ESCO Development in Selected Countries

This project is funded by the European Union
ESCO Development in Selected Countries
Dr. Kurt Wiesegart,
MED ENEC
Eilat-Eilot Renewable Energy
5th International Conference & Exhibition
Eilat, Nov 26-29, 2012
www.med-enec.com

This project is funded by the European Union
The major solution for energy supply problems:
Energy Efficiency (EE)
EE being the
cleanest „energy source“, and
- the cheapest
and it
- Contributes to independence of energy imports, or:
ensures more (primary) energy for exports (export income)
it
- Creates employment
thus
- Contributs to the overall economic development
www.med-enec.eu

This project is funded by the European Union
Energy Efficiency makes money!
…. for the stakeholders (customers) involved and for
the country‘s government!
A well functioning ESCO business is one of the most
important measures to recover the huge sources of
energy efficiency in a country.
www.med-enec.com

This project is funded by the European Union
What is an „ESCO“
- Energy Contracting – labled as ESCO (Energy Service Co) – is a
comprehensive energy service concept… to minimized project
cycle cost
- Typically: an ESCO acts as general contractor and implements a
customized efficiency service package
- Key features: ESCO remuneration is performance based, it
guarantees the outcome and all inclursive cost of the services,
takes over commercial as well as technical implemntation and
operation risks over the whole project term
www.med-enec.com

This project is funded by the European Union
ESCO and NEEAP
ESCO activities belong to the
major measures
to implement a
National Energy Efficiency Actions Plan
www.med-enec.com

www.med-enec.com
This project is funded by the European Union
Basic ESCO models - Classification
1. Independent ESCOs
2. Building equipment manufacturers-ESCOs owned
by bldg equipment or control manufacturers.
3. Utiliy companies-ESCOs owned by a electric or gas
utilities.
- Energy or engineering companies-ESCOs
According to their marketing struture/approach:
A) Technologies
B) Vertical markets
C) Utility / energy suppliers

This project is funded by the European Union
EPC – characteristics of an EPC contract (I)
EPC – Energy Performance Contracting: the major
contract model in the ESCO business
- Shared Saving Contract
- ESCO carries performance risk and credit risk
- Financing is off-balance sheet for the client
- The equipment is „owned“ by the ESCO during
contract duration
Risk for ESCO:
- Energy prices increase (biggest risk)
www.med-enec.com

www.med-enec.com
This project is funded by the European Union
EPC – characteristics of an EPC contract (II)
- Guaranteed Savings
- The client finances the project and pays debt to a
financial institution
- ESCO guarantees the amount of energy savings
performance and guarantees that value of energy
saved will be sufficient to meet customer‘s debt
obligations
- If savings fall short, the ESCO to reimburse shortfall
- Risk to the ESCO is typically lower
- Less financing cost

This project is funded by the European Union
Impediments for recovering the „saving energy“
source
- Government commitment and support
- Awareness of policy decision makers
- Regulations (e.g. for ESCO Certification Schemes)
- Incentives (tax reduction, revolving fundes,….)
- Financing
- Ignorance (lack of experience) of banks and financial
institutions
- Lack of financial sources
- Lack of awareness of customers
- In many countries: Energy prices (energy subsidies)
www.med-enec.com

This project is funded by the European Union
The concept of ESCO business
ESCO business a comprehensive and complicated approach:
It requires experience in
1) Financing (Project financing)
2) Technological knowledge (on a broad scale)
Financing
ESCOs typically arrange for financing. The quality of a financial
officers neet to be „multi-dimensional“
- Creating a bankable project…
- …
- ..S 30u
A close cooerdination between ESCO, a bank and the customer!
www.med-enec.com

This project is funded by the European Union
Financing of ESCO business
The start up phase for ESCO is difficult: „…ESCOs
knocking at the door of banks, until their knuckles
were bloody…“
Now, at least in countries with developed ESCO
markets banks are knocking at the doors of ESCOs –
since they realized: EE generates money!
www.med-enec.com

Financing in emerging markets
This project is funded by the European Union
- During last decade comprehensive support by MDBs to
support development of ESCO business
- Progress differs from country to country, in general
however limited
- Limited to too many obstacles – regarding institutional
set-up, financing,…
- Owners understanding of EE measures
- Complexity of EPC projects
- Reluctance of financing/funding EE projects
www.med-enec.com

This project is funded by the European Union
Experience with ESCO development in selected
countries
- ISR
- US
- Germany
- Tunisia
- China
www.med-enec.com

This project is funded by the European Union
Development of ESCOs wordwide
- More than 50 countries have or are about to
develop ESCO business
- Development slow and hampered by impediments
- No unique understanding of the category ESCO
business in the countries
- Accordingly: no confirmed statistical data – neither
on the number of ESCOs nor their turnover
www.med-enec.com

This project is funded by the European Union
Israel
ESCOs are in the market but there is no „ESCO market“
- Privat sector:
- Considers ESCOs as a bank for EE investments
- Do not a trustfull reputation
- Local Banks: Not familiar with the ESCO concept
- Public sector: Recent ESCO approaches failed
- Problems occures with the M&V
- Lack of experience - resulting in a certain mistrust
- Hampered by Law until 2011. But no take off so far.
www.med-enec.com

This project is funded by the European Union
US
- Different development stages
- EPC is growing now by 20% annually
- In 2011 ESCO total revenues 6-7 bio USD
- 70% of the ESCO business are performanced based
- Limitations and bottlenecks
Markets:
- Strong support of the Gvmt
- Approx 90% of project implemented in public facilities
- Technology is available
- „Competitive selection processes“
- Role of state energy offices
- Problems whith new laws or budget deficits
www.med-enec.com

This project is funded by the European Union
Germany
- Germany is the leading market in ESCO business in Europe
- ESCO development started in the early 90s
- Since mid 90s indepenedent intermediaries on state level
- Hessia, e.g.f, developed model contracts.
- Number of ESCOs 250 to 500, contracting value (2011) Euro 3 Bill.
- Remarkable: The ESCO business more than 40 % provided by utilities
- Two major Associations
- Sectors: residental sector (60%) of the market; öublic sector (15%; EPC
contracts); industrial and commercial prIojects (20%)
Impediments:
- EE services still appear as low-interst-products / Lack of credit rating of small ESCOs
/In public sector: public budget restrictions procurement / The pricing and tariffs of
the German Renewables Feed-in Act power generation / EC Directive 32/2006
Germany refused to follow / The BfEE (Bundesstelle fuer Energieeffizienz) founded
in 2010
www.med-enec.com

This project is funded by the European Union
Tunisia
- First ESCO in 1999 (Econoler and three different banks).
- The first legal recognition of ESCO activities energy efficiency law 2004
- ESCO concept supported by international donors – PEEI, 2005
- The five year pilot phase implementation of 125 projects
Markets
- Contracts between 2006 and 2010 totaled USD 16 Mio
- Most projects imiplemented in the industrial sector
- Facilitator: ANME as a State Agency
- Guarantee fund provided by PEEI (2010) to promote EPC and
encourage ESCOs.
Gvmental Actions
- A legal framework supporting since 2004, Several other decrees 2005
- PEEI provided support
- Development of creditlines with donors
www.med-enec.com

This project is funded by the European Union
PR China
- EPC concept started in 1998 (Worldbank)
- From 2002 rapid development of ESCOs: in 2010
turnover USD 4.25 bill; No of 428; 2011: 1700
- Gvmt support
- Contracts: EPC contracts mainly
- Mainly corporate clients
Government Actions
- Strong committment!
- promoting EPC a good example for others
www.med-enec.com

This project is funded by the European Union
Summary – items to support ESCO development
Regulatory support, e.g.
- Rules and regulations for certification
- Develop criteria for ESCOs
- An authorized agency to provide support
- A certification body to be in place
- Cooperation with donor entities
Financial support , e.g.
- Tax incentives (incl import tax)
- Provide Fund (e.g. for start-up phase)
- Provide Guarantees (for funds, for ESCO investment,….)
www.med-enec.com