FINANCIAL AND ECONOMIC ASPECTS OF ENERGY SAVING WITHIN

"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 Oy Finland Why not more ESCOs?

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

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 ESCOacitivities 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

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”

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

Energy Agency of Southwest Finland: Municipalities and ESCO-services –an interview survey Obstacles • no clear instructions for arranging competitive bidding for ESCOcontracts • 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

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

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

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

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

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

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

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

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

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

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

Motiva’s role in 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 ESCObusiness • To disseminate information of exemplary ESCO projects

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

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

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

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

Modes and capacities of ESCOs