Day 5 :Tunisian Experience in Promoting the Role of Energy Service Companies (ESCOs): Experience and achievements of CRA2E

Cabinet de Réalisation des Audits et
Etudes Energétiques
CRA2E

Tunisian experience in promoting the role
of Energy Service Companies (ESCOs)

Experience and achievements of CRA2E
Presented by :
Hamadi Sayah
International Energy Expert

MAY 2010

Centre Molka Escalier N°15 El Manar II – 2092 TUNIS
Tél: 00 216 71 886 177 – Fax: 00 216 71 885 010
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Site Web: www.cra2e.com– E-mail: cra2e@yahoo.fr

CRA2E
ETUDE CONTRÔLE & PILOTAGE

Introduction
In the last twenty years, a potential solution to help get over a
good numbers of barriers to energy efficiency projects
implementation have come from a approach that is promoted by
companies that call themselves Energy Services Companies, or
ESCOs.

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OUTLINES

o What is the ESCO?
o ESCOs history in the world?
o Tunisian experience in energy efficiency?
o Developing of ESCO activity in the country and role in
promoting energy efficiency ?
o Financing resources of Tunisian ESCOs?

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ESCOs can be defined as company that offer integrated
services (technical and financial) for the implementation of
energy efficiency project and that provide a guarantee that
the energy savings generated by the project will be
sufficient to reimburse all the implementation cost over a
certain period of time defined by contracts.

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- The ESCO concept started about twenty (20) years ago in
United States, Canada and England, and expanded rapidly in
other part of the world, like Western European countries in the
mid 1980s and in some Asian countries during the early 1990s.

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-In developing countries and with the ones with Economies in
transition though, this concept has only been introduced in
recent years, mainly du to the pressure that the
environmental community is putting worldwide to have all
countries participate in a cleaning up effort to limit the
climate change process that is currently underway and that
started to show its effect pretty strongly recently.

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- Countries like Hungary, Czech Republic, Egypt, Hungary,
Poland, Thailand have seen International Financial
Institutions financed all type of projects to support the
development of ESCO and ESCO.
- Furthermore, governments of countries like Brazil are
implementing more global strategies dedicated to the
development of ESCO on their territories.
- Some other countries benefited for an introduction on the
ESCO concept directly from the private sector supported by
International ESCO operators, like United Arab Emirates,
Jordan, South Korea and Tunisia.
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o The Tunisian government estimates the country’s energy
saving potential at a cumulated 80 Mtoe until 2030. In recent
years, the Tunisian government has made considerable
efforts to reap this potential.

o These efforts were stimulated by a growing energy bill which
currently covers 14% of the GDP compared to 10% in 2004
and less than 7% in 2000.

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o Escalating expenditures for energy are mainly due to a rapid
growth of energy demand.

o In 2007 industry (36%) and transportation (31%) were the
largest national energy consumers whereas the tertiary
(10%) and the residential sector (16%) as well as agriculture
(7%) accounted for smaller shares.

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o Energy efficiency improvements have led to a significant
decline of Tunisian energy intensity since the early nineties.

o On average, energy intensity was reduced by 2% per year
until 2007 with energy demand successively being decoupled
from economic growth.

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o At present, Tunisian energy intensity is at a level of 0.33
toe/$ 1000 compared to 0.84 toe/$1000 in Africa and a
global average of 0.29 toe/$ 1000.

Trend of Tunisian Primary Energy Demand. ANME (2009)
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o The Tunisian government has taken the following measures
to improve energy efficiency:
n National Agency for Energy Conservation
n Task Force on Large Energy Consuming Industries (IGCE)
n National Energy Conservation Fund
n Periodic energy audits and performance contracts
n Energy Performance Standards
n Cogeneration
n Promotion of solar water heating (SWH) systems

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n National Agency for Energy Conservation:
In 1985, the government established the National Agency for
Energy Conservation (ANME).
ANME is a public entity under the auspices of the Ministry of
Industry and technology with a staff of about 130 employees. It is
involved in the development and implementation of national
policies for energy conservation as well as studies and research
and development projects in the fields of energy efficiency,
renewable energy and energy substitution.

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n Task Force on Large Energy Consuming Industries (IGCE):
In 2005, Ministry set up a task force to identify energy saving
potentials of energy intensive industries and to deploy measures
for a rapid realisation of these potentials.
The task force comprises representatives of the National
Electricity and Gas Distribution Utility (STEG), ANME and national
and international experts.

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n National Energy Conservation Fund:
In December 2005, the national government set up a “National
Fund for Energy Conservation” (FNME) for financing energy
efficiency measures. FNME shall contribute to a 20% reduction of
energy demand by 2011; however, the baseline used for this
reduction goal is not clear.
In order to meet this objective, the fund subsidises 20% of all
energy efficiency investments undertaken by corporations, 70%
of energy audit costs, 20% of all solar energy investments and
50% of investments in renewable and efficient energy
demonstration initiatives.

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n Periodic energy audits and performance contracts:
Large energy consumers in the transportation and
tertiary/residential sectors consuming more than 500 toe per
year and industrial companies consuming more than 800 toe per
year are mandated to conduct periodic energy audits.
The government provides financial support for this purpose and,
furthermore, induces performance contracts to reap energy
efficiency potentials.
For the period from 2007-2011, the government’s objective is to
realise 200 energy audits and 300 performance contracts in order
to achieve energy savings of 943 ktoe.

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n Energy Performance Standards:
The government is supporting the establishment of energy
performance standards both for buildings and household
appliances. Several projects were completed or are ongoing.

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n Cogeneration:
In 2004, the government adopted a law to foster
cogeneration in Tunisia including a subsidized selling price of
electricity from cogeneration operations. ANME is conducting
a programme, which aims at removing barriers for
cogeneration by evaluating the national cogeneration
potential, conducting feasibility studies in the tertiary and
residential sector and improving the legal framework
conditions. From 2007 to 2011, the government plans to
install 110 MW of cogeneration capacity, achieving energy
savings of 85,000 toe.

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n Promotion of Solar Water Heating (SWH) systems:
Since the early 1980s, the national government and international
donors have made several attempts to promote the deployment
of solar water heating systems in Tunisia.
However, these programmes did not result in a sustainable
market deployment due to uncertain qualities of Tunisian SWH
systems and sudden breakups of subsidies.

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In 2005, a new programme named PROSOL (partnership
between the UN Environment Programme, STEG and Ademe)
was initiated to boost SWH capacity in Tunisia.
The programme includes two financial mechanisms: A direct
subsidy of 20% of the investment costs with a maximum of €
70; loans over five years with a reimbursement of the loan
through the electricity bill.
PROSOL has led to a major recovery of the national SWH
market and attracted new industrial operators and installer
networks.

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n Development of Energy Service Companies (ESCO) in Tunisia

This project encourages the development of energy service
companies (ESCOs) through the creation of a Revolving Fund.
ESCOs have the potential to enhance the use of energy efficient
equipment across the industrial, commercial, and transport
sectors by facilitating access to information, prospective
investors, and favorable financing arrangements.

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GHG Potential contribution of
emiss. Total invest. CDM
Project areas (Mdt)
reduce
(kTe-CO2) (Mdt) %

Energy saving and contract
programme in tertiary sector 1 984 55 9.5 17%

Water solar heating 4 651 678 22.3 3%
Public street lighting 1 080 95 5.2 5%
Energy saving and contract
9 820 275 47.1 17%
programme in industry
Wind energy development 29 028 738 139.3 19%
Biogas development 2 294 74 11.0 15%
Cogeneration development 18 943 548 90.9 17%
ESCO promotion 7 749 226 37.2 16%
Natural Gas substitution 6 045 590 29.0 5%
Flaring gas reduction in gas
and petroleum production 1 394 18 6.7 38%
sites
Total 82 989 3 297 380 12%

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o The potential and strategic role of ESCOs has been recognized
in ongoing efforts to restructure the energy sector in Tunisia,
and has been given prominent consideration.
o The Tunisian government is seeking investment partners for
the creation of a US$ 24 million Revolving Fund.
o Only a portion of this investment is being sought from potential
CDM investors, relative to the value of the carbon reductions
generated.

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o The Fund is designed to be self-sustaining, meaning that a
portion of the financial savings achieved through energy into
the Fund. The start-up for this project is envisioned for mid-
2002 and will be operational until 2020.
o Once the creation of the Revolving Fund has been secured, it is
expected that a number of new private sector ESCOs will
emerge – entirely independent of the new Fund - incentivized
by the realization that energy efficiency projects represent
new business opportunities in Tunisia.

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o The original idea of an Energy Service Companies or ESCO is
that an entity other than the energy supplier should identify,
design, finance, supervise and commission projects for a
client, to be compensated by a share of the energy savings
achieved over a defined period.
o The partition of savings is determined by a special contract
known as an energy performance contract (EPC).
o Actual practice varies widely; some ESCOs will finance the
project, others will organise finance.
o Implementation is not easy and there are relatively few
successful examples.
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o The name ESCO is sometimes also given to companies that
just provide consulting services, but do not enter into an
EPC.
o It is important to be clear what is meant, as the latter is a
much easier exercise than the former.
o Article 6 of the Law 2004-72 permits energy consuming
companies to sign contractual agreements with energy
service companies to achieve savings in energy use.

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o The Law defines energy service companies that engage with
energy users to make feasibility studies, manage, monitor
and finance projects within the facilities of the user and to
guarantee performance.
o The service companies must be approved by the Ministry of
Industry and technology.
o Many companies have since developed skills in energy
auditing and in feasibility studies for investment in energy
efficiency.

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o There is very little activity in the classic ESCO mode whereby
the ESCO supplies funds and the profits are shared through
an energy performance contract.
o The main limiting factor is the capital base of the companies
involved.
o They are mainly small companies and cannot raise the
capital to make large investments.
o Credit lines, whether concessional or not, do help much
because collateral is bound up in existing credits.

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q There are basically two types of contracts ESCO :
1. Shared Savings Contract: The client and the ESCO share the
investment of ECM recorded in the EPC.
2. Contract savings guarantees: The client finance all ECMs and
ESCO Ensures the achievement of expected results.

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PHASES of EPC Shared Savings Contract

Fin du contrat ESE

Mise en place des projets avec l’assistance
de l’ESE

Bénéfices ESE

Investissement engagé par l’ESE Honoraires ESE

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Fonds de garantie (FGEE)
Avis favorable de
SOTUGAR
la SOTUGAR

Avis technique

UGP/PEEI
Dossier de demande de garantie

CONTRAT
Client ESCO

Demande de prêt

Prêt Prêt
Banque Garantie

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Benefits granted to ESCOs
q Guarantee of loans granted by credit institutions to finance energy
efficiency projects in industry with the use of ESCO.

(75% of credit with a ceiling of U.S. $ 200,000);

q Aid for investments made with the use of ESCO
(10% with a ceiling of U.S. $ 100,000 );

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Guarantee Fund (FGEE)

o The FGEE guaranteed loans granted to the ESCO or Institution

o The FGEE involves essentially a dialogue between:
n ESCO
n SOTUGAR
n Institution
n ANME

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CRA2E MISSION
q Identification of projects eligible for an Energy Performance
Contracting “EPC” on the basis of energy audits realized by CRA2E
or other auditors
q Achievement of any additional studies and proposal a program of
Energy Conservation Measures “ECMs” for improving the level of
energy efficiency of the establishment
q Technical and economic Studies of ECMs and definition of the
return time of Investment

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q Development of EPC with guaranteed results
q Co-financing of projects with commercial or industrial
customers
q Assistance and monitoring of the implementation of ECMs
recorded in EPC
q Evaluation of results

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CRA2E’s ACHIEVEMENTS

CRA2E has signed 15 EPC with:
1. SOCIETE MAWASSIR – Industrial sector
2. SOCETE TUNISIENNE DE L’ACCUMULATEUR « Batterie NOUR » – Industrial sector
3. PATES ALIMENTAIRES WARDA – Industrial sector
4. BRIQUETERIE MODERNE DE BENI KHIAR – Industrial sector
5. BRIQUETERIE FARJALLAH – Industrial sector
6. BRIQUETERIE SIBHON – Industrial sector
7. BRIQUETERIE BKS – Industrial sector

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8. SOCIETE BJ - Industrial sector
9. SOCIETE BJ - Industrial sector
10. SOCIETE CRJ - Industrial sector
11. SOCIETE ADWYA - Industrial sector
12. SOCIETE BKZ - Industrial sector
13. SOCIETE BLC - Industrial sector
14. SOCIETE BB&MP - Industrial sector
15. OACA - Commercial sector

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SAVINGS GUARANTEED BY CRA2E « ESCO»
Consommation Potentiel of Energy
N° ETS %
TOE/year Conservation TOE/AN
1 BMB 6 168 2 123 34,4
2 SIBHON 862 252 29,2
3 ELMAWASSIR 2 099 289 13,8
4 WARDA 4 496 770 17,1
5 NOUR 1 587 280 17,6
6 FARJALLAH 3 192 - -
7 BKS 28 379 - -
8 BJ 6683 143 2,1
9 BJ 6683 785 11,7
10 CRJ 907 123 13,6
11 ADWYA 1671 353 21,1
12 BKZ 8275 843 10,2
13 BLC 23457 403 1,7
14 BB&MP 1133 263 23,2
15 OACA 9275 1571 16,9
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SAVINGS GUARANTEED BY CRA2E : 8 198 TOE/AN (7,8%)
TOTAL ENERGY SUBSTITUTED : 60 000 TEP/AN

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FUNDING OF PROJECTS
EPC Part
N° ETS FUNDING in TND Industriel ESE
1 BMB 300 000 220 000 80 000
2 SIBHON 184 000 129 000 55 000
3 ELMAWASSIR 320 500 305 500 15 000
4 WARDA 556 000 488 000 68 000
5 NOUR 238 000 228 000 10 000
6 FARJALLAH 374 000 342 000 32 000
7 BKS 1 041 000 869 000 172 000
8 BJ 585 000 0 585 000
9 BJ 396 000 246 000 150 000
10 CRJ 148 000 129 000 19 000
11 ADWYA 304 700 297 700 7 000
12 BKZ 862 000 590 000 272 000
13 BLC 1 590 000 1 208 000 382 000
14 BB&MP 359 000 314 000 45 000
15 OACA 1 025 000 980 000 45 000
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ACHIEVEMENT OF ECMs
Rate of
N° ETS Signature of EPC Project Type ECM ECMs Realized
Realization %
1 BMB 2006 Energy Efficiency 3 1 33
2 SIBHON 2006 Energy Efficiency 2 2 100
3 ELMAWASSIR 2006 Energy Efficiency 3 2 80
4 WARDA 2007 Energy Efficiency 6 2 33
5 NOUR 2007 Energy Efficiency 4 1 25
6 FARJALLAH 2007 Conversion 1 1 100
7 BKS 2007 Conversion 1 1 100
8 BJ 2008 Conversion 1 1 30
9 BLC 2008 Conversion 1 1 30
10 BJ 2008 Energy Efficiency 5 On Going
11 CRJ 2008 Energy Efficiency 6 On Going
12 ADWYA 2008 Energy Efficiency 2 On Going
13 BKZ 2008 Energy Efficiency 4 On Going
14 BB&MP 2008 Energy Efficiency 6 On Going
15 OACA 2008 Energy Efficiency 4 On Going
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ECMs REALIZED : 12
ECMs ON GOING :5
GLOBAL RATE : 67%
PAYBACK OF INVESTMENT : 28 mois

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Examples of ECMs realized by CRA2E:
1 - Recovery of hot air from the kiln to the dryer and installation of rapid
cooling
M
Recupération
Ventilateur air chaud vers
Ventilateur sechoir M
Fumée
Recyclage Ventilateur Ventilateur
à haute Refroidissement
1 2 3 4 5 6 recuperation
pression rapide
M M
3 M M 3
3 3

t° M
3

Saving : 60 TOE/year
Financial Gain : 12 000 TND/year
Investment : 20 000 TND

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2- Automatic Regulation of Kilin

Saving : 200 TOE/year
Financial Gain : 40 000 TND/year
Investment : 120 000 TND

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Benefits and constraints
from CRA2E Experience

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ADVANTAGES
An EPC has many advantages for the client:

o A global solution, one provider offering a full range of services
o This ensures an economical and efficient energy solution, tailored to the needs
o It can reduce, even eliminate, capital spending,
o The risks associated with construction are transferred to the contractor “ESCO”,
o Ensuring a stable price throughout the contract period,
o No problems or maintenance work
o A major advantage is that the energy service company is solely responsible, at
both technical and financial, in case of unpredictable events.

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EPC offers many benefits to contractors “ESCO”:

o Enhancing their image by demonstrating their skills in the following areas:
n Taking into account the interests of the client
n Rational use of energy
o Customer loyalty in the long term
o Enrichment activities of the company: the EPC is not an end in itself but a
means to promote energy conservation,
o Taking market share.

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DISADVANTAGES
Unfortunately, there are also disadvantages:

q EPC is not very common, both parties to the contract must demonstrate a
better organization
qThe projects require a significant investment and / or low energy savings
is not attractive either for the company which provides third funding or for
the client.
qIn most cases, the duration of the energy-performance contract exceeds
five years. This means that a long term commitment towards the ESCO. But
this point can be in the eyes of some, regarded as an advantage.

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o A great quantity of barriers related to the development of
ESCO activities though are still present in most countries.
The lack of knowledge of clients (clients education) about the
numerous and important benefits that it carries to put in
practical projects of energy efficiency and the difficulty to
achieve the financing of the same ones, constitutes the two
bigger obstacles to that development.

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o There is still a lot of barriers that will have to be addressed
in most countries to be able to benefit from all the potential
these organizations bring to the market in these countries
but we can hope that first the governments of these
countries will realize the great potential they bring with
there activities, both on the environment and economical
side, and that they will support through there actions the
creation and the expansion of this market.

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o The following table summarize the various barrier faced by
ESCO wanting to prospect a given market.
o An indication is given when the barrier is mainly applicable
to foreign investor wanting to invest in a country.
o If the barrier is manageable by the ESCOs by putting in place
appropriate internal procedure for client selection,
technology to use and risk control mechanism within the
contract.
o Finally, if the barrier is not manageable by the ESCO itself, it
is indicated by the world « external » in the table below.

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Category Barrier description Type of barrier
Availability of high efficiency equipment Manageable
Technological Cost of equipment in the market Manageable
Skills for design, installation, operation and maintenance Manageable
Local support for technical guarantee Manageable
Low energy rates External
Customer education Partially
Market access barrier Manageable
- Institutional market regulation External
Commercial - Institutional market budgeting procedures External
- Commercial market lenders Manageable
- Industrial process expertise Manageable

No reliable historic consumption data for client Manageable
Internal trouble External
Political Risk of nationalization of foreign assets Foreign
Foreign investment regulation Foreign

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Category Barrier description Type of barrier
Economic Exchange rate stability Foreign and
External
Contract enforcement delays Foreign and
Legal External
Complexity of performance contract Partially
Manageable

Income tax (in comparison to other countries) Foreign
Fiscal Capital repatriation rules
Fiscal treatment of dividend Foreign
Foreign
Unavailability of funding for long term
Financial Unfavorable conditions (high down payment, high interest,
collateral’s)

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How the government is supporting ESCOs, and this is an
essential issue for the success of ESCOs?

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o When analyzing the strategies used in countries that are
either in the process of developing or have successfully
developed the market of ESCO, it can be concluded that, in
most of the cases, the action of the governments was
fundamental and indispensable to accelerate the
development of this type of industry by creating a favorable
environment for their growth and by removing or reducing
some market entry barriers.

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o Programs that facilitates the access to the market
(information dissemination, demonstration programs) were
the most used form of support programs and their intend
was to accelerate the acceptance of the ESCO business
model by the clients.
o In countries were financing is very difficult to obtain, like
most developing countries and with countries with
Economies in transition, the development of a strong ESCO
industry necessitated a financing support structure to
permit the development of the first projects.

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o Most financial support mechanism put in place gradually
reduced their incentives to let the private sector develop
their own financing mechanism adapted for the performance
contracting industry.
o In conclusion, we can say that ESCO can certainly be
considered as one of the most interesting tools to help
implement energy efficiency projects, in all type of
countries, including the developing one s and the ones with
economies in transition.

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o ESCO development in Tunisia was the main objective of a
substantial grant from the World Bank for an activity called
the Energy Efficiency Program and Industrial Sector Project
“PEEI”.
o The intention was to overcome institutional and capacity-
related barriers to the development of a sustainable market
for energy efficiency products and to establish energy
services companies (ESCOs) as the main vehicle to
guarantee a sustainable energy efficiency market.

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Day 5 :Tunisian Experience in Promoting the Role of Energy Service Companies (ESCOs): Experience and achievements of CRA2E

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