An introduction to Energy Performance Contracting in the UK: - What is an EPC - Benefits & Challenges - Energy efficiency financing - What is the process - How to select your ESCo - The importance of Monitoring and Verification

1. Energy Performance Contracting (EPC)
Making energy savings work for your organisation

2. About Envido
www.envido.co.uk

3. Agenda
1.Introduction: what is and why choose an EPC, key benefits
2.Financing options
3.Q&A
4.From feasibility to guaranteed savings – the process
5.Select the right Energy Services Company (ESCo)
6.Q&A

4. What have these buildings got in common?
Empire State Gwent Hospital Strand Palace Hotel
38% saving 54,000t CO2e p.a. £125,000 p.a.

5. EPC can cover all projects
Lighting replacement, Roof Insulation
control systems & LEDs
Ventilation fans Building
Management Systems Damper control
Solar gain
minimization
Wall Insulation
Zone
temperature
control Voltage
reduction
Chiller
upgrade/replacement &
absorption cooling
Plug load VSD motor control
management On-Site Technical Resource
Management
High efficiency motors Boiler upgrades, controls
Combined Heat & Power

6. EPC market & drivers
Origin - US 1990s federal bodies
Exponential growth in North £m
160
America, EU & UK following
140
120
Drivers
100
– Energy price forecasts
+17% by 2020 80
– CRC liability 60
– Availability of internal capital 40
funding 20
0
2006 2007 2008 2009 2010 2011 2012
Source: BSRIA; Review of the European Performance Contracting Market; December 2006, Frost & Sullivan, Credo research and analysis

7. What is an EPC?
 Comprehensive set of energy efficiency
measures
 Accompanied with a savings guarantee
 No up-front capital investment required
 Benefits
• Permanently lower energy costs
• Permanently lower GHG emissions costs
• Accelerated project implementation
• Shorter procurement timescales
• Lower risk

8. Standard EPC Model
Saving guaranteed – no repayment if target not met
£
Guaranteed
savings Guaranteed
Energy savings
savings
Your repay improvement
Energy
and annual Your
O&M costs Energy annual Energy Your
costs today and costs and annual
O&M during O&M costs
costs EPC costs after
EPC
Before During After
EPC EPC EPC

9. How is this possible?
 Future energy savings finance upgrade
 Building improvements generate sufficient
energy savings to finance project costs
 ESCo guaranteed energy and cost saving
opportunities identified
 Up front technology and equipment cost
borne by ESCo, then offset by future energy
savings
If your building wastes energy, you already have the
budget for an EPC!!

10. EPC financing

11. About Envido
Illustration of shared savings structure
• Financial Solution - We structure a financing solution to address the up-front capital costs of installing the energy efficient systems and
equipment. We take our returns out of the savings achieved through the project, therefore the risk sits with us, and not with the client.
• Shared Savings Mechanism - During the contract term, the client shares in the savings generated from the installation of the energy efficient
systems and equipment, ensuring they are in a cash positive position from Day 1.
• Long Term Benefit - At the end of the contract term, the client benefits from 100% of the savings achieved.
Example – A Public Sector Organisation
Typical Impact on Energy Bills During and After Project
During Project After Project
• A public sector organisation with an annual energy bill of £1m
reduces its electricity, water and gas bills by 25% by
implementing a variety of energy efficiency interventions
including lighting, insulation, plant upgrades, voltage
optimisation and building management systems (BMS).
• During the first 7 years, the public sector organisation benefits
from positive cash flow of £50,000, even after the ESA
payments are taken into account. In year 7 and beyond,
£250,000 in annual savings go straight to the bottom line.
www.envido.co.uk

12. Commercial structure:
Energy Performance
Contract, including O&M ESCO
and M&V and
Performance Guarantee
(See note 3)
Shared Savings
Payments Project Capex
SPV
Equity & Debt
Investment
Building Owner Energy Services
Agreement
Return Investors
Features:
1. The Building Owner enters into an energy service agreement (ESA) with the Special Purpose Vehicle (SPV) under which the SPV funds and
implements the energy efficiency project in return for a share of the resulting energy savings.
2. The SPV sub-contracts the implementation to the ESCO through the energy performance contract (EPC) and its Investors provide debt and equity
capital to fund the project capex and other costs.
3. The EPC may incorporate the performance guarantee, on-going O&M and M&V services; alternatively some or all of these may be provided directly to
the Building Owner. The other terms of the EPC are designed to be back-to-back with the ESA, leaving the SPV with only the obligation to fund the
project and the ESCO with the obligation to deliver the project.
4. The Building Owner has the right to terminate the ESA at any time after implementation, for the present value of the future cash flow streams. In such
a case the O&M services contract and Performance Guarantee would survive such termination.
5. SDCL has worked with its professional advisers to design its ESA to maximise the likelihood that such projects may qualify for off balance sheet
treatment in the UK (for the Building Owner).

13. Case study – the strand palace hotel, the 6th largest hotel in london
The Challenge
•The Strand Palace hotel, situated in the heart of the West End, is the sixth largest hotel in London, with 784 rooms and an overall
capacity of 330,000 square feet.
•The hotel had received a Green Tourism award from ‘Green London’. However, the management team were keen to make a
further commitment to reducing their carbon emissions while also reducing their operating costs.
The Solution
•SDCL and its technical partners worked with the Strand Palace Hotel management team to identify energy savings opportunities
around the hotel, verify the opportunity, the costs and the benefits of the installations and design a programme of works.
Overview •A competitive tender process has been run for Energy Services Companies (ESCOs) to install and maintain the equipment and
systems, ensuring energy savings are achieved at the lowest cost and to the highest performance standards.
Programme LED lighting installations, •SDCL has designed a financial solution for the project whereby the up-front capital costs of installing the energy efficiency
of works voltage optimisation, the equipment and systems could be financed out of the savings achieved. The project is expected to be able to generate a sufficient
installation of a building level of savings through reduced energy and maintenance costs and other benefits to cover the cost of implementing the project
management system within approximately 4 years. Once an energy performance contract has been awarded to the winning ESCO, SDCL will then be
and boiler plant in a position to arrange finance for the project in return for a share of the savings achieved.
replacement.
Results
Savings Overall, the project is
expected to save in •The programme of works is due to begin in Q1 2013, and will include LED lighting installations, voltage optimisation, the
excess of 25% of the installation of a building management system and boiler plant replacement.
hotel’s current energy •Overall, the project is expected to save in excess of 25% of the hotel’s current energy consumption, with estimated annual
consumption, with savings expected of £125,000 per year.
estimated annual •The project will enable the Strand Palace Hotel to reduce their energy costs and improve their environmental performance,
savings expected of without the investment risk.
£125,000 per year.
Other benefits for the Strand Palace Hotel include:
Outcomes The project will enable
the Strand Palace Hotel
•A turn-key solution based on in-depth knowledge of the whole process from project definition to delivery and finance; SDCL’s
to reduce their energy
expertise saves both operational and management time for the hotel
costs and improve their
•Access to a dedicated professional team focused exclusively on delivering energy efficiency opportunities
environmental
•Solution tailored to the specific needs of the building
performance, without the
•Reduced operating costs and improvements to the hotel’s asset value
investment risk.
•Frees up capital budget for the Strand Palace Hotel to use on refurbishing and upgrading facilities as part of their 5-year capital
plan.

14. Advantages of EPC
 Risk Reduction
– Guaranteed savings
– Guaranteed min level of performance (and savings!!!)
– Performance and financial risk borne by contractor
– Single contractor
 Financial
– Can be self-financing - no capital outlay
– Long-term reduction to operating overhead
– Can be off balance sheet
– Low cash flow impact - repayment aligned to savings
 Environmental & reputation
– Hit energy and carbon reduction targets met
 Deeper energy and carbon reduction possible
– consider projects with longer payback
An EPC guarantees predictable energy (and cost) savings

15. EPC challenges
 An EPC is a complex project
– Multiple decision-makers:
boards, facilities managers,
“fiefdoms”
– Strong Leadership Required –
champion needed to drive project
– Long, involved feasibility and
assessment
– Low awareness of EPC
– Requires project management
The same applies when managing
multiple, smaller projects but less risk
involved

16. Developing
an EPC

17. What to look for when choosing an ESCo
 Can they capture the maximum level of savings
• Guarantee, auditing, M&V, financing, project
management, design, construction/installation,
commissioning
• Able to deliver a wide scope of measures (HVAC,
lighting, renewables, controls, plant upgrades &
specialty systems relating to your facility)
 Ensure measured, sustained savings
• Rigorous measurement and verification process (with an
up-front plan) to ensure ongoing savings

18. What to look for when choosing an ESCo
 Do they combine technical &
practical expertise
• Able to design and implement
• Understand practicalities
• Expertise/experience in similar
building/sector using measures you
anticipate
• Review a sample audit
 In-house capability
• Energy assessors - identify and verify
projects
• Engineers design, install, commission
and provide ongoing maintenance
• Project managers (PRINCE2 )

19. The importance of measurement and verification
 Evaluate performance of installed ECMs
 Verify the energy savings guarantee
If guarantee is not met, M&V determines the
energy savings shortfall. Envido repays the
financial value to you.
IPMVP – the global energy
verification standard

20. When to establish M&V procedures
 Preliminary plan established at
feasibility stage, then developed at IGP
 Establishes any need for baseline
measurements to establish energy use
profile of plant or systems.
For example:
IPMVP method B - single chiller – isolated
retrofit requires pre and post
measurement
IPMVP method C – whole building
measurement – with several ECMs &
10% target, utility bill used for baseline IPMVP – the global energy
verification standard
period so only post retrofit values
required
Remember: If you don’t understand the M&V plan don’t sign it!!!

21. About Envido
 0207 199 0090 |  info@envido.co.uk |  www.envido.co.uk | @envido
Find out more about Energy Performance contracting
www.envido.co.uk