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

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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

What have these buildings got in common?

38% saving

Empire State

54,000t CO2e p.a.

Gwent Hospital

£125,000 p.a.

Strand Palace Hotel

EPC can cover all projects

Lighting replacement, control systems & LEDs

On-Site Technical Resource Management

Chiller upgrade/replacement &

absorption cooling

Building Management Systems

Zone temperature

control

Boiler upgrades, controls Combined Heat & Power

VSD motor control

Ventilation fans

High efficiency motors

Voltage reduction

Damper control

Plug load management

Solar gain minimization

Roof Insulation

Wall Insulation

0

20

40

60

80

100

120

140

160

2006 2007 2008 2009 2010 2011 2012

£m

Source: BSRIA; Review of the European Performance Contracting Market; December 2006, Frost & Sullivan, Credo research and analysis

EPC market & drivers

Origin - US 1990s federal bodies

Exponential growth in North America, EU & UK following

Drivers

– Energy price forecasts +17% by 2020

– CRC liability

– Availability of internal capital funding

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

Guaranteed savings

Energy savings repay improvement

Guaranteed savings

Energy and

O&M costs

Your annual costs during EPC

Energy and

O&M costs

Your annual costs after EPC

Your annual costs today

Energy and

O&M costs

Before EPC

During EPC

After EPC

£

Standard EPC Model

Saving guaranteed – no repayment if target not met

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!!

EPC financing

About Envido

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Illustration of shared savings structure

Example – A Public Sector Organisation

• 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.

Typical Impact on Energy Bills During and After Project

During Project After Project

• 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.

Commercial structure:

Equity & Debt

Investment

Shared Savings

Payments Project Capex

Energy Services

Agreement

Return

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).

Building Owner

SPV

ESCO

Investors

Energy Performance

Contract, including O&M

and M&V and

Performance Guarantee

(See note 3)

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.

•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.

•SDCL has designed a financial solution for the project whereby the up-front capital costs of installing the energy efficiency

equipment and systems could be financed out of the savings achieved. The project is expected to be able to generate a sufficient

level of savings through reduced energy and maintenance costs and other benefits to cover the cost of implementing the project

within approximately 4 years. Once an energy performance contract has been awarded to the winning ESCO, SDCL will then be

in a position to arrange finance for the project in return for a share of the savings achieved.

Results

•The programme of works is due to begin in Q1 2013, and will include LED lighting installations, voltage optimisation, the

installation of a building management system and boiler plant replacement.

•Overall, the project is expected to save in excess of 25% of the hotel’s current energy consumption, with estimated annual

savings expected of £125,000 per year.

•The project will enable the Strand Palace Hotel to reduce their energy costs and improve their environmental performance,

without the investment risk.

Other benefits for the Strand Palace Hotel include:

•A turn-key solution based on in-depth knowledge of the whole process from project definition to delivery and finance; SDCL’s

expertise saves both operational and management time for the hotel

•Access to a dedicated professional team focused exclusively on delivering energy efficiency opportunities

•Solution tailored to the specific needs of the building

•Reduced operating costs and improvements to the hotel’s asset value

•Frees up capital budget for the Strand Palace Hotel to use on refurbishing and upgrading facilities as part of their 5-year capital

plan.

Case study – the strand palace hotel, the 6th largest hotel in london

Overview

Programme

of works

LED lighting installations,

voltage optimisation, the

installation of a building

management system

and boiler plant

replacement.

Savings Overall, the project is

expected to save in

excess of 25% of the

hotel’s current energy

consumption, with

estimated annual

savings expected of

£125,000 per year.

Outcomes The project will enable

the Strand Palace Hotel

to reduce their energy

costs and improve their

environmental

performance, without the

investment risk.

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

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

Developing an EPC

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

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 )

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.

The importance of measurement and verification

IPMVP – the global energy verification standard

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 period so only post retrofit values required

When to establish M&V procedures

IPMVP – the global energy verification standard

Remember: If you don’t understand the M&V plan don’t sign it!!!

About Envido

www.envido.co.uk

0207 199 0090 | info@envido.co.uk | www.envido.co.uk | @envido

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