1. 1
Energy Performance Contracting
Energy Services Companies (ESCO)
Webinar 5 April 2012
Pierre Langlois
President - Econoler
Course on Regulation and Sustainable Energy in Developing Countries –
Session 9
www.leonardo-energy.org/course-regulation-and-sustainable-energy-
developing-countries

2. 2
Energy Performance Contracting
Energy Services Companies (ESCO)
By Pierre Langlois
President
Econoler
Webinar April 5, 2012

3. 3
PRESENTATION STRUCTURE
1. EE benefits and barriers
2. The EPC concept
3. EPC contractual approaches
4. EPC financing structures
5. Measurement and verification
6. ESCO: different models and examples

4. 4
1. EE PROJECTS
BENEFITS AND BARRIERS

5. 5
END USER BENEFITS
› Lower operational costs
› Optimization of equipment operation
› New and modern equipment (increased value)
› Improved competitiveness
› Improved product quality
› Higher comfort level
› Green image

6. 6
BARRIERS
Awareness
Knowledge
Lack of capacity
Lack of confidence in project results
and
Financing

7. 7
2. ENERGY PERFORMANCE CONTRACTING

8. 8
ENERGY PERFORMANCE CONTRACTING
A contractual arrangement between a
beneficiary and a provider (called an Energy
Service Company) for the implementation of an
EE project, where the global investments have
to be paid for through a contractually agreed
level of energy cost reduction.

9. 9
A firm that provides integrated solutions
for enhanced energy cost reductions
and whose payments are directly linked
to project performance.
ENERGY SERVICE COMPANY

10. 10
Professional
consulting
engineer
Equipment
manufac-
turers
Governments
Financial
institutions
Energy
Suppliers
Client
Guarantee
•Analysis
•Concept
•Installation
•Financing
•Monitoring
•Training
ESCO
Contractors
THE EPC APPROACH

11. 11
THE SKILLS OF AN ESCO
Technical
IGA
Engineering
M&V
Training and
Management
Support
Project
Management
Construction
Management
or execution
Financial
Direct financing
or arrangements
Operation &
Maintenance
(Occasionally)
Risk Management
For guarantee of savings
and for cost and delay
control
Development
Sales
Marketing
Legal
Contracts
Local regulations

12. 12
Verification of energy
savings methodology,
procurement process, customer
spending categories and
financial needs
Customer verifies
ESCO findings
ESCO
understands
and validates
customer
concerns and
issues as well as
other project
parameters
Preliminary proposal
ESCO creates
proposal summarizing
all info from previous
step; preliminary
budget estimates
used
Customer reviews
Customer signsESCO signs Letter of Intent (LOI)
Figure 1: Overview of Comprehensive Project Service Sales Process (continued)
Preliminary survey and
walk-through of customer
facility
Customer provides
energy bills and
operating cost data
ESCO
establishes
preliminary scope
and budget for
potential project

13. 13
Proposal presentation
ESCO prepares
presentation with
final project
parameters
and benefit
statements
Customer reviews
contract and
financing
Energy Service
Agreement (ESA) Customer signsESCO signs
Project
implementation
Risk review
ESCO conducts
a complete
review of job
estimates and risks;
contract finalized
Figure 1: Overview of Comprehensive Project Service Sales Process (continued)
ESCO finalizes
all project
parameters incl.:
ops, energy, & cap
(if any);
financing;
implementation
schedule; contract
development starts
Customer reviews
preliminary
contract
Conduct
detailed engineering study, ;
initiate contract and
start financing discussions

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3. EPC Contractual Approaches

15. 15
Guaranteed Savings Concept
BANK
Financial institution
Achieved energy savings
Client pays ESCO during
implementation
ESCO
Client
Client
reimburses
loan directly
to the bank
Client retains 100%
of savings
ESCO reimburses for
underperformance of
the project
Bank loan to
client which
provides
guarantees

16. 1616
Financial
institution
ESCO
Client
Shared Savings Concept

17. 1717
Customer
BANK
Lending
institution
ESCO
Bank lends 70% -
90% of project
costs to ESCO
ESCO is the
borrower
ESCO implements
project and owns the
energy facility
Typically pays 10% -
30% equity share
ESCO assigns receivables from customer
directly to bank (sometimes pays via bank)
Loan is usually secured with energy assets
Energy
facility
Customer
pays ESCO
for energy
ESCO supplies
energy from
facility
“Chauffage” Concept

18. 18
CURRENT USE OF THE CONCEPTS
The more the country is developed
Guaranteed savings
The less the country is developed
Shared savings
It should actually be the reversed

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EPC AROUND THE WORLD
More used around the world
Greatly underdeveloped world wide
Important barriers in the public sector du to
procurement issues
No good information
on the market size available

20. 20
EPC AROUND THE WORLD
Concept is expending in many countries
North America still the biggest market
EPC is used in many different forms
Europe will use more EPC base on the
current CC objectives and regulations (EC
directives)

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4. MEASUREMENT AND VERIFICATION

22. 22
A NATIONAL BASELINE
250,000
500,000
750,000
1,000,000
Energy
Baseline Period Reporting Period
Baseline + Adjustments
Metered Energy
Savings

23. 23
INTERNATIONAL PERFORMANCE
MEASUREMENT AND VERIFICATION PROTOCOL
› The most known protocol on M&V
› Produced and disseminated by the Efficiency
Value Organization
› Can be downloaded for free from EVO
www.evo-world.org

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5. ESCO: Different Models

25. 25
ESCO: DIFFERENT MODELS
› Utility-based ESCO (the cases of Croatia and
Uruguay)
› Government-based ESCO (the case of India)
› Private sector ESCO (the case of China)

26. 26
ESCO: UTILITY BASED ESCO
› Utility-based ESCO (the cases of Croatia and
Uruguay)
› Owned by Utility
› Targeted sectors: all sectors but mainly focusing on
government facilities and institutions (schools, offices,
universities, hospitals, industries, etc)
› Maximum payback period : Variable, Private 5
years, Public 8 years(Croatia)
› Project’s range: USD 100,000 to 2 Million (Croatia)
› Utility financing:
› Croatia : 7 million
› Uruguay: 7.1 million

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ESCO: UTILITY BASED ESCO
› Advantages
› Client data base available
› Available financing source
› Easy access to clients
› Client trust utility
› Access to all sectors especially government
› Disadvantages:
› Not flexible and could not follow the fast changes
as it is a part of big system
› Difficulties to stimulate staff

28. 28
ESCO: GOVERNMENT BASED ESCO
› Government-based ESCO (EESL: the case of
India)
› Established by Government to facilitate
implementation of energy efficiency projects
› Targeted sectors: Demand Side Measures
including municipal functions, agriculture,
public building, lighting etc.
› EESL work as ESCO, as Consultancy
Organization for CDM, as a Resource Centre
for capacity building of State Designated
Agencies, Utilities, financial institutions, etc.

29. 29
ESCO: GOVERNMENT BASED ESCO
› Advantages
› facilitate preparation of energy efficiency projects
› Partner with private ESCO’s and other companies
to promote energy efficiency.
› Assists and help for project financing
› Capacity development and activities support to
potential ESCOs in the market
› Disadvantages:
› Longer delay for project development and
implementation
› Rigid procedure

30. 30
ESCO: PRIVATE SECTOR ESCO
› Private sector ESCO (the case of China)
› Owned by private companies: vendors of energy-
efficient equipment or subsidiaries, companies with
innovative proprietary technology, companies with
special skills in diagnosis of energy efficiency. Some
ESCOs have evolved from local energy conservation
technical centers, etc
› Targeted sectors: industrial enterprises are the
dominant clients with building sector and commercial
› Payback period : The focus on commercial clients
has helped lead to a fast-paced business centering on
projects which can conclude within three years or less
› Number: registered ESCOs in China reached over
900 by the end of 2010

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ESCO: PRIVATE SECTOR ESCO
› Advantages
› Very flexible EPC following client criteria
› Ability to develop and adjust to a win-win
approach
› Full services project or focus on a single
technology or system renovation
› Disadvantages:
› Required important fianancial capacity
› Limited access to gouvernement facilities
› Limited support form governemental institutions

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6. EPC: Public procurement

33. 33
PUBLIC PROCUREMENT FOR EPC
Although EPC may be well suited to
address the challenges of improving public
sector energy efficiency, rigid administrative
systems are quite poorly suited to efficient
procurement of energy services
Helping public agencies manage the EPC
process is a difficult task
Solutions must be country specific

34. 34
PUBLIC PROCUREMENT FOR EPC
A COMPLEX ISSUE
HTTP://www.esmap.org/filez/news/72720091058
11_P2E2_presentation_REV_3.pdf

35. 35
7. Conclusion

36. 36
CONCLUSION:
IS EPC IS THE SOLUTION FOR EE?
Limitation of the concept
› Size is an issue
› Credit risk in the private sector is a limitation
Focused Markets
› Public sector has always been the favorite
› Limited use in the industrial sector
Case studies
› Successes: Canada, China, Croatia, Germany
› Failures: Egypt, Tunisia, Poland
› Mixed successes: Brazil, India

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THANK YOU
Pierre Langlois
President
Econoler
planglois@econoler.com