratedinaschematicrepre

sentationwhich

highlights

the

business

models

most

important

elements

(see

for

example

Figure

4.3) based on the formalismdevelopedbyWeillandVitale (2001) forso called ebusiness initia

tives.Similardiagramsareusedfrequentlyindifferentcontexts,e.g.byBleyl(2009)forESCObusi

nessmodels.

ThequestionsfortheSWOTanalysisarepartlybasedontheImpactAssessmentGuidelinesbythe

EuropeanCommission (EC,2009).The leadingquestion is, how suitable the business model is to

contributetoanincreaseddeploymentofRET(andEEmeasures)inthebuiltenvironment). Specific


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questionsfortheanalysisofstrengthsandweaknesses (i.e.effectiveness,efficiency,usefulness?)

are:

Isthebusinessmodeleffective?DoesitleadtoanincreasedpenetrationofRET?

Whichbarriersareremoved,ortowhichextentdecreased(usefulness)?

Isthebusinessmodelrealizedcosteffectively?

Doesitrequirealotoftimeoreffortforthepersonwhoimplementsit?

Aresignificanttransactioncostsinvolved?

Canthebusinessmodelbescaledup,orreplicatedinothercountries?

Areotherpolicymeasuresneededassupportingmeasures,e.g.informationcampaigns?

Questionsfortheopportunitiesandthreats(howviableandhowvulnerable isthebusinessmod

el?)are:

Inwhichpolicycontextorunderwhatmarketconditionsdoesthisbusinessmodelwork?

Howdochangesinthepolicycontextandmarketenvironmentaffectthebusinessmodel?

Isthebusinessmodelsustainableafterfinancialincentivesarediscontinued?

Impactsoftechnologydevelopments?Impactsofdevelopmentsinthebuildingstock?

Impactsoffossilfuelpricesandfeedstockprices?

However,thesequestionsareonlymeanttogiveguidance,asitisnotpossibletogivecomprehen

siveanswers

in

the

frame

of

this

study.

Ideally

the

SWOT

analysis

would

be

based

on

three

differ

enttypesofinformation:

Informationfromconcretecasestudies.

Information frommarketandevaluationstudies,e.g.on the impactofacertainpolicy instru

mentonabusinessmodel.

Generalizedstatementsontheeffectiveness, efficiency,usefulnessandontheviabilityandvul

nerabilityofthebusinessmodel.

However, inreality,thisdepthof information isnotavailable.Dependingontheavailabilityof in

formationonspecificbusinessmodels,theSWOTanalysesdifferinlengthandlevelofelaboration.

Thebusinessmodelanalysisiscomplementedbycasestudieswhichshowconcreteexampleofthe

businessmodelinaspecificcontext.Thebusinessmodelanalysisfocusesongeneralizedconcepts.

Reality

may

be

more

complex

than

the

stylized

business

models

discussed

in

this

report.

The

case

studiesgivesomeinsightastothecomplexityandvariationsfoundinrealimplementation.

Methodologyforsynthesis,conclusionsandrecommendations

The synthesis chapter evaluates the business models and puts them into a larger perspective.

Therebythequestion isaddressed,howtheanalysedbusinessmodelscanstimulateanincreased

deployment of RET in the built environment. The discussion also touches upon additional ques

tions,suchas:Willbusinessmodelsthataremainlybasedonvoluntaryactionsbesufficienttoin

creasetheenergyefficiencyanduseofRETinbuildings?Orarestricterpolicymeasuresrequired,

e.g.liketheEuropeanBuildingPerformanceDirectiveorlocalsolarordinances?Arethesepolicies,

that apply both sticks and carrots, sufficient? How can it be assured that the necessary invest

mentscanbefinanced?Andhowcanitbeensuredthattherehabilitation ofexistingbuildingstock

istackledquickly?However,basedontheresearchundertakenforthisreport,itisnotpossibleto

givecomprehensive

answers

to

these

questions.

Overview tables which illustrate which barriers are addressed by the business models, in which

marketsegmentsthebusinessmodelswork,andwhichactorsaredirectlyinvolvedformthebasis

forthecomparisonandsynthesis.Thesynthesisleadstosomegeneralconclusions,whichformthe

basis for recommendations for policy makers and marketactors. In addition, the SWOT analyses

leadtorecommendations forspecificbusinessmodels.


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2. Overcoming barriers for the deployment of Renewable EnergyTechnologies (RET) in the built environment

2.1 Current barriers

As illustrated inpreviousstudiesbytheIEA(IEA,2007;IEA,2008;IEA,2010,IEARETD,2007)and

other organisations (e.g. WBCSD, 2010; Wuppertal Institute et al., 2010; European Commission,

2010/11)variousbarrierspreventtheaccelerateduptakeofRETandEEmeasuresinthebuiltenvi

ronment.Mostof the existingstudieshave focusedonbarriers to increasingenergyefficiency in

thebuiltenvironment,whilesomerecentstudiesspecificallyaddressbarriersforanincreasedup

take of renewable heating and cooling (e.g. IEARETD, 2007). In most cases, barriers for RET de

ployment in the built environment dont differ significantly from barriers for energy efficiency

measures,asmostbarriersarespecifictothebuiltenvironment.

Foreasierconceptualizationbarriersaregroupedintofourcategories(basedonIPCC(2007),UNEP

(2007)andIEA(2008)):marketandsocialbarriers, informationfailures,regulatorybarriersandfi

nancialbarriers.Asthisstudyexplicitlytakesaninvestment/businesscaseperspective,technical

barriersare

reflected

mostly

in

the

higher

risk

of

RET

as

part

of

the

financial

barriers.

Political

barri

ersareconsideredtobepartoftheregulatorybarriers,andmarketandsocialbarriers.Similarly,

behavioural barriers arereflected in market and social barriers, and in financial barriers via high

discountrateswhichhinderupfrontcapitalinvestments.

2.1.1 Market and social barriers

ThefollowingbarriersrelatetothedemandsideofthemarketforRETandEEmeasuresinthebuilt

environment.

Lowpriorityofenergyissues

Inmanycases,energycostsinbuildingsarerelativelylowwhencomparedtoothercostsforprivate

persons

or

companies

(IEA,

2007).

As

a

consequence

there

is

little

incentive

to

invest

in

improving

theenergyperformanceofthebuilding.Consumersrathertendtoinvestinupgradesoftheirbuild

ingsforreasonsofcomfort,aesthetics,reliability,convenienceorstatus.Companiesfocustheirin

vestments on corebusiness assets, whereas investments into the buildingstock have only a low

priority(IEA,2007)

Pricedistortion

From a societal perspective energy is too cheap, as externalities such as the costs of natural re

sourcedepletion,healthimpactsfrompollution,andclimatechangearenotincludedinthemarket

priceforenergy.Thisimpliesthatconsumersandprojectdevelopersdonotreceiveaccurateprice

signalsreflectingthetruemarginalcostofenergyuse.

Thehasslefactor

Thebenefits

from

implementing

RET

or

EE

measures

may

be

outweighed

by

the

transaction

costs

andeffortsrequiredforgathering informationand theperceived inconvenienceof installingnew

equipmentinabuildingwhichisinuse.

Splitincentives

Split incentivesreferstosituationswherethe investorwhopaysfortheupfrontcostsforRETor

EEmeasuresisnotthesamepersonwhoreapsthebenefitsoflowerenergycosts.Splitincentives

occurforexampleinrentalpropertieswhenthereislittleincentiveforthebuildingownertoinvest


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ifthe tenantpaystheenergybill.Conversely,thetenantmaynotbe interested inan investment

intoRETeither,ashemaymoveoutbeforetheendofthepaybackperiod.

Theremayalsobeothersplit incentives,e.g.betweenprojectdeveloperandbuildingowner/user

innewbuildings,wheretheremaybenoorlittlebenefitforthedevelopertoincorporateRET,ifhe

does not expect to fully recover the higher initial cost from the building owner/user (IEARETD,

2007).Otherexamplesareelderlypeopleorpeoplewhomaymovesoon,whoarenotwilling to

makeany

more

investments

in

their

houses.

There

are

also

less

incentives

to

save

energy

in

rented

apartmentswheretheheatingcostsareevenlysplit.

Inaddition,therearebarriers to the increaseduptakeofRETandenergyefficiencymeasureson

thesupplysideofthemarket:

Fragmentationinthebuildingchain

Inmostcountries,thebuildingdevelopmentchainiscomplexandfragmented,whichinhibitsaho

listicapproachtobuildingdesignanduse,especiallyfornewbuildings.DecisionsonRETandener

gyefficiencymeasuresaretakenbydifferentactors, includingarchitects,projectdevelopers,con

struction workers or installers, often without coordination and too late in the development pro

cess,eventhoughasuccessfulintegrationofRETandEEmeasuresrequiresoptimizingthesystem

as

a

whole

(IPCC,

2007;

WBCSD,

2010).

Fragmentation

in

the

sector

is

also

an

issue

for

existing

buildings,forexamplewhentheinstallerofanewheatingsystemisnotabletoadviceonrelated

insulationmeasures.

Lackingintrinsicinterestbyenergycompanies

Energyprovidersoftenhavenointrinsicinterestinenergysavingsbytheircustomers.Inaddition,

theygenerallydonotfavorsmallscaledecentralizedsolutions,whichmaycompetewiththeirown

businessmodel.

SmallscalesuppliersofRET

Many smallscale renewable heating and cooling technologies are produced by local, small and

medium sized enterprises, where production levels have not reached sufficientlyhigh volume to

gaineconomiesofscale(IEARETD,2007).Inaddition,thelackofstandardisationofRETatthere

gional

or

global

level

means

that

companies

may

face

challengesto

penetrate

markets

abroad.

Manysuppliersthereforeremainsmallandmediumenterprises.Thesesupplierstendto lack the

necessaryskillstoadequatelypromoteRETproducts.

2.1.2 Information failures

Lackofawareness

ThereisagenerallackofawarenessonRETandEE.IfviableRETalternatives areunknown,theyare

nottakenintoaccountinbuildinginvestments.

Lackofinformationonfinancingoptions

Thereisalackofadequateinformationdescribingfinancingoptionsavailabletoindividualsinvest

ing

in

EE

or

RET.

Even

if

building

owners

are

willing

to

implement

EE

measures

or

RET,

they

often

finditdifficulttoobtainnotonlyqualified,butalsoindependentandobjectiveadvicefromfinan

cialexperts.FinanciersoftenhavenospecificknowledgeonEEandRET,andthuswillnotpromote

financingsuchprojects.

Lackofknowledgeandcompetencebyinstallers

Lackingknowledgeandcompetenceofprofessionals involved inthe installationandmaintenance

ofRETlimitsthediffusionofRET,asitlimitstheinvolvementoftheseprofessionals andmaylead

topoorinstallationofequipment(IEARETD,2007).


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2.1.3 Regulatory barriers

Restrictiveprocurementrules

Procurementrulesmayposebarriers to thedeployment of RET, for example ifgovernments are

notpermittedtooutsourcethemanagementofpublicbuildingstoprivateparties.

Cumbersomebuildingpermittingprocesses

Permits

for

the

installation

of

RET

may

be

difficult

to

obtain,

or

this

may

be

a

lengthy

process.

2.1.4 Financial barriers

Low(orno)returnsoninvestment

ManyRETarenotyetcostcompetitivewithtraditionalenergytechnologies(seeIEARETD(2007)

forrecentcostestimatesofrenewableheatingandcoolingtechnologiesandEC(2008)forrecent

costestimatesofelectricitygenerationfromRET).Peopletendtonotinvestinrenewableenergyor

energysavingmeasures ifthepaybackperiod is too longoreven longerthantheeconomic life

timeofthetechnologyandiftheinvestmentdoesnotmeettheirhurdlecriteria.

Highupfrontcosts

ManyEEmeasuresrequireasubstantialupfront investment,andmostREThaveahigherupfront

capitalcost

than

conventional

technologies.

This

poses

abarrier

to

investment,

as

decision

makers,

especiallyprivatehomeownersmaynotbewillingtomakelargeupfrontinvestments.Fuller(2008)

forexampledescribes implicitdiscountratesintheorderof25%to75%for investmentdecisions

byprivateconsumers,whichsubstantially increasethehurdleforanyupfrontinvestment.4

Difficultaccesstocapital

Especially low income private homeowners and small business owners lack internal capital and

facedifficulties gettingaccesstoexternalcapitalforfinancingRETorEEmeasures.

HigherriskofRETthanofconventionaltechnology

EEandRETprojectsareoftenconsideredriskyinvestments,e.g.becauseofhightechnologyriskor

regulatoryrisk.Higherrisksareincludedinprojectevaluationsbyapplyingahighdiscountrateor

requiringahigherreturnon investmenttocompensatefortherisk.Asaconsequence,EEandRE

projectsfrequentlybecomeunattractivetoinvestors.NotethatthehigherriskofRETcanalsobe

perceived rather than real risk. Many RET are already quite advanced and, apart from biomass

heating,arenotexposedtoanyfuelpricerisks,e.g.forpurchasingoilorgas.

Hightransactioncosts

Fromthepointofviewofservicecompaniesorfinancialinstitutions,investmentsinEEmeasuresor

RET in individual housesareoftenrelativelysmall.As technology implementationandassociated

servicessuchasfinancingandmonitoringofenergysavingsarecomplexandthusrelativelyexpen

sive,smallscalemeasuresareunattractiveforinvestmentbycommercialbanksorinvolvementof

ESCOs.

Incompletemortgageassessment

Foramortgage,

credit

capacity

and

risk

profile

of

customers

should

improve

after

implementing

EE

measuresorRETiftheselowerenergycosts,asconsequentlymoreincomeisavailabletoservein

terestanddownpayments.However,mortgagecriteriagenerallydonotreflectthisandfinanciers

areusuallynotallowedtoacknowledgetheincreasedcreditcapacity.

4 Assumingadiscountrateof8%asfrequentlyusedbypolicymakersandfinancialinstitutions,anintendedpay

back timeof5yearsandannualcostsavingsof$1.000 impliesanacceptableupfront investmentof $4.000.

However,iftheconsumersexplicitdiscountratewas50%ratherthan8%,theacceptableupfrontinvestment

woulddecreasetoonly$1.700.


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2.2 Barriers from a business case perspective

Notallbarriersdescribedabovearerelevantforallmarketsegments.Table2.1providesanover

viewwhich barriersarerelevant forwhich market segments.The importanceof the market seg

mentsdifferswidely amongcountries, e.g.because the general levelofhouseownership among

the

population

differs.

In

some

countries,

e.g.

in

the

Netherlands

and

Spain,

many

people

own

apartments in multifamily buildings whereas in other countries, e.g. in Germany, apartments in

multifamilybuildingsareprimarilyrented.

Some barriers arerelated toenergy ingeneralor togeneralcharacteristicsof renewable energy

technologies. These include the lowpriority ofenergy issues, pricedistortion, lacking intrinsic

interestbyenergycompanies,lackofawareness,lackofknowledgeandcompetencyby install

ers,cumbersomebuildingpermittingprocess,low(orno)returnsoninvestment,higherriskof

RETthanofconventionaltechnologiesandhighupfrontcosts.

Otherbarriersarespecificforsomemarketsegments:

Thehasslefactorismostlyrelevantforexistingresidentialbuildings,wheretheownersoccupy

thebuilding.Innewbuildingsthereisnoinconveniencerelatedto installingRET,becausethe

installationtakes

place

before

building

users

move

in.

In

commercial

buildings

or

rented

multi

family houses, RET are generally installed on the roof or in a separate room with technical

equipment.Inrentedresidentialbuildings,thedecisiontoinvestinRETistakenbytheowner

based on economical considerations. Here, inconvenience for the tenants is not such an im

portantcriterionasinowneroccupiedbuildings.

Split incentives are mostly an issue for rented buildings and for property developers of new

buildings.

Lack of information about financing options, mortgage assessment and transaction costs are

especially relevant for small scale projects which comprise of only one singlefamily house,

which is either newly built or owneroccupied. Commercial building owners are expected to

have more knowledge about financing options, and in larger buildings or property develop

mentstransactioncostsrelativetothesizeoftheinvestmentinequipmentarelower.

SuccessfulbusinessmodelsrepresentsituationsinwhichthefinancingandimplementationofRET

inbuildingsareorganisedinawaythatbarriersforrealisationofrenewableenergyare atleastto

somedegree overcome.Abusinessmodel isdefinedasastrategywheretheapplicationofRET

createsvalue,thusfromabusinesscaseperspectiveinthefirstinstancefinancialbarriersaremost

relevant.Financialbarriersinhibitvaluecreationifaninvestmentisnotprofitableorifitsnotreal

izedduetolackingaccesstocapitalorwillingnesstomakeupfrontinvestments.Generally,financial

viabilityisthefirstrequirementforasuccessfulbusinessmodel,exceptforsomecaseswherenon

financial drivers such as increased comfort, energy security or environmental considerations are

primarymotivesforthedeploymentforRET.


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Table2.1 Barriersandmarketsegments

Barriers Market segments in built environment

Residential buildings CoNew buildings Existing buildings New build

Built by a pro-ject

developerBuilt by the

building ownerOwner-occupied Rented Built by a pro-

ject

developer buMultifamilyhouses Single familyhouses Multifamilyhouses Single familyhousesMarket and social barriers

Low priority of energy issues Applicable to all market segmentsPrice distortion Applicable to all market segmentsThe hassle factor X XSplit incentives X X X XFragmentation in the building chain X X XLittle interest by energy companies Applicable to all market segmentsSmall scale suppliers of RET Applicable to all market segmentsInformation failures

Lack of awareness Applicable to all market segmentsLack of information on financing X X XLack of knowledge by installers Applicable to all market segmentsRegulatory barriers

Restrictive procurement rulesBuilding permitting process Applicable to all market segmentsFinancial barriers

Low returns on investment Applicable to all market segmentsHigh upfront costs X X X X X XDifficult access to capital X X X X XHigher risk of RET Applicable to all market segmentsHigh transaction costs X XIncomplete mortgage assessment X X X X


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Thisdoesnotmeanthatnon financialbarriersarenot important.Calculationsofnegativeabate

ment costs demonstrate the significance of other barriers than too low rates of return. WBCSD

(2009)calculatethatthereisapotentialforinvestmentsofUS$150billioninbuildingenergyeffi

ciency in the US, Japan, Europe, Brazil, China and India, which would have discounted payback

timesoffiveyearsor lessandwhichwouldreducethecarbonfootprintfromthebuildingssector

by40%compared to abaseline.McKinsey (2009) in their globalMarginal AbatementCost Curve

identifyasignificant

global

abatement

potential

of

2500

Mt

CO2 a year at negative costs

5in

the

buildingsector,whichincludesrenewableenergyandenergyefficiencymeasures.Thesedatashow

that there are significant opportunities for RET and energy efficiency measures in the built envi

ronment,whichareeconomically viable,butarenotrealizedbecauseofadditionalfinancialbarri

ers suchashigh upfront investment costs, but also because of a varietyof nonfinancial barriers

such as split incentives, information barriers and fragmentation in the building chain (WBCDS,

2009,McKinsey,2009).

OftenasuccessfulbusinessmodelthatcreatesaprofitablebusinesscaseforinvestmentsintoRET

inthebuiltenvironmentalsoaddressessomeofthenonfinancialbarrierswhichare important in

itsmarketsegment.ESCOsforexampleofferabuildingownertheopportunitytooutsourceenergy

related services such as installation, investment, operation andmaintenance and fuelpurchases.

This

decreases

non

financial

barriers

such

as

information

and

market

failures.

Thebarriersdescribedabove illustratethecurrentsituation.However,thebarriersarenotstatic,

andtheirimportancecanchangeinthefuture.Forexampleifoilpricesandrelatedfossilfuelprices

continuetorise,somefinancialbarriers,suchaslowreturnson investmentwillbecomeless im

portant.TheWBCSD(2009)calculationsforexampleassumeanoilpriceof60USDbarrel.An in

creasedmarketshareofRETmaydecreaseotherbarrierssuchastechnicalrisksand information

failures.ThisstudyfocusesoncurrentbarriersalthoughthecalculationexamplesinChapter5illus

tratehowRETbecomemoreviableiffossilfuelpricesincrease.

5 ThecalculationsforMcKinseysglobalMACcurvearebasedonasocietalperspectiveassumingadiscountrate

of4%.Thediscountrateforcorporateorprivate investmentswhichwouldhave tobeapplied forabusiness

caseperspectiveishigher,andisthusexpectedtoleadtoalowerabatementpotentialthanthe2500MtCO2

annually.However,thefiguredoesillustratethattherearesignificantotherbarriersinhibitinginvestments.


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3. Business models for an increased deployment of RET in thebuilt environment

3.1 Categorizing business models

NewandinnovativebusinessmodelsforanincreaseddeploymentofRETinthebuiltenvironment

may be categorized according to the main drivers for value creation. Based on Wuestenhagen

(2005)andCOWI(2008),thefollowingthreecategoriesofbusinessmodelscanbedistinguished:

i)Productservicesystems(PSS)

Productservicesystemsarebusinessmodelswhichmakeuseofthedeliveryofthe functionofa

productcombinedwitharelevantservice(COWI,2008). Intheareaofenergythesearebusiness

modelsofferingenergyrelatedservicesbeyondthesimplesaleofenergy.EnergyServiceCompa

nies(ESCOs)arethemostprominentexamplesofPSSbusinessmodelsintheenergysector.

ii)Businessmodelsbasedonnewandinnovativerevenuemodelsoriii)onnewfinancingschemes:

New and innovative revenue models have been a main driver for new business models in some

traditionalindustries

(Wuestenhagen,

2005).

For

the

deployment

of

RET

there

are

business

oppor

tunities in the intelligent use of available government incentives which contribute to revenues.

Newrevenuestreamsmayalsoemergefromrealizingtheadditionalvalueoftheintangibleclimate

or environmentalbenefit of a product, for example of a house with a high rating by a voluntary

greenbuildingcertificationscheme.Inaddition,therearebusinessopportunitiesinmakinguseof

newandinnovativefinancingschemes.

The regulatory environment plays a crucial role for business models for the deployment of RET.

Manyofthebusinessmodelsthatarebasedonnewand innovativerevenuemodelsorfinancing

schemesareactuallydrivenby incentiveschemes initiatedand financedbygovernment. Inaddi

tion,regulatoryschemessuchasobligationstodeployRETcanbean importantdriverfor invest

ments in RET in the built environment. However, obligations tend to not lead to direct business

cases for themarketactorwho takes the initiative to install RET. But theoretically,an obligation

cantriggerinnovativeschemessuchasafinancingscheme.Suchfinancingschemesemergeforexampleasaconsequenceofenergysavingobligationsforutilities.

Alternativelybusinessmodelscanbecategorizedaccordingtothemarketsegmentwheretheyare

applicable and according to the main actors involved. The built environment is an exceptionally

multifacetedsystem which including manydifferentmarketactors,suchasbuildingowners, ten

ants,governmentauthorities; buildingdevelopers;financialinstitutions,suppliersandmanufactur

ers;architects,engineers,contractors,craftsmenandservicecompanies;andutilities.Thebusiness

modelanalysesinChapter4describetheapplicablemarketsegmentsandmarketactorsinvolved.

Table3.1showsthebusinessmodelswhichareanalysedindetailinChapter4.Thesemodelswere

chosenbecausetheyareconsideredtohavethepotentialto leadtoan increaseddeploymentof

RETand/or

have

the

potential

to

be

implemented

widely.

Additional

considerations

were:

Ifpossible,themodelsshouldcoverallmarketsegmentsofthebuiltenvironment.

Ifpossible,themodelsshouldaddressawiderangeofbarriersforanincreaseddeploymentof

RET.

Theselectionshouldcoverbothverynewand innovativemodels, forwhichonly littleexperi

ence exists (e.g. Integrated Energy Contracting, PACE financing) as well as models that have

been applied widely enough to allow for a comprehensive evaluation of strengths and weak

nesses(e.g.onbillfinancing,feedinremunerationschemes).


22/123


Theanalysisshould includeEnergyContractingmodelsasthesearefrequentlydiscussedasan

importantmarketdrivenapproachforincreasingthedeploymentofRETandEEinthebuilten

vironment.

Chapters3.2and3.3provideashortdescriptionofthebusinessmodels.

Table3.1 Listofanalysedbusinessmodels

Businessmodels

ProductServiceSystems/EnergyContractingmodels

1 EnergySupplyContracting(ESC)

2 EnergyPerformanceContracting(EPC)

3 IntegratedEnergyContracting(IEC)

Businessmodelsbasedonnewrevenuemodels

4 Makinguseofafeedinremunerationscheme

5 Developingpropertiescertifiedwithagreenbuildinglabel

6 Building owner profiting from rent increases after the implementation of energy efficiency

measures

Businessmodelsbasedonnewfinancingschemes

7 PropertyAssessedCleanEnergy(PACE)financing

8 Onbillfinancing

9 Leasingofrenewableenergyequipment

10 BusinessmodelsbasedonEnergySavingObligations

3.2 Product-service-system business models

Energy Service Companies (ESCOs) are one of the most prominent examples of productservice

systembusinessmodelsforsustainableenergy.WithintheESCOsector,itispossibletodistinguish

betweentwo fundamentally differentbusinessmodelswhichprovideeitherusefulenergyvia(1)

EnergySupplyContracting(ESC)orenergysavingsvia(2)EnergyPerformanceContracting(EPC)to

theenduser.UnderanEnergySupplyContracting(ESC)model,anEnergyServiceCompany(ESCO)

suppliesusefulenergy,suchaselectricity,heat,orsteamunderalongtermcontracttoabuilding

ownerorbuildinguser.TheEPCmodelisbasedondeliveringenergysavingscomparedtoaprede

finedbaseline(formoredetailsseeChapter4.1).Figure3.1depictstypicalscopesofservicesofdif

ferentESCOmodels.

InpracticetherearealsomanyvariationswithintheESCandEPCmodels.Mostofthesevariations

relatedtotherangeofservicesdeliveredunderthecontractsandtothequestionhowtherequired

investments are financed. In the AngloSaxon EPC markets, two EPC models are differentiated

mainlywith

regards

to

who

finances

the

investment:

Guaranteed

Savings

refers

to

aservice

model

without financing by the ESCO,whereas SharedSavings includes financing in theESCOsservice

package.

In addition to the two basic models, a third, innovative approach is being piloted in Austria and

Germany, the (3) Integrated Energy Contracting (IEC) model. It is methodologically based on the

ESCmodelandissupplementedbyadeemedsavingsapproachfortheenergyefficiencymeasures.

Compared tostandard ESCmodels, the IEC approachextends the range of services and thus the

energyandemissionssavingspotentialtothewholebuilding(seeFigure3.1).


23/123

IE

Fi

N

S

3

(4

F

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re

ca

pr

ti

(5

In

hi

Th

(6

mF

e

a

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te:NWhref

urce:Bleyl,

.3 Busi

)Makinguse

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increased

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newable en

ncoverthe

emiumsfor

ewillsoon

)Developing

dependent

gher salesp

isisfrequen

) Building o

easures

rbuildingo

ueopportu

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gsintoaccou

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peofservic

erstoenerg

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ess mod

ofafeedin

eshaveeme

eployment

ogiesbycom

rgy. A feed

financialgap

electricityfr

eimplemen

propertiesc

fpolicyince

rice for abu

tlythecasei

wnerprofiti

nerswhod

itiesfroma

romtheten

nt.Therequ

sforRenewa

sofdifferen

savings,i.e.

els base

remuneratio

rgedasone

f

RET)

incentpensatingth

in remunera

betweenR

mrenewab

edintheUK

rtifiedwith

ntives,abus

ilding which

ntheNorth

gfrom ren

onotoccupy

investment

ntsafterth

iredchanges

bleEnergyin

tESCOmode

avoidedM

on new

nscheme

ofthemost

ive

schemes

eownerof

tion scheme

Tandconv

lesourcesar

forthefirst

greenbuil

inesscaseal

iscertified

mericanan

increases

thebuildin

inenergye

renovation.

inthelegal

theBuiltEn

ls

h.

evenue

commonan

covering

thheRET inst

creates opp

ntionaltech

ethemost

timeandisp

dinglabel

soexistsifa

ccording to

someAsian

fter the im

themselves

ficiencyaris

Thehigher

rameworka

vironment

odels

successful(

higher

cost

llationwith

ortunities f

nologies.Fe

ommon.Ar

lannedinth

propertyde

avoluntary

markets.

lementatio

andforhou

whenthey

enttakesth

dresstheis

intermsofl

of

RET

versuahigherpri

r business c

dintariffs

enewableh

Netherland

velopercan

greenbuild

of energy

ingcorporat

areallowed

etenantsen

ueofsplitin

23

eadingto

s

conven

eforthe

ases as it

rfeedin

at incen

s.

achievea

ing label.

efficiency

ions,rev

ocharge

ergysav

centives.


24/123


3.1 Business models based on new financing schemes

High upfront costs are a major barrier for an increased deployment of RET. Innovative financing

schemesmaythereforecreatebusinesscases,ifthefinancingschemeshelptoovercomethebarri

erofhighupfrontcosts.Aspublicbudgetsare limited,newand innovativefinancingschemesare

emergingwhichdonotburdengovernmentbudgets.

(7)Property

Assessed

Clean

Energy

(PACE)

financing

The Property Assessed Clean Energy (PACE) concept has for example been widely discussed and

pilotedintheUS.Underthisscheme,localgovernmentsissuebondsforRETprojects.Thebuilding

ownerrepaystheloanthroughanadditionalspecialassessmentpaymentonitspropertytaxbillfor

aspecifiedterm(InstituteforBuildingEfficiency,2010b).Whenthepropertychangesownership,

theremainingdebtistransferredwiththepropertytothenewowner.

(8)Onbillfinancing

Onbillfinancingprogramsareanothermodelforaddressingthebarrierofhighupfrontcostsand

access to capital: A utility provides capital to a home owner for the installation of RET or EE

measures.Thehomeownerrepaystheinvestmentviaitsenergybill.

(9)LeasingofRETequipment

Leasingof

RET

offers

another

opportunity

for

building

owners

to

use

RET

without

having

to

make

anupfront investment.Itspossiblebothforlargerscaleequipment in largecommercialbuildings

andinsomecasesalsoforsmallscale,innovativeRETforprivatehomeowners.Theopportunityto

leaseequipmentmay alsobe partof theenergyservices package offeredbyan ESCO. However,

leasingofRETequipmentisanalysedseparatelyasitistechnologyspecificandmayalsotargetin

dividualresidentialcustomers.

(10)BusinessmodelsbasedonEnergySavingObligations

Innovativefinancingoptionscanalsoemergeunderenergysavingobligationsforutilities.Theutili

ty(potentially viaanESCO)offers investment incentives forenergyefficiency investments,which

arefinancedbyoverallhigherenergyprices.Theseincentivesofferopportunitiesforbuildingown

ers.


25/123


4. Analysis of business models

Thefollowingdescribesandanalysesthetenbusinessmodels inmoredetail.Theanalysesofthe

business models based on new revenue models and on new financing scheme follow the same

template(including

an

introduction

and

definition,

applicable

technologies,

market

segments,

in

volvedactors,organisational andfinancialstructure,existingpolicyandmarketcontext,analysisof

Strengths,Weaknesses, OpportunitiesandThreats (SWOT),discussion andconclusions). Toavoid

lengthyrepetitionsof information,fortheEnergyContracting(EC)/ESCObusinessmodels inthe

categoryProductservicesystems,firstcommonfeaturesofallECbusinessmodelsaredescribed,

followedbyadescriptionofthethreeindividualESCOmodels.Thesedescriptions arewrappedup

withaSWOTanalysis,anddiscussionandconclusionsfortheECmodelsingeneral.

4.1 Product-Service Systems: Energy-Contracting (ESCO or EnergyEfficiency Services)

4.1.1 Introduction, Definition and Common Key Features of all three ESCOModels

Introduction

anddefinition

EnergyContracting(EC) alsolabeledasEnergyServiceCompanies(ESCOs) is

oneofthemostprominentexamplesofproductservicesystembusinessmod

els for sustainable energy. Two basic ESCO business models can be distin

guished,whichprovideeitherusefulenergy(EnergySupplyContracting ESC)

or energysavings (EnergyPerformanceContracting EPC) to theenduser. In

additiontothetwobasicmodels,ahybridmodellabelledasIntegratedEnergy

Contracting(IEC)was introducedandisbeingpiloted inAustriaandGermany.

IECaimstocombineusefulenergysupply,preferablyfromrenewablesources

withenergyconservationsmeasuresintheentirebuilding.

Independentofthebusinessmodel,energyservices inamorenarrowsense

have

several

common

features,

which

are

outlined

in

this

first

subchapter.Most importantlyanESCOsremuneration isperformancebased(it ispaidfor

themeasuredoutputsasopposedto the inputsconsumed)and itguarantees

fortheoutcomeandallinclusivecostoftheservicepackage.AllESCObusiness

models investigatedhere,leadtoareductionoffinalenergydemand.Inaddi

tion, they achieve environmental benefits due to the associated energy and

emission savings in addition to nonenergetic benefits such as an increase in

comfortorreputationgains.

Variousdefinitionsofenergyservicescanbefoundinrespectivestandardsand

literature.6Howevermostcommonlyapplieddefinitionsfallshortwithregard

to important properties of real EnergyContracting services. Such properties

areoutsourcing ofcommercial and technicalrisks to anESCO,guarantees for

results,andallinclusivecostsofthemeasuresimplementedoroftheoptimizationaccordingtoprojectcyclecosts.Thesefeaturesmayconstituteanadded

value in comparison tostandard inhouse implementationofenergyservices.

Therefore,inanarrowsensewedefineEnergyContracting(EC)as:

6 SeeforexampleEC(2006),Bertholdiet.al.(2007),EN(2009),Satchwellet.al.(2010).


26/123


EnergyContractingisacomprehensiveenergyserviceconcepttoexecuteen

ergyefficiencyprojectsaccordingtominimizedprojectcyclecost.

TypicallyanEnergyServiceCompany(ESCO)actsasageneralcontractorand

implementsacustomizedservicepackage(consistingofe.g.design, installa

tion, (co)financing, operation&maintenance, optimization,fuelpurchase,

usermotivation).

Askey

features,

the

ESCOs

remuneration

is

performance

based,

it

guarantees

for theoutcomeandallinclusive costsof the servicesand takesover com

mercialaswellastechnicalandoperationalrisksovertheprojectterm.

(afterBleyl+Schinnerl(2008))

InadditiontorealEnergyContractingmodels,therearesocalledEnergySer

viceProviderswhichoffertechnicalandengineeringservicesfortheidentifica

tionand implementation ofRETandEEprojects,butdonotofferanyperfor

manceguarantees(seee.g.examplesinBox5.1).

ModularScopeof

services

ECservicesarenotaboutaparticular technologyorenergycarrier.InsteadEC

is a flexible and modular tool to execute energy efficiency and RET projects

accordingtothegoalsofthefacilityowner.

Allthetasksshown inFigure4.1suchasplanning,constructionandfinancing,

theongoingcomponentsof theservicepackage(operationandmaintenance,

purchasingoffuel,qualityassuranceandmeasurement&verification)aswell

ascompliancewiththelegislativeframeworkhavetobecoveredeitherbythe

buildingownerortheESCOthroughoutthecontractualperiod.

Figure4.1 EnergyContracting: Amodularenergyservicepackagewith

guaranteedresultsfortheclient.(Note:Theaddedvaluefortheclientofenergy

contractingcomparedtoinhouseimplementation isdisplayedinred.)

For

implementation,

the

building

owner

assigns

a

customized

energy

servicepackageanddemandsguaranteesfortheresultsofthemeasurestakenbythe

ESCO. The necessary components for implementing energy projects are sum

marizedinFigure4.2.

(Co-)Financing, Subsidies

Operat.& mainten.,

Troubleshooting,Optimization,User mvation

Project development,Rough planning

Detailed planning,

Construction,Initial start up

Energy-

Contracting- a modular service

package incl.

outcome

guaranteesOutsourcing of

commercialand technical risks

Function-,performance- and

price guarantees

Added valuethrough

outsourcing:

Fuel + power purchase

Source: after [Bleyl+Schinnerl 2008]

Controlling,M & V,Quality assuran


27/123


Figure4.2 EnergyContracting: Componentsofservicepackageandoutsourc

ing

of

interfaces

and

guarantees

to

an

ESCO

TypicallyanESCOservesasageneralcontractorand isresponsibleforcoordi

nation and management of the individual components and interfaces of the

servicepackagetowardsthecustomer.Ithastodeliverthecommissioned en

ergy service (Megawatt hours of useful energy or energy savings (Negawatt

hours))tothecustomeratallinclusivepricesasdisplayedinFigure4.2.

Energy efficiency projects differ in their contents and general conditions.

Therefore, it has proven to be necessary and sensible to adapt the scope of

servicesspecificallytotheindividualproject.Thisalsoimpliesthatthebuilding

ownercandefine,whichcomponentsoftheenergyserviceareoutsourcedand

what he carries out himself (e.g. ongoing onsite maintenance provided by a

facilitymanager

or

financing

from

other

sources).

An important difference between inhouse (doityourself) implementation

and outsourcing to an ESCO root in the functional, performance and price

guarantees provided by the ESCO and the assumption of technical and eco

nomicrisksbytheESCO.

Actors DirectlyinvolvedactorsaretheESCO andthebuildingowner.Thesecondlayer

inthevaluechain includesequipmentandfinalenergysuppliersandfinancial

institutions, who provide capital for the investment into (RET and EE) equip

ment.Nodirectpolicyinterventionisrequired.

Financingof

therequired

investment

OutsourcingofupfrontfinancingofREorEEequipmentisoftenthekeydriver

toengage

with

an

ESCO.

However

ESCOs

are

not

necessarily

able

to

offer

more

attractive financing conditions in comparison to a building owner, especially

whentheclientisalargeorganisation,norisfinancingtypicallytheESCOscore

competence.Therefore,theESCOservicepackagedoesnotnecessarilyneedto

includefinancing.Financingcanbeprovidedbythebuildingowner(Figure4.3),

theESCO(Figure4.4)orathirdfinancingpartner,dependingonwhohasbetter

accesstocapitalandfinancingconditions.

Technology

Suppliers, construction,operation & maintenance

Energy

Gas, fuel oil,solar, woodchips

Money

Equity capital, banks,TPF, subsidies ...

Know-How

Engineers, architects,consultants, innovation

EnergyServ

iceCompany(ESCo)

Supply (MWh) orSavings (NWh)

incl. function,

performance +price guarantees

Legislative Framework

Laws, procurement,technical rules Grazer Energieagentur GmbH-For requests: [email protected]

(pot.)ESCoClient

Source: after [Bleyl 2009]


28/123


Figure4.3 EnergyContractingmodelwherebuildingownerfinancesRET

equipmentthroughaloanfromafinancialinstitute

Figure4.4

Energy

Contracting

model

where

ESCO

finances

RET

equipment

(optionallywithfinancialinstitute)

This distinction is also reflected in the AngloSaxon EPC markets, where two

basicEPCmodelsaredifferentiatedmainlywithregardtowhofinancesthein

vestment: Guaranteed Savings refers to a service model without ESCO fi

nance, whereas the Shared Savings model includes financing in the ESCOs

servicepackage.

Combinations oftheaboveoptionsarealsopossibletoaccountforthespecific

projectandtheactorsinvolved.Inreality,amixtureoffinancingsourcesisof

ten thebestchoice inordertobalancerisks. If theESCOdoesnotprovidefi

nancingitself,itcanstilltakeontheroleasafacilitatorsupportingthebuilding

ownerto

get

access

to

third

party

financing

solutions.7

Existingmarkets

andpolicy

context

Reliablemarketdataon ESCO marketsarescarceornotpubliclyavailable. In

the EU, Energy Supply Contracting (ESC) has by far the largest market share

withintheEnergyServicessector(Labanca,2011).

InGermany,ESChasforexampleamarketshareof85%90%oftheESCOmar

ket(Bleyl,2011).WhileEnergyPerformanceContracting istalkedabouta lot,

its market share in the German ESCO market is only between 10% and 15%

(Prognos2009,VfW2009).InGermany,themostrecentmarketestimateindi

catesthatthereareabout250companiesactiveintheenergyservicesmarket,

mostly using the ESC model (Eikmeier et al., 2009). The total volume of the

German

energy

services

market

is

estimated

to

be

about

2

billion

annually,

ofwhichabout60%takesplaceintheresidentialbuildings(Bunseetal.,2010).

IntegratedEnergyContracting(IEC) isan innovativemodelwhichhasbeenpi

lotedinAustria.Experiencescollectedfromuptonoweightprojectshavecon

7 MoredetailsonfinancingoptionsforenergycontractingprojectscanbefoundinBleyl(2008),whointroduces

thecustomerdemandprofilemethodology.Thisisatooltodefineandstructurefinancingneedsfromthecus

tomerperspectiveandcanbeusedasachecklisttocomparedifferentfinancingoptions.

ESCO Buildingowner

RET equipment

Installation

Financialinstitution

Loan

Principal +

InterestUp-front cost

Energy services+ guarantees

Performance-based fees

ESCO Buildingowner

RETequipment

Installation

Financialinstitution

Loan, lease orforfaiting

Repayment orcessions

Energy services

and guarantees

Performance-based fees


29/123


firmedthepracticalfeasibilityofthe IECmodel.Beyondthat, itremainstobe

seenwhatcontribution IECwillmakeasatoolfor the implementation ofsus

tainableenergyprojects.(Bleyl2011)

In order to support energy services in general, in the EU, a large number of

countries propose or have implemented policies and supporting measures,

suchasinformationcampaigns(Boonekampetal.,2010).Oneofthedriversfor

such

legislation

is

the

EU

Directive

on

Energy

End

Use

and

Energy

Services

(2006/32/EC).Thereseemtobenospecificpoliciesdirectlysupportingspecific

energycontractingmodels,suchasESCorEPC(Szomolanyiovaetal.,2011).In

Japan, the 2007 New Procurement Law for the Environment encourages au

thoritiestoprocureESCOservicesforpublicbuildings(WBCDS,2008).It isex

pectedthatthepolicycontextofacountrydoesplayanimportantroleinthe

development of the energy services market. In Denmark for example, energy

servicesareimplementedbecauseenergysavingobligationsforenergysuppli

ersmayonlybeimplementedbythirdpartyenergyservicecompanies.

For the market development of EPC, a key enabling factor has been the in

volvementofindependent3rd

partyorganisations, actingasmarketandproject

facilitators

between

potential

customers

and

ESCOs.

Often

they

are

energy

agencies (e.g. Grazer Energie Agentur8 or Berliner Energieagentur

9), who de

velop concrete EPC projects, mostly on behalf of the client, prepare calls for

proposals and model contracts and put them out on the market to bid for

(EACI,2011).

Insomepartsoftheworld,socalledpublicSuperESCOshavebeenproposed

or implemented, e.g. Energy Efficiency Services Limited in India, FEDESCO in

Belgiumor HEP ESCO in Croatia. The scopeof their (planned) activities is ex

tremely broad and ranges frommarketand project facilitation for (potential)

clientsandESCOstoactingasafullfledgedESCOthemselves.Moreover,these

organisationsmaybetaskedamongstotherstosolvefinancingbottlenecksand

undertakegeneral informationcampaigns (Limaye, 2011). The success of this

broadconcept

remains

to

be

seen.

The

portfolio

of

Super

ESCOs

may

require

a

morefocussedapproach,particularly regardingmarketdevelopmentandpro

jectfacilitationactivities.

8 Seewww.grazerea.at

9 Seewww.berlinereagentur.de


30/123

30

4.1.2

Descripti

Market

Segment

Energy Su

on U

s

o

in

h

y

E

w

b

T

t

in

e

a

o

s

bR

Fi

T

e

fi

g

m

e

p

s

E

o

si

o

r

n

g

o

pply Cont

nderanEne

pplies usefu

nerorbuil

astandard

ursdelivere

ars,

depend

tended proj

ith longer p

ildingshells

is business

chnicaland

cludingthe

uipmentfo

dtobuyser

finalenerg

opeofservi

sementof

a

Tasdisplay

gure4.5

eESCOsre

gyoutputd

iencyofthe

aranteesfo

ercialaswel

ate the upt

ojectbecau

Cisapplied

public buil

zestobeec

100kWasl

sultsfroma

alenergyc

upto10M

heat,steam

racting

rgySupplyC

l energy, su

inguser(as

tilitycontra

d.ESCmode

ing

on

the

te

ect terms o

yback time

aswell.

model gives

economical

lanning,inst

heating,co

vicesinstead

throughth

esislimited

buildingbu

dinthefigu

SCmodel:S

enewables

munerationi

livered.Thu

finalenergy

theoutcom

lastechnica

ke of RET, i

eESCOs

hav

indifferent

ings. For th

nomicallyvi

owerthresh

marketque

stofabout

ormoref

,(backup)e

ontracting (

ch as electr

opposedtof

t).Theoutp

lsrununder

chnical

lifeti

building co

like facade

the buildin

isksassociat

allation,ope

lingorelec

ofindividua

ESCO,how

totheener

may

very

rebelow.

hematicsta

sperforman

stheESCm

conversion

eandallcos

landoperat

f RET are co

ean

inheren

ndusesect

e housing s

bleexist:Ei

ldbasedon

y.Inasimpl

20,000.Up

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lectricityor

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utismeasur

longtermc

e

of

the

eq

st allowance

s with integ

g owner th

edwithene

rationandm

ricitygenera

lcomponent

everon its

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ellinclude

s

dardscope

cebasedan

delprovides

re bizz final report

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