Seppo Silvonen, Motiva Oy Finland Why not more ESCOs?

1. "FINANCIAL AND ECONOMIC ASPECTS OF ENERGY SAVING WITHIN THE FRAMEWORK OF THE CSRC APPROACH" Workshop: "TRANSNATIONAL ENERGY SAVING NETWORKS"14 December 2005 Vilnius, Lithuania Seppo Silvonen, Motiva OyFinland Why not more ESCOs?

2. Idea of an ESCO-service To the ESCO “fast out” To the client Energy cost before Energy cost after Savings ( - ) ( - ) Time Project cost paid by the ESCO =

3. Energy Agency of Southwest Finland:Municipalities and ESCO-services – an interview survey • ESCO-activity has been low in the municipal sector. • The aim of the interview survey was • to collect information of the obstacles on the way to implementing ESCO- • acitivities and of the possibilities and ways of removing the obstacles • to collect information of the factors leading to success in ESCO-activities • to aid Motiva in its planning of ESCO-promotion

4. Energy Agency of Southwest Finland:Municipalities and ESCO-services – an interview survey • Obstacles • Few ESCOs offering services • Limited experience of ESCO-contracts • Individual ways of marketing and implementing by the ESCOs • ESCO-contracts unknown to smaller municipalities • The potential diversity of ESCO-contracts not seen • ”An ESCO-contract is expensive to the municipality” • A municipality can get financing cheaper directly than through an ESCO • ”Political sensitivity”

5. Energy Agency of Southwest Finland:Municipalities and ESCO-services – an interview survey • Obstacles • Energy audits by another party are not sufficiently reliable • The buildings are in good shape, lacking potential for bigger energy • efficiency investments • The energy efficiency investments are small compared to the total • renovation investments • Bundling of several smaller investment objects is cumbersome and • difficult from the monitoring point of view • Investments recommended in the energy audits have already been • carried out taking the economic feasibility from ESCO-projects

6. Energy Agency of Southwest Finland:Municipalities and ESCO-services –an interview survey • Obstacles • no clear instructions for arranging competitive bidding for ESCO- • contracts • competitive bidding expensive to ESCOs • separation in the book-keeping between investments and running costs • hesitation by the workers: loosing of work or getting extra work • estimated savings potentials unreliable • lack of expertise for getting acquainted with the ESCO-concept

7. Energy Agency of Southwest Finland:Municipalities and ESCO-services – an interview survey • Opportunities • a municipality has various ways of financing ESCO-projects • the banks are waking up to ESCO-project financing • investment subsidy to ESCO-investments available from the Ministry of • Trade and Industry • information, experience is available in other countries through the • nerworks

8. ESCO-Financing ModelConventional Financier Paymensts from the Savings Client Loan Interest+ Amortization Guarantee ESCO Contract 5-7 years Subsidy Investment Guaranteed Savings Implementation of the Contract Regional Govmnt Office Application for Subsidy Guaranteed Savings Contract Payments Contractor

9. ESCO for Municipalities Local Financier Loan ESCO-Contract as Guarantee Client Payments from the savings Interest+ Amortization ESCO Contreact 5-7 yr Subsidy Investment Guaranteed Savings Regional Govmnt Office Implementation of the Contract Application for subsidy Guarateed Savings Contract Payments Contractor

10. ´Helsinki-ESCO’ Financier Regional Govmnt Office City Subsidy Application for Subsidy Implementation of the Contract Guaranteed Savings Contract The City will pay the Contract amount on the basis of the fulfilment of the Savings Target Contractor

11. ESCO with the Municipality as the Financier Financier Regional Govmnt Office Guarantee Interest+ Amortization Subsidy Application for Subsidy Loan Municipality The City will pay the Contract amount on the basis of the fulfilment of the Savings Target Contract Implementation of the Contract Guaranteed Savings Contractor

12. ’Turku-ESCO’ Regional Govmnt Office Subsidy Application for Subsidy Client (Turku) Financier Payments from the Savings ESCO Contract 5-7 yr Investment Guaranteed Savings Contractor Maintenance Contract

13. ’Spartrim-ESCO’ Regional Govmnt Office Application for Subsidy Client Pavments from the Savings Financier Subsidy ESCO Contract 5-7 yr Investment Guaranteed Savings Contractor Maintenance Contract

14. ’Bundling-ESCO’ Regional Govmnt Office Appplication for Subsidy Client Payments from the Savings Financier Subsidy ESCO Contract 5-7 yr Investment Guaranteed Savings Contractor (Maintenance Contract) Object of saving measures

15. Direct government support • The government finances the costs of the operating agent (Motiva) of the Finnish energy audit program and gives 40…50 % support for the energy auditing project expenses • 15…20 % subsidies for conventional energy saving investments for companies who have joined the voluntary Energy Conservation Agreements with the Government. • Higher subsidies (20..25 %) have been granted for ESCO investment projects at least until the end of the year 2004 by the government

16. How to find the project potential to ESCOs? • Energy audit reports • What was not identified in the • energy audits

17. Motiva’s rolein promoting ESCO–business in Finland • To act as an information link between ESCO’s, energy users, potential clients, energy auditors … • To prepare information material, to organise information dissemination and seminars and to be directly in contact with possible ESCO’s and their potential clients • To follow the development of the ESCO industry abroad and to participate in the international co-operation • To Identify possible obstacles to the growth of the ESCO- business • To disseminate information of exemplary ESCO projects

18. Clients’ views on the ESCO-concept • Good for the core-business thinking – does not tie up own capital • Decision making is taken to the level in charge of the costs • ESCO has the responsibility for the savings • Neutral towards the equipment suppliers • Turn-key saves own time • Owns the equipment until paid – in charge for the maintenance and functioning • ESCO bears the risk of the new technology utilised

19. ESCO-project register in Motiva- Target: to promote ESCO-business - Contact information- Description of different kinds and sizes of ESCO -projects- Following the ESCO-business volumes- Started in 2003- Registered some 40 projects: 40 % municipal, 60 % industrial

20. ESCO-project register– Examples- Municipal projects • schools • sports centres • swimming halls • ice-hockey halls • greenhouse

21. The smallest ESCO- project • Customer: City of Nokia, Ice-hockey arena • ESCO: Enespa Oy • Measures based on a free pre-audit • water consumption of showers • updating the controls of the refrigeration system • Energy Performance Contract (Enespa Model Contract) • investment 13.000 EUR • estimated savings 5.000 EUR/a • repayment: 50 % of savings x ESCO´s share of ownership but • minimum 25 % of the savings (first year repayment was 3.300 EUR) • based on the repayment formula the contract period is 6½ years • cumulative customer`s savings are 28.300 EUR

22. Modes and capacities of ESCOs