ORNL is managed by UT-Battelle for the US Department of Energy IEA Annex 61 Subtask B: Development of Business Models for Deep Energy Retrofits in Public.

ORNL is managed by UT-Battelle for the US Department of Energy

IEA Annex 61 Subtask B: Development of Business Models for Deep Energy Retrofits in Public Buildings

Originally Given ByJohn ShonderTC 7.6 MeetingJanuary 25, 2015Chicago, IL

Rüdiger LohseDan HowettIEA Annex 61 MeetingApril 13, 2015Reading, UK

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The Problem

• Governments worldwide are targeting more stringent energy reductions in their buildings

– In the US, EISA 2007 requires 30% reduction by 2015 compared to a 2003 baseline

– EU targets 2050 carbon neutral building stock

• Lack of funding and know- how: Funding for projects required to meet these targets is limited

• Lack of high effective business models to implement energy conservation in buildings

• Private investment – obtained through performance-based contracts – can fill the gap, but these projects have typically yielded savings in the range of 10% to 30% (ESCO business)

• IEA-EBC Annex 61 is developing technical and business solutions to allow deeper savings to be achieved using a combination of public and private funding

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Objective of Subtask B

• Develop business models for deep energy retrofit/refurbishment of government buildings and building groups using combined government/public and private funding to overcome existing barriers and to support the necessary increase in pace and quality of refurbishment activities

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Subtask B Strategya) Lessons learnt from accomplished DER: Gather case study information on business models used in existing deep retrofit projects planning tools, impacts and investment costs of DER measure bundles, quality assurance mechanisms.

b) Depict life- cycle cash- flows accounting monetized benefits resulting from DER projects

Reliable planning

tools

Impacts of DER measure bundles

Investment costs for DER

bundles

Quality assurance

mechanisms

Annex 61 Subtask A

Energy related benefits:• E- consumption • E- source modification

Non energy related savings:• Maintenance costs• Improved indoor climate• Extended floor area• Asset value

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Case study benefits/cash flows: Modeling Results for Office Building 224 kWh/m²yr H / 62 kWh/m²yr. E Scenario 1:”base case” 2: new building

adopted3: - 50% 4: Passive

House

Primary energy savings

34% 60% 54% 70%

a)Heating energy savings

33% 68% 60% 

83%

b)incremental primary investment energy (€/m²)

200- 230 300- 330 

280- 310 380- 430

bb) delta primary investment costs in comparison to scenario 1

 -

100- 110 80- 100 180- 200

c)delta cost savings)in comparison to €/m²yr

- 10 7- 10 10- 14

bb/c - 10 10-11 14-18

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Subtask B Strategy• Develop of advanced business model allocating investments and

services between building owner and ESCos, development of financing mechanism by accounting and securing life- cycle costs and benefits (table shows new advanced business model for SMESCos in Germany)

ESCO

Design

Investment DER bundles

Performance guarantee

O&M

Funding

Private Equity Building Owner

Loan Guarantee PPP

Payment of Performance i.e. energy savings

Quality Assurance

Facilitator

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Subtask B Strategy

• Development of advanced financing mechanisms:

• a) securing monetary streams between building owner and ESCO (performance guarantee with/without loan guarantee)

• b) securing third party investments by a quality assurance process such as ICP

Building ownerESCO

performance guarantee

Private equity

ESCO Quality assurance i.e. ICP

Planning process

Performance projection

O&M process

Monitoring &verification

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Subtask B Strategy

• Development of advanced financing mechanisms:

c) Setting up an inventory of accomplished and evaluated DER and other EE measures in buildings on EU and USA:

– Comparison of ex ante / ex prediction/ ex post refurbishment energy consumption

– Investment costs

– Performance indexes (EUIs etc.)

• Business Model Market application:

• a) Analyze regulatory framework in the participating countries to determine barriers project implementation

• b) Engage with stakeholders (building owners and managers, financial community, and energy services companies) to develop improved business models corresponding to the environment in each country

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Challenges: Do we really use theappropriate business models?

The “owner- directed”/”inhouse”- approach lacks EE incentive mechanisms:

• In EU 95% of building refurbishments are carried out in “owner- directed or in- house” business models:

– Architects/planners are responsible for planning, procurement, quality assurance in the construction phase

– Building owner- provides (mostly non- experts) funding, engages bank loans for funding and is in charge for the building operations after the accomplishment of the construction phase

– Crafts- /Trades Men: construction, maintenance services

• Experienced malfunctions of “owner- directed/in- house- business models”:

– Open feed back model with no feed- back and response (PERFORMANCE) integrated

– Decision making is typically not referring to life- cycle based criteria

– lacking stimulation to meet calculated efficiency targets and fixed investment budgets

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Challenges: do we really use theappropriate business models?

• ESPC – Energy Saving Performance Contracting: virtues of performance related business model in comparison to “owner- directed” business models: - Strong contract based stimulation for both contract parties to achieve a

high cost effectiveness by providing a better savings/investment ratio- Guaranteed energy and maintenance cost savings between 25 and 40%

in US, EU- Bankable energy- and maintenance cost savings create revenue streams

which are reliable positions of the funding of deep retrofit projects - Cost structure and decision making criteria aligned to life- cycle costs- ESCOs are using design and experience based knowledge on different ECM

(1) bundles (HVAC/biomass/CHP..) and are performing with satisfactory results

- EPC in its current approach is not the chosen vehicle for deep retrofit projects

• One main target of IEA- Annex 61 is the advancement of existing EPC- related business models for deep retrofit projects

(1) ECM Energy Conservation Measures

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Regional energy efficiency strategies in buildings and neighborhoods

Ene

rgy

Sav

ings

(%)

Investment /m² (€/m²)

EPC „first generation“Energy

Supply Contracting

Regional KEA- EPC Model

25%

50

%

75%

25 50 75 100 250 500 750

Deep Energy Retrofit

How to advance EPC into a tool building strategy

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Market Application: WorkshopInvesting into Energy Efficiency Projects: Why and How

• Organized by Annex 61/ Building Performance Institute/ KEA

• Focused on European market

• Held in Brussels, Belgium November 9 at the Buildings Performance Institute Europe

• Brought together public officials, non-governmental organizations, ESCOs, investors, and technical experts

• 12 speakers

• 85 individuals in attendance

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Keynote Address by Paul Hodson, Head of the European Commission's Energy Efficiency Unit

Lack of evaluated data from accomplished projects is a major issue:

• There is insufficient data on the effectiveness of retrofit projects

• Each project is considered to be different and results not comparable

• This makes benchmarking difficult

• If governments are to see energy efficiency as a resource, there is a need for more and better information on the benefits availablewe

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Rudiger Lohse, Co-Operating Agent of IEA-EBC Annex 61

• Many barriers to implementing energy efficiency projects in the EU

– Market, Financing, Information

– Regulatory/Institutional

– Technical

– Wrong business model is mostly in use

• Using public capital alone to implement EE projects brings no measurement of savings, no guarantees, and reduces the viability of future financed projects

• Using public capital alone to implement EE projects brings no measurement of savings, no guarantees, and reduces the viability of future financed projects

• Annex 61 will focus on performance related business model which will guarantee benefits, reduce demand for third party financing and

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Mark LaFrance, IEA: Key Policy and Metrics to Enable Investments in Deep Energy Renovation• Each renovation project that is done without

incorporating deep energy retrofits is a wasted opportunity

• Paradigm shift is needed

– Highest priority should be to document and replicate cost effective DER as part of normal building renovation activity.

– Establish business case for buildings not currently planned for renovation by targeting a challenging goal and looking beyond energy efficiency. Energy and non- energy related benefits have to be quantitatively valued.

– Establish mitigation cost for early renovation – this would likely require carbon trading and be a lower cost option compared to other solutions such as carbon capture and storage.

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John Coolen, Factor 4, Belgium

• Project facilitation is key to guide owners and ESCO through the process

• Combine non-energy-related building upgrades with energy retrofits

• Provides calculation methods to make the non- energy related savings accountable and gives guidance on how to assess and to verify their performance

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Ove Moerck on Annex 61 Subtask A

• Evaluation of accomplished DER projects in EU and USA

• Which major benefits have been achieved

• Cost- /benefit- curves

• Will be presented in this session

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Eric Berman, RenESCO (Latvia) on DER EPC business models• Upgrade of Soviet-era residential

housing stock

• RenESCO upgrades the buildings at no cost to residents

• Residents then pay their utility bills to RenESCO, who pays the utility and uses the remainder (savings) to pay debt service on the project financing

• Business has been in operation for three years

• Difficulties include lack of consistent policies from governments and financial institutions

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Matt Golden of Environmental Defense Fund, USA and Panama Bartholomy, ICP

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Main takeaways from Investor’s Day

• Large participation in this event shows the great interest in energy retrofit projects in Europe

• The barriers to projects include

– Lack of information about energy efficiency as a resource

– Lack of clear policies at many levels of government, compounded by the autonomy of the European member countries

– Lack of private capital

– Insufficient business models in use for EE implementation

• Investor´s Day is providing a platform to move barriers and to bring together investors, building owners, ESCos and research

• Investor´s Day is to be considered as groundwork follow up of EEFIG (Energy Efficiency Financial Institution Group (EEFIG)

• Next Investor´s Day will take place in autumn 2015 and will be announced in the next few days