Seppo Silvonen

1

"FINANCIAL AND ECONOMIC ASPECTS OF ENERGY SAVING
WITHIN THE FRAMEWORK OF THE CSRC APPROACH"
Workshop "TRANSNATIONAL ENERGY SAVING
NETWORKS"14 December 2005 Vilnius, Lithuania

• Seppo Silvonen, Motiva OyFinland
• Why not more ESCOs?

2
Idea of an ESCO-service
To the ESCO fast out
To the client
Energy cost before
Energy cost after
Savings
( - )
Time
( - )
Project cost paid by the ESCO

3
Energy Agency of Southwest FinlandMunicipalitie
s and ESCO-services an interview survey

• ESCO-activity has been low in the municipal
  sector.
• The aim of the interview survey was
• to collect information of the obstacles on the
  way to implementing ESCO-
• acitivities and of the possibilities and ways
  of removing the obstacles
• to collect information of the factors leading to
  success in ESCO-activities
• to aid Motiva in its planning of ESCO-promotion

4
Energy Agency of Southwest FinlandMunicipalities
and ESCO-services an interview survey

• Obstacles
• Few ESCOs offering services
• Limited experience of ESCO-contracts
• Individual ways of marketing and implementing by
  the ESCOs
• ESCO-contracts unknown to smaller municipalities
• The potential diversity of ESCO-contracts not
  seen
• An ESCO-contract is expensive to the
  municipality
• A municipality can get financing cheaper
  directly than through an ESCO
• Political sensitivity

5

Energy Agency of Southwest FinlandMunicipalities
and ESCO-services an interview survey

• Obstacles
• Energy audits by another party are not
  sufficiently reliable
• The buildings are in good shape, lacking
  potential for bigger energy
• efficiency investments
• The energy efficiency investments are small
  compared to the total
• renovation investments
• Bundling of several smaller investment objects
  is cumbersome and
• difficult from the monitoring point of view
• Investments recommended in the energy audits
  have already been
• carried out taking the economic feasibility
  from ESCO-projects

6
Energy Agency of Southwest FinlandMunicipalities
and ESCO-services an interview survey

• Obstacles
• no clear instructions for arranging competitive
  bidding for ESCO-
• contracts
• competitive bidding expensive to ESCOs
• separation in the book-keeping between
  investments and running costs
• hesitation by the workers loosing of work or
  getting extra work
• estimated savings potentials unreliable
• lack of expertise for getting acquainted with
  the ESCO-concept

7
Energy Agency of Southwest FinlandMunicipalities
and ESCO-services an interview survey

• Opportunities
• a municipality has various ways of financing
  ESCO-projects
• the banks are waking up to ESCO-project
  financing
• investment subsidy to ESCO-investments available
  from the Ministry of
• Trade and Industry
• information, experience is available in other
  countries through the
• nerworks

8
ESCO-Financing ModelConventional
Financier
Paymensts from the Savings
Client
Loan
Interest Amortization
Guarantee
ESCO
Contract 5-7 years
Subsidy
Investment Guaranteed Savings
Implementation of the Contract
Regional Govmnt Office
Application for Subsidy
Guaranteed Savings
Contract Payments
Contractor
9
ESCO for Municipalities
Local Financier
Loan ESCO-Contract as Guarantee
Client
Payments from the savings
Interest Amortization
ESCO
Contreact 5-7 yr
Subsidy
Investment Guaranteed Savings
Regional Govmnt Office
Implementation of the Contract
Application for subsidy
Guarateed Savings
Contract Payments
Contractor
10
Helsinki-ESCO
Financier
Regional Govmnt Office
City
Subsidy
Application for Subsidy
Implementation of the Contract Guaranteed Savings
Contract
The City will pay the Contract amount on the
basis of the fulfilment of the Savings Target
Contractor
11
ESCO with the Municipality as the Financier
Financier
Regional Govmnt Office
Guarantee
Interest Amortization
Subsidy
Application for Subsidy
Loan
Municipality
The City will pay the Contract amount on the
basis of the fulfilment of the Savings Target
Contract
Implementation of the Contract Guaranteed Savings
Contractor
12
Turku-ESCO
Regional Govmnt Office
Subsidy
Application for Subsidy
Client (Turku)
Financier
Payments from the Savings
ESCO
Contract 5-7 yr
Investment Guaranteed Savings
Contractor
Maintenance Contract
13
Spartrim-ESCO
Regional Govmnt Office
Application for Subsidy
Client
Pavments from the Savings
Financier
Subsidy
ESCO
Contract 5-7 yr
Investment Guaranteed Savings
Contractor
Maintenance Contract
14
Bundling-ESCO
Regional Govmnt Office
Appplication for Subsidy
Client
Payments from the Savings
Financier
Subsidy
ESCO
Contract 5-7 yr
Investment Guaranteed Savings
Contractor
(Maintenance Contract)
Object of saving measures
15
Direct government support

• The government finances the costs of the
  operating agent (Motiva) of the Finnish energy
  audit program and gives 4050 support for the
  energy auditing project expenses
• 1520 subsidies for conventional energy saving
  investments for companies who have joined the
  voluntary Energy Conservation Agreements with the
  Government.
• Higher subsidies (20..25 ) have been granted for
  ESCO investment projects at least until the end
  of the year 2004 by the government

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How to find the project potential to ESCOs?

• Energy audit reports
• What was not identified in the
• energy audits

17
Motivas role in promoting ESCObusiness in
Finland

• To act as an information link between ESCOs,
  energy users, potential clients, energy auditors
  
• To prepare information material, to organise
  information dissemination and seminars and to be
  directly in contact with possible ESCOs and
  their potential clients
• To follow the development of the ESCO industry
  abroad and to participate in the international
  co-operation
• To Identify possible obstacles to the growth of
  the ESCO- business
• To disseminate information of exemplary ESCO
  projects

18
Clients views on the ESCO-concept

• Good for the core-business thinking does not
  tie up own capital
• Decision making is taken to the level in charge
  of the costs
• ESCO has the responsibility for the savings
• Neutral towards the equipment suppliers
• Turn-key saves own time
• Owns the equipment until paid in charge for the
  maintenance and functioning
• ESCO bears the risk of the new technology utilised

19
ESCO-project register in Motiva - Target
to promote ESCO-business - Contact
information- Description of different kinds and
sizes of ESCO -projects- Following the
ESCO-business volumes- Started in 2003-
Registered some 40 projects 40 municipal, 60
industrial
20
ESCO-project register Examples- Municipal
projects

• schools
• sports centres
• swimming halls
• ice-hockey halls
• greenhouse

21
The smallest ESCO- project

• Customer City of Nokia, Ice-hockey arena
• ESCO Enespa Oy
• Measures based on a free pre-audit
• water consumption of showers
• updating the controls of the refrigeration
  system
• Energy Performance Contract (Enespa Model
  Contract)
• investment 13.000 EUR
• estimated savings 5.000 EUR/a
• repayment 50 of savings x ESCOs share of
  ownership but
• minimum 25 of the savings (first year
  repayment was 3.300 EUR)
• based on the repayment formula the contract
  period is 6½ years
• cumulative customers savings are 28.300 EUR

22
Modes and capacities of ESCOs