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Outsourcing of energy supply
and energy efficiency activities – energy contracting
At a large
number of SMEs a significant energy savings potential is available. In many
cases this fact is also known within companies but either lack of time does not
permit capturing these potential savings or scarce financial resources need to
be used for other purposes. Then, in the case of SMEs, it might not be easy to
receive bank loans at preferential interest rates.
In this case
energy contracting may provide a solution. For energy contracting, an external
partner specialized in the field of efficient energy supply becomes involved.
Energy contracting can be differentiated into two forms:
·
Energy (plant) contracting
– an energy service company (ESCO) invests in an energy conversion plant on
behalf of a client. The ESCO takes care of the fuel supply required and is also
responsible for operational management and maintenance. Financial settlement is
based on upon the amount of heat and electricity delivered. The outsourcing of
tasks is of particular interest to a company if it sees there is an advantage
in doing so, such as a reduction of costs in energy supply or relieving the
pressure from operational staff.
·
Energy performance contracting (or energy savings contracting) can
include all kinds of efficiency measures with one basic condition: These measures
must be paid out of the energy cost savings within a certain time frame. The
implementation of energy saving measures is the prime focus. Energy savings
contracting goes further, the contracting company also identifies and does the
planning for the appropriate measures and takes over the advance financing.
Furthermore, performance contracting includes maintenance and upkeep services
and energy consumption monitoring. Planned maintenance and prompt feedback
regarding energy consumption are guarantees of efficient and cost effective
energy use.
The major
advantage for the customer of energy performance contracting: because the
contracting partner’s services will be paid out of the energy cost savings, the
customer does not face any additional costs. The figure below schematically
shows how energy performance contracting works.
Table 1:
Figure
– the principle of energy performance contracting
During the
term of the contract, the energy costs saved go either partly or fully to the
contracting partner. This is laid out in an agreement.
The payment
to the contracting partner is the reimbursement for all his services, not only
investment measures but also maintenance services and operational management. After the completion of the usual contract term, usually between 5
to 10 years, the client profits from the ongoing low costs brought about by the
energy efficiency measures.
Energy performance
contracting, when applied in its full extent, should also provide a savings
guarantee. The customer is given a guarantee that the measures to be
implemented will actually lead to the successful achievement of the agreed
level of savings. In exchange the contracting partner’s payment is dependent
upon this success. If the savings do not reach the guaranteed levels, the
payment to the contracting party will be less.
Steps in energy performance contracting
Complete energy
performance contracting typically includes the following steps:
·
The
ESCO undertakes an energy audit which includes possibilities and quantification
of the energy savings potential as well as the most promising options;
·
A
baseline for energy use (based on today’s energy use) is established for
specific equipment, systems (e.g. production processes), or the facility as a
whole;
·
The
energy efficiency project is designed and consulted with the customer;
·
Equipment
is purchased, installed and commissioned;
·
The
customer personnel is briefed or trained in the use of the new equipment;
·
The
ESCO takes care of the operation and maintenance of the equipment for the
duration of the contract
·
Measurement
and verification is conducted by the ESCO to determine the actual savings
·
The
savings and equipment performance guarantees are provided.
The
provision of this total package of services from a single company (the ESCO) is
the key difference between performance contracting and more conventional
project implementation and funding. Different contractors may use different
technologies and often provide divergent solutions.
Challenges
Apart from
the large benefits of energy performance contracting, some challenges have to
be taken into account:
·
The
decision to go for long-term cooperation with an external partner means a
decision to trust an outside partner. The partner will propose and develop new solutions that were until then unknown within the company.
So first of all, the decision should be made within the company to go for
energy contracting.
·
The
next step is finding a capable partner. Several contractors should be examined
more closely. It is usual that a contractor makes a first rough estimate of the
energy savings potential as part of the bidding.
·
Bids
will have to be evaluated and one company will be chosen and a long-term
contract concluded.
Energy performance
contracting may be demanding from the point of view of preparation, but when
the contract is signed a minimum input of personnel and financial resources is
required.
Other energy services
An ESCO offers energy services that include:
· Guaranteed energy savings and or
provisions of the same level of energy service at lower costs
· Assisting in arranging financing for
the operation of an energy system by providing savings guarantee
· ESCOs accept a degree of risk for
the achievement of improved energy efficiency in the facility of their client
and have their payment for the services delivered based on the achievement of
those energy efficiency improvements.
Apart from these complete energy services, many SMEs can be interested
in purchasing the following energy services:
· Supply and installation of energy
efficient equipment, often combined with operation and maintenance
· Energy use monitoring
These services are useful for SMEs having to
little capacity internally. None of these services include a risk factor from
the side of the supplier as energy performance contracting by ESCOs does.