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Energy PErformance Contracting (EPC) for PUBLIC BUILDINGS

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Energy PErformance Contracting (EPC) for PUBLIC BUILDINGS

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  1.  Click Welcome to the EnPC-INTRANS e-learning course. You may control the learning speed yourself. When you click  …  on any of the slidesyou will open a box with additional learning input. The numbers show the proposed reading order of boxes. Clicking an open box will close it. Clicking the blank space of a slide means to stop an animation or to switch to the next slide. Enjoy your EnCP-INTRANS E-Learning Course ! Energy PErformance Contracting (EPC) for PUBLIC BUILDINGS An E-Learning Introduction for Practitioners and Decision Makers. Training period: 2016/17

  2. DISCLAIMER: Neither GIZ nor any other consortium member nor the authors will accept any liability at any time for any kind of damage or loss that might occur to anybody from referring to this document/presentation/event. In addition neither the European Commission nor the Agencies (or any person acting on their behalf) can be held responsible for the use made of the information provided in this document/presentation/event. Please, proceed to the next slide only after carefully reading this disclaimer !

  3. The EnPC-INTRANS project (1) You may contact all partners through our project website: www.enpc-intrans.eu.  10 Partners from 9 Countries www.enpc-intrans.eu (2)You may open the partners‘ websites by clicking their logos  Germany Ukraine Croatia Greece Slovenia Slovakia Romania Serbia Latvia

  4. The concept of EPC for public buildings • (1) Characteristics of Energy Performance Contracting (EPC) in public buildings: • EPC is a contractual service arrangement between a public building owner and an ESCO including an energy savings guarantee provided by the ESCO. • EPC is a tailor-made package of quality energy performance measures including the planning, financing, implementation, and monitoring of technical improvements and energy management services. • EPC provides for the payment of the contract price (minus subsidies) from fixed annual service fees reflecting the achievement of guaranteed savings. • The EPC service fees do in the ideal case not exceed the monetary value of guaranteed savings in the baseline year (fixed price basis). • In the of deep renovation of buildings additional cash flows are required e.g. from subsidies, donations or building owner’s own funds.  An ESCO provides an agreed service-package, including technical improvements (investments) on the basis of an EPC contract.  Continuedsavings of the public building owner Saved energy cost of the building ownermay compensate (in whole or in part) for EPC fees (7)  (8) End of EPC contract Implementationof energy saving measures agreed in the energy performance contract  (3) During the first period of contract duration (preparatory phase), the agreed energy saving measures (technical installations etc.) are implemented (9)  (6) During the period following the end of contract duration, the continuing savings remain in the building owner’s pocket.    (5) Energy savings achieved during contract duration compensate (in whole or in part) for the agreed service fees during the guaranteed period. (10) Energy costprior to energy saving measures Guaranteed energy savings  (2) Energy consumption and cost (on a fixed price basis) during the reference year are representing the baseline for the verification of guaranteed savings and for the calculation of EPC service fees. Actual annual energy cost Reduced energy cost ESCO = Energy Service CompanyEPC = Energy Performance ContractingEE = Energy efficiency (4) The guarantee phase starts when the agreed measures are completed and the new installations, contructions etc. are accepted.  Source: GIZ time EPC guarantee period

  5. Advantages of EPC for the public building owner Major advantages of EPC compared to traditional owner-directed ways of project implementation are: • The building owner transfers its investment risk to the ESCO. • Energy efficiency improvements are guaranteed by the ESCO, and the payment of EPC service fees is linked to the achievement of these guarantees. • The ESCO's technical know-how and professional energy management services are used by the building owner. • The building owner is relieved of essential planning and operating tasks. Authorities doing EPC on a regular basis appreciate also the model's flexibility. (source of arguments : Transparense 2011)

  6. EPC business models (1) Although the basic concept of EPC is always the same, different business models may apply, depending on the ambition of energy saving guarantees, and the complexity and volume of planned investments.  Guaranteed energy savings (compared to baseline)  (4)EPC plus applies when services of the ESCO are including, in addition to fast-paying energy saving measures (ESM), comprehensive structural measures on the building shell like insulation of roofs and walls, window replacement, and non-energy related measures like e.g. rehabilitation of structures, renovation or new installation of non-energy related facilities, renovation of interiors, etc. Additional payments (in addition to EPC service fees based on guaranteed savings) and long contract durations (often more than 15 years) are required in EPC plus projects. (5)   (6) (2) The most common EPC business model (here called EPC basic) aims at facilitating investments in technical energy saving measures (ESM) creating a relatively high energy saving effect (fast-paying energy saving measures) and is financed (usually in whole) from guaranteed energy savings over a contracting period of typically 5-15 years.  (3)EPC light stands for improvements of EE achieved by means of contracted energy management services aiming at the achievement of guaranteed energy savings little or no investment in technical facilities. Service fees are paid from savings. Contract duration is very short (e.g. 2-3 years).  Planned investments No investment cost(prior to investment stage)

  7. Specific features of EPC business models (1) Major differences between the three types of business models are related to:- Scope of investment – - Ambition of energy saving guarantees – - Necessary contract duration -  This table is continued on the next slide.

  8. Specific features of EPC business models (1) A more detailed comparison of EPC business models is available here. 

  9. Selection of EPC projects/business models     (1) If a building and the installed energy systems are technically up-to-date, EPC light will most probably be sufficient in order to activate energy saving potentials resulting from optimized energy management and improved consumer behavior. Only little ore no investment is required. Contract duration may be very short (e.g. 2-3 years). (4) If an old building is deeply run-down, or inadequate for the intended future use, replacement by a newly constructed building may be more economical than renovation. In this case EPC does not apply. (2)If a building is still functional, but its energy facilities are outdated, obsolete, or need upgrading to new standards,EPC basic may apply if the guaranteed savings are sufficient pay (usually in whole) for the necessary energy saving measures during an acceptable period of contract duration. Contract duration in the range of 5-15 years should be acceptable (3)If a building needs deep renovation, including both energy saving measures and non-energy related rehabilitation measures, EPC plus may usually apply only if additional payments (in addition to EPC service fees based on guaranteed energy savings) are possible, and long contract duration (often more than 15 years) is acceptable. Additional payments may be financed from subsidies for the EE rehabilitation of public buildings, from national or regional EE funds, from international donor funds, or from the building owners’ own funds.

  10. Economics of EPC projects Economics of EPC projects can be assessed from two different points of view: • From the Building owner’s point of view:Comparison of annual EPC service fees and the value of guaranteed savings: EPC is the most attractive if annual EPC service fees are less or equivalent to the monetary value* of annual guaranteed savings. • From the ESCO’s point of view:Assessment of net present value (NPV) of cash flows during contract duration: EPC is the more attractive the higher the total NPV of all cash flows in the project. Assessment of the internal rate of return (IRR) of the EPC is the more attractive the higher the IRR of the project. *The monetary value of guaranteed savings is in EPC contracts in general calculated on the basis ofenergy prices actually paid in the baseline year (fixed price basis). (1) The EnPC-INTRANS training tool for the demonstration of economic pre-feasibility assessment of EPC contracts from a commercial point of view may be downloaded here together with the relevant user instructions (2) Calculation of the monetary value of achieved savings on a fixed price basis reduces the economic project risk for both the ESCO and the public building owner. If the actual energy price would increase in the future, which is the most likely, the additional benefit would remain in the building owner’s pocket while the ESCO still receives the agreed EPC service fees. If the actual energy price should decrease in the future, the public building owner would still have to pay the full amount of agreed EPC fees, which helps to ensure the economic sustainability of both the EPC project and the ESCO. This effect will be compensated by additional gains of the public building owners during the next period of increasing energy prices.  

  11. Economic pre-feasibility assessment of EPC projects (1) The EnPC-INTRANS training tool for the demonstration of economic pre-feasibility assessment of EPC contracts from a commercial point of view may be downloaded here together with the relevant user instructions Challenge: In order to attract qualified bids, projects must be economically feasible also from a commercial point of view.  (2) At an early stage of project development, expected savings are resulting from rough analysis or performed energy audits. Must be verified by means of fine analysis performed by the contracted ESCO prior to implementing agreed energy saving measures. (8) This example is calculated on the basis of market conditions assumed for Germany in 2016.  (3) In EPC basic business models, public building owners do usually not have, and would also not accept, to pay any extra up-front to the ESCO.    (4) In EPC basic business models EPC service fees are usually equivalent to the monetary value of guaranteed savings in the baseline year. If EPC service fees would be less than 100% of the value of guaranteed savings, a part of the savings would remain in the building owner’s pocket during the guarantee period already, but contract duration would have to be extended. (5) The expected interest rate on own equity, respectively the minimum required Internal Rate of Return i1 are company-specific values. If no other information is available, i1 may be set equal to the interest rate for bank loans under current market conditions i2.  (6) The annual discount rate i3 is usually a company-specific value. If no other information is available, it may be set equal to the minimum required Internal Rate of Return i1.  (7) NPV > 0 means that the project may be economically feasible under the assumptions made. 

  12. Economic pre-feasibility assessmentof EPC projects (1) If the NPV of all revenues accumulated during contract duration exceeds the NPV of all cost accumulated during contract duration, the total NPV of the project is positive (>0). This means that the project may by economically feasible from a commercial point of view with the assumed contract duration. Economically feasible project(from a commercial point of view):Accumulated total revenues (NPV) exceed accumulated total cost (NPV) during contract duration (12 years). Economically not feasible project(from a commerical point of view):Accumulated total revenues (NPV) are less than accumulated total cost (NPV) during contract duration (8 years). (Results of a sensitivity analysis performed by means of the EnPC-INTRANS demonstration tool. Same project, different contract durations)  Cost (NPV)accumulated Revenues (NPV) accumulated (2) If contract duration is cut too short, the same project may no longer be economically feasible.  Cost (NPV)accumulated Revenues (NPV) accumulated

  13. Third party financing (TFP) (1) In newly emerging markets for ESCO/EPC businesses commercial banks do usually not yet trust this business model and are therefore reluctant to financing ESCO/EPC projects. In such a situation the public building owner may be better accepted by the banks as a credit customer. It ma take the loan and guarantee the payment of annuities to the bank. The public building owner may in such a situation often get better loan conditions (cheaper interest rates) than a private ESCO, which helps reducing the overall project cost. In developed EPC markets, the most common financing model for EPC is third‐party financing  Credit of customer(building owner) Credit of ESCO(with sale of claims / forfaiting/factoring)   (8) Sale of claims / forfaiting / factoring are means to further reduce the risk of the bank and the risk premium the bank has to take from the ESCO. Finally, this concept aims at reducing the overall cost of the project and the necessary EPC service fees to be invoiced by the ESCO. (5) In more developed markets banks get used to the business model. ESCOs offering EPC services get better accepted as creditors by commercial banks. Credit of ESCO Building owner Building owner Building owner Implementation of agreed measures.Guarantee of savings. Implementation of agreed measures.Guarantee of savings. Payment for services and repayment of investment cost. Payment for services Implementation of agreed measures.Guarantee of savings. Payment for services (4) The EPC service fees paid to the ESCO cover the total cost of the project minus financing cost and pay-back of the loan.  ESCO ESCO ESCO Payment of loan from achieved savings. Payment of loan from guaranteed savings(& objection waiver) Granting of a loan. (6) The loan is given directly to the ESCO which pays for the total investment cost. (7) The ESCO is due for the payment of annuities to the bank. Payment of the loan. (10) The public building owner pays a share of the EPC service fees (agreed annuities) directly to the bank, or the involved factoring agent. Granting of a loan. Granting of a loan.   Factoringagent Sale of claims  Investor/Bank Investor/Bank (9) The ESCO sells its claims to the lending bank (either directly or through a factoring agent), often accompanied by a waiver of objections issued by the public building owner.    (3) The public building owners is due for the payment of annuities to the bank. (2) The public building owner takes the loan and pays itself for the investment cost. Investor/Bank

  14. Selection criteria for EPC projects (1) If the total amount of current energy cost is too low, the monetary value of achievable savings will in many cases not be sufficient as to allow for the repayment of the cost of an EPC project from guaranteed savings. (2) If the installed energy facilities are up-to-date and work efficiently, investments in the further improvement of energy efficiency may probably not pay off within an acceptable period of time (EPC guarantee period)  • Current energy cost are high (e.g. > 100,000 €/y) • Energy facilities are obsolete, or non-functioning, or new standards are to be achieved. • Future use of the building for the planned purpose is ensured(for at least 15 years, or more). In the ideal case all three criteria are fulfilled in an EPC project. Sources of data underlying the selection of buildings for EPC may be: • Energy audit or Energy Performance Certificate (if any existing). • Data on energy consumption (invoices etc.). • Contracts on energy delivery, energy management etc. • Results of on‐site inspections. • Etc.  (3) Achievable savings depend among other things on the type and intensity of building use. If a building is not used at all, or not for the same purpose than during the reference year any more, measurement and verification of energy savings compared to the baseline year will be very difficult further on and may cause debate between the building owner and the ESCO. For the building owner, the concept of paying the agreed EPC service fees from guaranteed savings may not work if a building is not used during the entire guarantee period, or if its type of intensity of use changes substantially at some stage during the guarantee period.  (4) A checklist for on-site inspections (rough analysis) performed during the preparatory phase of an EPC project is available for free download here. 

  15. Development of an EPC project (1) The development of an EPC project may be organized in 5 subsequent phases, which may be characterized by specific processes and aim at crucial milestones of project development. It should be supported by local facilitators, wherever the public building owners technical capacities and experiences with EPC projects is not sufficient to develop EPC projects on its own.  (3) Final selection of buildings should take into consideration political priorities (visibility, public interest) as well as economic and technical saving potentials per building (5) Decision to use EPC instead of implementing a project in the traditional owner-directed way, should be taken on the basis of comparative economic assessment of options. Limitations, if any, of the public building owner’s technical and financial capacities should be taken into consideration. (see also the next slide). M I L E S T O N E S (8) The guarantee period starts when all agree measures are completed by the ESCO and accepted by the public building owner on the basis of provisions made in the EPC contract.  Acceptance of installations Selection of building (2) Political commitment (at national and local level) to improve EE in public buildings is the major pre-condition for EPC projects. If this is given, a public owner’s building stock may be screened for the identification of major energy saving potentials and for the selection of buildings most suitable for EPC projects (see also the previous slide).  (7) Agreed measures, if confirmed on the basis of fine analysis performed by the ESCO are implemented during the preparatory phase of EPC contract implementation (prior to the commencement of the guarantee period). (6) Procurement procedures have to follow EU and national public procurement rules.    (9) Continuous monitoring and verification of actually achieved savings (compared to the baseline) takes into consideration external influences (weather conditions, building use, user behavior, newly installed energy consumers etc.). Transparent calculation methods have to be provided in the EPC contract in order to avoid unnecessary debate. (4) For each building taken into consideration, rough analysis of building conditions and saving potentials has to be performed in order to provide a sound basis for the development of tendering documents.  (6) Data given and assumptions made on the basis of the rough analysis performed during tender preparation have to be verified at the first stage of EPC contract implementation.   P R O C E S S E S Source of the underlying chart: Transparense.eu

  16. Strategy development (1) This basic information was gained during on rough analysis performed at the pre-tendering stage.  Most important question is whether the building owner should implement the project on its own (budget-financed), or via an EPC (ESCO-financed). (2) If budget funding is possible for the entire project cost, there are still important potential benefits of EPC to be taken into consideration (e.g. transfer of risk, mobilization of ESCO’s technical know how and service capacities). (3) Public building owners are always obliged to go for the “most economical option”. Therefore, permitting of EPC projects in public buildings is often depending on the proof of economic advantages of EPC projects compared to traditional (owner-directed) public investment projects for the building owner (additional benefits are often not taken into consideration by permitting authorities). Although this has been proven already in many completed EPC projects in Europe in ex-post evaluations, major barriers for the permitting of EPC projects may still occur from:- a lack of permitting authorities trust in EPC business models –- a lack of experience in the comparative assessment of EPC projects -- a lack of a life-cycle-cost perspective in public investment planning, and –- a lack of accepted methods for such a comparative assessment when performed ex-ante during permitting procedures – It is therefore recommended to study the national budget laws and regulations carefully in advance in order to make sure that the results of comparative assessment of EPC project economics are finally accepted by relevant permitting authorities.  (4) The lack of own budget for the financing of investments in EE improvements is still the major incentive for many building owners in emerging ESCO markets to make use of EPC business models.  

  17. Role of local facilitators  (1) As most of the public building owners in Europe have neither and experience with EPC projects, nor the necessary technical know-how and capacities to develop EPC projects on their own it is recommended to involve qualified and experienced local facilitators acting at all stages of EPC project development, implementation, monitoring and verification on behalf of the public building owner. The cost for the services provided by local facilitators are usually not included in the EPC contract, but paid on the basis of separate service contracts. This allows the contracted facilitators to act, independently from and ESCO, solely to pursue the interest of the public building owner. Local facilitators shall support all process steps of EPC project development Local facilitators may be: • Local or regional energy agencies • Engineering offices • Legal advisers • Architects • Economists They should have a sound knowledge and understanding of: • Techniques and economics of EE in buildings • Public procurement procedures and codes of conduct • EPC concepts and business models Local energy agencies, if financed by municipalities’ membership fees may sometimes be involved without any tendering. Contracting of commercial local facilitators has usually to follow standard services procurement procedures.

  18. Scope of rough analysis of the current situation of the building and existing energy saving potentials (1) This rough analysis has to be performed at a very early stage of the project development process providing among other things the basic information needed for the compilation of the tender document. This rough analysis has to be verified by the contracted ESCO during the first phase of project implementation.  (7) Deep renovation of a building (EPC plus) requires comprehensive analysis of all building components, in order to allow for developing an outline of a comprehensive refurbishment program for a building, which may be discussed e.g.in competition to concepts for the construction of a completely new building instead.  (2) The scope of the rough analysis has to be adjusted to the complexity and ambition of the intended EPC project. Scope of the assessment of saving potentials (bottom-up analysis): Rehabilitation needs and saving potentials related to the deep renovation of the entire building, including walls, windows, roofs, structures, basements, installations, technical facilities etc. Rehabilitation needs and saving potentials related to energy supply systems and energy consumers, including rehabilitation potentials. Saving potentials resulting from an evaluation of energy consumption data, energy controls, energy management, and user behaviour without any major investment planned. Building type, year of construction, shape, size, type of use , structural characteristics, installed technical facilities etc.  EPC PlusEnergy management services & Rehabilitation of energy supply systems and energy consumers& Deep renovation of building envelope, structures, ínstallations, facilities,interiors etc. (6) In most of the EPC projects (usually developed on the basis of EPC basic business model) the analysis is focusing on the identification and assessment of fast-paying energy saving measures creating a relatively high energy saving effect per invested amount. This may include the improvement. Rehabilitation, or replacement of outdated and inefficient energy supply and distribution infrastructure in a building. Many projects include also a fuel switch e.g. from decentralized heating to district heating, a switch from heating-only to combined heat and power generation units, or afuel switch from fossil to renewable energies. Additional measures like e.g. thermal insulation of hot spots, may also be of interest.  + EPC basicEnergy management services & Rehabilitation of energy systems (5) Rough analysis for the preparation of an EPC light project may focus on the assessment of energy saving potentials related to improved energy controls, facility management, management of building use and user behavior without any major investment. +  EPC EPC lightEnergy management services Basic information on the building (4) The basic information on the building is required as the basis for the planning of any kind of EPC project. (3) A checklist for on-site inspections (rough analysis) performed during the preparatory phase of an EPC project is available for free download here. +  

  19. Two-stage negotiated tendering procedure (based on EUROCONTRACT project development models) (1) Practitioners recommend using the two-stages approach for the tendering of EPC projects, because : • Project preparation effort is relatively little prior to entering into the tendering stage • A major share of the project planning cost is transferred into the contract scheme and may be included in the services covered by EPC fees. • Detailed planning is performed by the ESCO during first contract phase. • Little up-front cost are to be paid by the building owner.  (2) The fist step in the preparation of tendering procedures should always be the contracting of a local facilitator supporting the public building owner during the tendering process and beyond. (see also slide 17)  Setting up of project control committeeSelection of buildings * According to national legislation a minimum number of bidders and/or received bids may be requested at first and/or second stage of the tendering process. Contracting local facilitators Project preparations recommended (3) Rough analysis of the building conditions and existing energy saving potentials provides the basic input for the tender dossier. Evaluation of Building dataDetermination of energy costs baselineDetermination minimum saving guarantee requested  (4) At least 3-5 ESCOs (if no other stipulations made in national law) should be invited to submit their tenders. If more than 5 ESCOs submit their applications, transparent selection criteria must be applied, such as e.g. : Qualification criteria, for example: • Economic capacity of the ESCO measured in turnover in energy services and in particular in EPC. • Number and relevance of (up to 5) own reference projects based on ESCO/EPC business models. Eligibility criteria, for example: • Professional or trade register extract • Proof of liability insurance (with minimum coverage level) • Legally required licenses and certificates • Corporate structure (legal status, statutes, shareholders) • Declaration concerning payment of legal taxes and duties • Number of employees (e.g. during the past 3 years) • Economic, technical, and financial capacities. Additional criteria, for example: • Commitment to the European EPC Code of Conduct Clear information on the selection criteria and ratings must be included in the tender dossier, resp. in the Call for Expressions of Interest. (5)Proposed election criteria for the identification of best initial tenders: PROPOSAL A (Source KEA) Project concept (weight 50%) • Assessed may be the quality and comprehensiveness of measures which were not declared to be mandatory. (Tenders which do not provide all mandatory measures will not be further evaluated.) Net present value (NPV) of guaranteed savings (weight 20%) • NPV of guaranteed savings achieved during a standard period of e.g. 20 years (fixed prices, fixed discount rate) Net present value (NPV) of net income of building owner (weight 20%) • Difference between the NPV of guaranteed savings and the total expenses of the public building owner (EPC fees etc.) during a standard period of e.g. 20 years (fixed prices, fixed discount rate) CO2 emission reduction in tons/ y (weight 10%) Compilation of tender dossierProject-specific adjustment of the EPC contract template Publication of contract noticeExpression of interest from ESCOs Selection of 3-10 qualified bidders (short list)*  Cancellation of the tendering procedure if no qualified bidder Invitation to tender, rough analysis, award of contract Request for tenders Supporting the build owner (project control committee), or acting on its behalf Tender preparation based on rough analysis and submission by ESCOsVetting and assessment of received bids*Negotiations & selection of most economic offer(s)*  Cancellation of the tendering procedure if no economic offer (6)Subject of negotiations with ESCOs may be, for example: Extent and quality of the designed measures Preserving requested the parameters of internal environment, observing the existing standards and laws, compatibility with the existing equipment Time schedule of activities Calculation of guaranteed savings in referential and real prices Determining the reward for the applicant, and the share of the contracting entity on extra savings Contracting entity requirements, call to adjust the tender  Contract stage 1: Project planning contract Stage 1: Fine analysis with regard to energyDetailed validation of potential energy and cost savings Comparison of results, final decision of client Fine analysisStart of Stage 2 of contract Cancellation of the tendering procedureCompensation for planning cost Non-confirmation of rough an analysis, or confirmation, but decision against EPC (7) Stage 2 of the contract starts only if the fine analysis confirms the assumptions made during tender preparation on the basis of previous rough analysis. Contract Stage 2: Implementation of EPC 

  20. Single-stage negotiated tendering procedure(based on EUROCONTRACT project development models)  (1) Single-stage tendering of EPC projects is possible e.g. if so required by national law.  (2) Services of local facilitators during tender preparation have to be more comprehensive * According to national legislation a minimum number of bidders and/or received bids may be requested. Setting up of project control committee / Selection of buildings Contracting local facilitators recommended Project preparations Evaluation of Building dataDetermination of energy costs baselineDetermination minimum saving guarantee requested (3) The tender dossier must be very detailed and specific in technical and economic terms. Rough analysis is not sufficient as the basis for a tender dossier in a single-stage tendering of EPC projects. Therefore the tender preparation cost for a single-stage tendering are usually higher than for a two-stage tendering process. Tendering procedure may however come to an earlier end (contract close). Compilation of tender dossierProject-specific adjustment of the EPC contract template  Publication of contract noticeExpression of interest from ESCOs Selection of 3-10 qualified bidders (short list)* Cancellation of the tendering procedure if no qualified bidder among expressions of interest Request for tenders Supporting the build owner (project control committee), or acting on its behalf Tender preparation by ESCOsincluding:Inspection of the buildings & validation of building dataRough analysis with regard to energy situation of the buildingDetermination of energy and cost savings potentials Invitation to tender and award of contracts Presentation of bids by ESCOsEvaluation of bids*Invitation of best bidders for contract negotiations Contract negotiationsSelection of the most economic offer and comparison with non-EPC options Cancellation of the tendering procedure if no economic offer, or if decision against EPC Signature of the EPC contractPlanning, guarantees, implementation,

  21. Tendering proceduresTypical timeline (two-step procedure – experience of KEA)  (2) This example represents experience gained on the German market. How long lead times of EPC project may actually be in advance to the start of compilation of tender documents may depend on political and permitting procedures, which an EPC project may have to undergo under specific national and local conditions prior to the launch of the call for tender. This may vary depending on the local political situation as well as on the existing legal framework. Thorough investigation of the political will to launch EPC projects as well as of the legal and administrative framework conditions (permitting needs and procedures) is recommended prior to investing in the development of EPC projects. (1) Project development from the compilation of tender documentsof a building to the commencement of the guarantee period may take 1-2 years. This long lead time must be taken into consideration in public building owners’ investment plans. 

  22. Minimum contents of tender documents (1) A standard document on public tenders for EPC projects was published by the European Transparense project in 2011, which can be reviewed here.  • Key requirements • Minimum share of savings on the energy consumption/energy costs • Obligatory and/or recommended energy efficiency measures • Information whether and under which conditions the ESCO is required to provide financing • Deadline for the expiration of EPC contract • Formal requirements for tender • Organisational aspects • What tasks should be carried out by the ESCO and by the client? • Contract terms and conditions • Exact definition of the contractual relationship • Technical aspects • Description of the buildings, • Energy statistics (copies of invoices, and data on energy consumption in technical and monetary terms min. 3 years back ) • Calculation method for a baseline energy consumption • Operation times, equipment, building use, requirements (temperature, ventilation etc.) • Conditions of energy system and energy management in place • A sample of tender documents or an EPC project was published in WORD format in 2013 by the Irish Sustainable Energy Authority SEAI, which can be reviewed here.

  23. Major components of EPC contracts (1) A standard document on EPC contracts was published by the European Transparense project in 2011, which can be reviewed here.  • Guarantee of savings • Volume of investment • Definition of a reference scenario (baseline) of the future energy consumption. • Obligation of the ESCO to provide a report on yearly savings evaluation. • Responsibility of the ESCO for design and implementation of the energy saving measures. • Obligation of the client to provide proper conditions for realization of energy saving measures. • Planned duration of installation of the investment • Way of transfer of the installed energy saving technologies to the ownership of the beneficiary. • Means of payment for the services and savings. Usually these are paid as a monthly fixed advanced payment agreed by both parties. • Declaration of the purpose of operation of the facility on which the Energy Performance Contract is effectuated. • Duration of the contract. • Method of recalculation of the guaranteed savings in case any of the input parameters differs from the presumptions defined in the reference (baseline) energy consumption scenario

  24. Calculation of baselines (2) Energy bills are a feasible base for baseline calculation due to their official, independent and testable character. They may be used as follows: • Collect all energy bills for each building with consumption in the baseline year, copy them for the tender documents (ESCOs will need them before final approval of the baseline). • List meter by meter, building by building in one data sheet. • Note extra information (provider, meter number, factors, date of fitting, extra meters..) in the data sheet. • Compare to own meter readings for verification. (1) A model appendix for an EPC contract with calculation instructions for the Determination of Energy Costs Baseline, the Amount of Savings and the Remuneration was published by the Berlin Energy Agency, which can be reviewed here.  Step I:Collection and list of invoices for energy consumption  The last completed calendar year (1st January – 31st December)preceding the EPC project is usually used as the reference year (baseline year). Alternatively, in order to make sure that the reference year is representative regarding energy consumption, the average consumption value of the three last completed years maybe defined as baseline consumption. The calculation methodology has to be defined in the EPC contract. (3) Corrections may be requested with regard to: • Adjustment of billing periods to reference year • If the billing period (100 days billing period) exceeds the reference year (only 60 days of reference year covered by billing period), correction may be calculated as follows: • For electricity consumption: kWh baseline = kWh bill x 60 days/100 days • For heat consumption: kWh baseline = kWh bill x Σ (median temperatures) 60 days / Σ (median temp.) 100 days • Elimination of the influences of exceptional weather conditions: It is very common to use the average consumption of the last three years as the baseline in order to eliminate influences of short-term weather events. • Normalization of the utilization of the building: If, e.g. only 70% of floor space is used/heated during the baseline year, but the entire building is planned to be used/heated in the future, consumption metered for the baseline year should be corrected accordingly. Step II: Correction for the reference year Fuel/heat consumption Electricityconsumption  Climate adjustment Utilization correction kWh Heat consumption kWh Electricityconsumption (4) Prices correction: Reference prices are fixed for the whole EPC period to secure a constant calculation basis for investments. • List prices for each building/meter (may have different prices). • Take into account consumption and related fix prices (connection power). • Metering prices, basic prices, which cannot be influenced by the ESCO may be left out of the calculation • If necessary give a description of the price system in a comment Usually, reference prices are the actual prices paid during the reference year. Step III: Prices correction  (6) Part of the baseline documentation, beside its calculation, are • Information about work time (opening hours for public buildings, work schedule, class schedule in schools), • Scheme of yearly events, • Information about facilities and technical equipment per building • Number of employees, pupil, students, hospital bed etc. In summary all equipment and activities in baseline year should be documented as a official part of the tender documents and EPC contract 5) Baseline (€) = (kWhheat * Reference priceheat + kWheat * ReferencepricekW + Fixpriceheat) + (kWhelectr * Reference priceelectr + kWelectr * ReferencepricekW + Fixpriceelectr) Baseline is calculated net – exclusive of VAT, VAT is just rated per each yearly accounting. Verification / plausibility check : Comparison with other years / benchmarks / own meter readings  Step IV: Baseline calculations Step V: Baseline documentation 

  25. Measurement and verification of savings (1) A model appendix for an EPC contract with calculation instructions for the Determination of Energy Costs Baseline, the Amount of Savings and the Remuneration was published by the Berlin Energy Agency, which can be reviewed here.   Starting point:Collection and list of invoices for energy consumption (7) The ESCO has to provide a proof of saving based on energy bills for the contract buildings. It has to determine the adjusted net amount of saving actually achieved. The settlement method is analogous to that for baseline determination.  (2) First, the energy consumption from different bills and meters are allocated to the settlement period (usually a calendar year) to adjust for different numbers of days, if necessary.  Step I: Day adjustment (8) (3) Existing technical standards (e.g. German VDI 2067) the annual climate is characterized for example as the sum of the degree days. This has to be defined in the contract as the reference value for the adjustment for the reference year. The current annual sum of the degree days is then used to adjust the heat consumption (space heating share, e.g. 90% in schools) for the respective settlement period. Data on regional degree days per period may be investigated here.  Fuel/heat consumption Electricityconsumption (9)   Step II: Climate adjustment (10) (4) If the utilization changes in a contract building, related changes of energy demand are to be determined and assessed under cost aspects. The client has to give notice in due time of any change of use. Methods of calculation for the most common changes in usage can be provided with the contract or the assessment is done based on existing technical rules and standards. If applicable the EPC contract should also contain appropriate calculation rules to account for changes of energy sources, or the use of CHP units in the settlement.  Step III: Utilization adjustment kWhElectricityconsumption kWhHeat consumption Adjusted amount of savings Corrected energy cost Baselinecost = - (6) The energy costs of the settlement year determined in the above listed four steps are deducted from the baseline. • The difference between the two is the objective energy cost saving achieved in the settlement year. • The values have to be determined for each individual building. • After summing up the values for all buildings, the total remuneration is determined as the sum of basic remuneration for the guaranteed saving achieved and (if achieved) the proportional bonus remuneration for saving beyond the obligation.  Step IV: Price adjustment (prices of baseline year)  (5) Finally, the energy costs of the respective settlement year are calculated from adjusted consumption values of the supply bills and fixed reference prices.

  26. Further reading The following publications are recommended for further self-studies. If any of the links is not active any more, these publications may be researched on the world wide web. • Energy Services Directive; ESD: Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services and repealing Council Directive 93/76/EE • European Energy Services Initiative (EESI 2010): Standard EPC documents; I. Definitions; EESI IEE/08/581/SI2.528408 • Berliner Energieagentur GmbH, SCHLAWIEN – NAAB Partnerschaft ed. (BEA/NAAB): Energy Saving Guarantee Contract - Appendix 8. Calculation Instructions for the Determination of the Energy Costs Baseline, the Annual Amounts of Savings and the Remuneration • European PPP Expertise Centre (EPEC): Guidance to Energy Efficiency in Public Buildings • Institute of Building Efficiency – An Initiative of Jonson Controls (Institutebe 2010): Energy Performance Contracting in the European Union: Creating Common “Model” Definitions, Processes and Contracts. Issue Brief, September 2010 • Institute of Building Efficiency – An Initiative of Jonson Controls (Institutebe 2011): Measurement and verification of energy savings. Issue Brief, November 2011 • Netherlands Enterprise Agency (RVO): Guideline for Tenders for Energy Performance Contracts • Sustainable Energy Authority of Ireland, (SEAI 2014): Energy Performance Contracts Handbook. July 2014

  27. Further reading • Sustainable Energy Authority of Ireland, (SEAI Draft): A Guide to Energy Performance contracts and Guarantees. Draft for Consultation • Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense 2014): D3.1 Energy Performance Contracting Manual for EPC Beginner Markets. December 2014 • Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense May 2011): Standard EPC Documents – IV. Baseline and verification of energy savings (May 2011) • Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense May 2011/2): Standard EPC Documents – Questions and Answers (May 2011) • Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense January 2011): Standard EPC Documents – III. Public Tender (January 2011) • Transparense IEE Project “Increasing transparency of Energy Service Markets” (Transparense January 2011/2): Standard EPC Documents – V. Energy Performance contracts (January 2011) • UK Department of Energy & Climate Change (DECC 2015): Guide to Energy Performance Contracting Best Practices. January 2015 • UK Department of Energy & Climate Change (DECC 2012): Contract Guidance Note & Model Contract Energy Performance Contract (EPC) • U.S. Environmental Protection Agency (EPA; 2007), ENERGY STAR Buildings: Introduction to Energy Performance Contracting. Prepared by: ICF International National Association of Energy Services Companies, October 2007

  28. Imprint This document/file is issued by the consortium formed for the implementation of the EnPC-INTRANS project under Grant Agreement N° 649639 by the following partners: AE3R - Energy Efficiency and Renewable Energy Agency Ploiesti-Prahova (Romania)e-code (Slovakia)EIHP - Energy Institute Hrvoje Požar (Croatia)FIATU - Finance & Technology Ukraine (Ukraine)GIZ - Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (Lead Partner; Germany)KEA - Klimaschutz- und Energieagentur Baden-Württemberg (Germany)CRES - Centre for Renewable Energy Sources and Saving (Greece)KSSENA - Energy Agency of Savinjska, Šaleška and Koroška Region (Slovenia)SCTM - Standing Conference of Towns and Municipalities (Serbia)ZREA - Zemgale Regional Energy Agency (Latvia) Lead Partner for the compilation of this document: e-code Contact: Radoslav Vician, Slnečná 1164, 963 01 Krupina / Slovakia, rado@e-code.sk Authors of this document: Catalin Csaszar (AE3R), Eva-Maria Geiger (GIZ), Miodrag Gluscevic (SCTM), Fotini Karamani (CRES), Olena Kotlyarska (FIATU), Signe Martinkrista (ZREA), Niko Natek (KSSENA), Konstanze Stein (KEA), Mateija Vajdic (EIHP), Radoslav Vician (e code), Bruno Wilhelm (GIZ) Disclaimer: Neither GIZ nor any other consortium member nor the authors will accept any liability at any time for any kind of damage or loss that might occur to anybody from referring to this document. In addition neither the European Commission nor the Agencies (or any person acting on their behalf) can be held responsible for the use made of the information provided in this document.

  29. Thanks a LOT For your PARTICIPATION IN THIS E-LEARNING PROGRAM! And good success in your future efforts promoting energy performance contracting in public buildings! Lets’s meet at: www.encp-intrans.eu

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