Introduction
Definition and literature review
Main focus on the supply side
Imagine an industry where 25–50 % return on investment is common … an industry that can cost-effectively reduce pollution and bring us closer to our sustainability goals … an industry where customers are offered reduced operating costs and new equipment without front-end capital expenses … an industry where the project costs are paid for out of avoided utility costs – guaranteed… The appeal is enormous, so it is not surprising that the energy performance contracting industry and the energy service companies (ESCOs), which offer all this, have been growing rapidly.
Known barriers to EPC in the residential sector
… may contain a wide variety of energy-consuming appliances and devices, numerous types of lighting fixtures, have unknown building characteristics that may negatively impact the effectiveness of energy efficiency upgrades … consume energy based on the behaviour of occupants, and – most importantly – energy consumption patterns may vary widely from one household to another and among individual members of the same household. (Hoyle 2013:18)
The pilot
Initiation
Finding partners
Inviting ESCOs to make offers
What kind of consumption should be included in the guarantee?
Type of consumption | Energy (GWh) | Share of total consumption (%) |
---|---|---|
Total annual energy consumption | 2.58 | 100 |
Consumption excluded from the EPC (individually measured electricity) | 0.83 | 32 |
Basis consumption included in the EPC (energy for space heating, hot water and common electricity consumption) | 1.75 | 68 |
Criteria for competition
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Phase 1Analysis and project development
-
Phase 2Implementation of energy efficiency measures
-
Phase 3Guarantee period (monitor and follow-up energy consumption)
Criteria | Measurement | Weight |
---|---|---|
Costs (lowest possible) | Costs of phase 1 (50 %) | 30 % |
Costs of energy labelling of the buildings (50 %) | ||
Customer profitability (highest possible) | Present value (50 %) | 70 % |
Expected energy savings, kWh (50 %) |
The initial offer from the ESCO
Annual energy consumption /annual savings | Energy (GWh) | kWh/m2
| Share of total consumption (%) | Share of basis consumption (%) | |
---|---|---|---|---|---|
Prior to competition | Energy consumption | 2.58 | 200 | 100 | |
Excluded from EPC | 0.830 | 32 | |||
Basis consumption | 1.750 | 68 | 100 | ||
Initial offer (heat pump) | Goal savings | 1.193 | 46 | 68 | |
Goal consumption | 1.387 | 111 | |||
Guaranteed savings | 0.835 | 32 | 48 | ||
Guaranteed max consumption | 1.745 | 140 | |||
Offer 2 (rehab.) | Goal savings | 0.534 | 21 | 30 | |
Goal consumption | 2.046 | 164 | |||
Guaranteed savings | 0.374 | 14 | 21 | ||
Guaranteed max consumption | 2.206 | 176 | |||
Offer 3 (reduced) | Goal savings | 0.354 | 14 | 20 | |
Goal consumption | 2.226 | 178 | |||
Guaranteed savings | 0.248 | 10 | 14 | ||
Guaranteed max consumption | 2.332 | 187 |
Heat pump out and refurbishment included, then project reduced and terminated
Views expressed by members of the housing cooperative and the ESCO
Decision making: from desire for simplicity to complex realities
Lack of trust in the ESCO
Economy counts—but how?
The ESCO’s viewpoints and the communication of EPC
Discussion and recommendations
Barriers for EPC, residential sector | Experiences from the pilot project (housing cooperative) | Suggestions for how to mitigate barriers | |
---|---|---|---|
Client perspective, general | |||
1 | Lack of interest in energy savings | Was an underlying, major barrier. | Shape and promote EPC project as comprehensive refurbishment project with EPC component. Start process by examining and discussing the potential need for refurbishment (and energy savings). Suited timing: when refurbishment is required. |
2 | Lack of willingness to change practices and reduce user flexibility (Henning 2005) | Initial offer: was not a barrier because proposed changes did not affect/dictate energy use. | To be taken into account in initial discussion and project design. |
Later stage: became a barrier (protests against balanced ventilation). | |||
3 | Main focus: comfort, convenience and aesthetics | Became a barrier. Flat owners contested effects of EPC measures on comfort: noise from ventilation, indoor temperature and air quality, disturbances during installation. | To be taken into account in initial discussion and project design. |
4 | Decision making: private flat owners must agree before decisions can be made about changes in building shell and technology* | Became a major barrier. Would probably have been enhanced if the owners had been more actively involved in the initial stage including thorough mapping of their needs and those of the building structure. | A general challenge during energy and refurbishment projects in self-owned, multi-apartment buildings. |
5 | High transaction costs, limited energy costs* | Was not a barrier. An attempt was made to keep the process simple, and let the selected ESCO suggest measures to expand the project (including refurbishment), but this failed. Higher transaction costs in the design phase would have been necessary. | Community model (housing cooperatives) is likely to bring down transaction costs.* |
Sufficient investment (time, efforts, resources) in project design appears as condition for successful result. | |||
6 | Lack of information about existing offers and lack of understanding the EPC concept, financing and contract* | Became a barrier. Initial phase: one Board member had experiences with EPC, and Board was approached by pilot and research team who explained EPC principle. As the project progressed (taken over by the Board), there was less focus on the EPC aspect of the project which was not clearly communicated to the owners at the time of decision making. | Strengthen the capacity of EPC consultants/facilitators. This is a role that could be taken by umbrella organisations that represent housing cooperatives. In concrete projects: communicate the EPC principle throughout the project and show the distribution of costs and benefits on energy savings and refurbishment, respectively. |
7 | Lack of trust, fear of becoming dependent on the ESCO* | Became a major barrier. Before decision on investments: project failed due to a lack of trust in the ESCO and EPC process. | On the basis of a thorough project design, invite ESCOs to compete on offers for comprehensive refurbishment and energy savings. |
8 | Lack of financing capital* | Not a barrier as the housing cooperative had access to favourable loans and received a modest, standard subsidy from Enova. Research project contributed to covering parts of client’s transaction costs. | Norway: Enova has introduced a new subsidy scheme tailored for the design phase of EPC. Standard criteria apply for support to investment in energy efficiency. |
Client perspective, technical | |||
9 | Lack of meters* and lack of consumption data
| Not a barrier. Installation of individual metering of hot water was included in EPC offer as an energy saving measure. Individual electricity consumption not included in EPC. | Access to historical and future consumption data is required. Metering can be done on collective or individual basis. Higher risk of wasting practices if consumption is not metered and paid individually. |
10 |
Existing contracts with energy suppliers
| Became a major barrier because existing supplier of district heating put strict conditions on the proposed change from ordinary supply to peak load supply. | Examine existing contracts and criteria for changing them. In Norway, housing cooperatives in areas with district heating are obliged to be connected but not to purchase district heating. |
ESCO perspective | |||
11 | Individual needs and behaviours vary and are difficult to control* | The ESCO did not calculate with changed behaviour. | Fair to expect that residents will not want to change their daily routines in significant ways, but expect that they wish to ensure comfort, convenience and flexibility. |
12 | High fragmentation of market, need to look at each individual building/flat. Hinders standardisation* | Competition stage: Flats considered to being relatively similar, which enhanced the preparation of offers on energy savings, but when later planning for ventilation and windows i.e. changes in the physical structure of each flat: individual variation became a challenge. | Refurbishment in general: need to look at individual buildings/flats. |
13 | High transaction costs, limited energy costs* | Phase 1: high transaction costs (many revisions of offer, many meetings with Board, the consultant and sub-contractors). Extra work was not compensated, but competition criteria were less strict than in the municipal sector and qualified ESCOs received a minor compensation when handing in offers. | Contract for phase 1: specify a limited number of meetings and hours covered in the contract and how unexpected need for extra time will be compensated. |
Framework conditions | |||
14 |
Legal requirements, ban on data sharing of individual electricity consumption
| This legislation resulted in the need to exclude individual electricity consumption from the EPC. A major share of the cooperative’s energy consumption was included in the EPC because electricity was not used for space and water heating. | This legislation implies that when electricity is metered individually, such consumption is unsuitable for EPC projects unless the metering is done jointly. When electricity is used for space and water heating which constitute a high share of energy consumption (common in Norway), this legislation reduces the applicability of EPC. A proposal for a new regulation in Norway is likely to put a ban on joint metering of electricity consumption among housing cooperatives. This is likely to further hinder the development of EPC in this sector. |
15 | Lack of facilitators who are familiar with EPC in the residential sector | Pilot provided a facilitator (experienced with EPC in the municipal sector), arranged a process of prequalification of ESCOs, and adapted a standardised contract that has been used among municipalities. Both the facilitator and the contracted ESCO did not have previous experience with EPC in multi-apartment flats, and this may have jeopardised residents’ trust. | Offer training to consultants/facilitators in the housing sector who can support and represent the building owners vis-à-vis ESCOS during the EPC project’s life time. Create a system for accreditation of EPC consultants/facilitators in the residential sector. Run more case studies and share the experiences of clients, not solely technical and economic outcomes. |
16 | Lack of credibility on EPC providers due to lack of legal framework for their accreditation* | Offer training to ESCOs in the housing sector including building constructors as well as energy entrepreneurs (Grim 2005). Promote EPC through authorities and policy measures* | |
Create a system for accreditation of ESCOs in the residential sector where conditions and culture differ from public sector. | |||
17 | Legal requirements, all tenants must agree before landlord can make investments in energy efficiency* | Not applicable (self-owned). | |
18 | Economic crisis and related uncertainty* | Not relevant, but expectations for declining/low energy prices became a major issue. | |
19 | Lack of public subsidies and financing capital* | Was not a barrier as the housing cooperative had access to favourable loans. Received a modest, standard subsidy from Enova. | Norway: Enova has introduced a new subsidy scheme tailored for the design phase of EPC. Standard criteria apply with regard to support for investment in energy efficiency. |