Municipal Energy Saving Systems

Description

For over a decade, European municipalities have been establishing initiatives, strategies and action plans to increase the energy efficiency of private and communal infrastructure. Municipalities of EU member states, enforced by the EU Directive on energy efficiency, must work collaboratively to ensure that by 2020 and 2030, an energy efficiency of 20% and 32.5% are met, respectively.

Initiatives, such as the Covenant of Mayors, have been launched to foster commitment towards energy and climate targets. Signatories voluntarily agreed to increase energy efficiency and the use of renewable energy sources. To achieve this, participating municipalities drafted and submitted a Sustainability Energy Action Plan (SEAP), defining their energy-saving and climate measures. More than 6000 municipalities have developed and approved a SEAP since 2008; however, when compared to the total number of municipalities across Europe, there is still a long way to go.

It has been identified that a municipality's building stock represents the single largest potential for energy savings. It is also expected that more than two-thirds of the world's population will live in urban areas by 2050. Therefore, this solution aims to ease the conception and implementation of municipal energy-saving measures.

Problems to be solved

Cost Structure

Local authorities may be tempted to opt for projects improving energy efficiency with short paybacks. However, this approach will not capture the majority of potential savings available through energy retrofits. Instead, it is recommended that all profitable options are included, especially those which yield a rate of return higher than the interest rate of the investment capital. This approach will translate into greater savings over the long term. Too often, quick paybacks on investments mean that organisations do not pay attention to "lifecycle costing".

Life cycle costs are the total cost of ownership over the life of an energy-saving system, such as: planning, design, construction and acquisition, operations, maintenance, renewal and rehabilitation, depreciation and cost of finance and replacement or disposal. Payback time should be compared with the lifespan of the goods to be financed. For instance, a 15-year payback time should not be considered a long period of time when it comes to a building with a lifespan of 50-60 years.

Legal Requirements

• Directive 2012/27/EU on Energy Efficiency
• Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources
• Directive 2010/31/EU on energy performance of buildings

Operating Models

Efficiency Performance Contracting (EPC) (ClimACT, 2017)

An energy performance-based business model proposes a partnership between customers and Energy Servicing Companies (ESCOs) to develop energy-saving measures. EPC’s can be executed in two forms: through shared-savings, or through a guaranteed-savings scheme. In a shared-savings EPS, an ESCO is remunerated based on the project’s generated energy saving and the fee paid by the customer reimburses the capital costs of the project. In a guaranteed savings EPC, the ESCO takes on a technical risk, by guaranteeing a saving percentage on the customers' energy bill. If the agreed savings are not achieved, the ESCO is required to reimburse the customer the difference between the actual savings and the agreed-upon savings. The customer finances the measure completely, relying on the performance promised by the ESCO.

An EPC is well suited for large-scale projects, especially in the public sector, because of high transaction costs and long payback times. Usually, the private sector is less attracted to contracts with long payback times. This means that, in order to establish a contract in the private sector, ESCOs should focus on the implementation of ECMs with rapid return on investment. Difficulties in setting up an energy baseline make it harder for the ESCO to predict energy savings and the measurement and verification process needed to follow up on the project results can be costly (Warget, 2011).

Build-Own-Operate-Transfer (BOOT) (ClimACT, 2017)

In the Build-Own-Operate-Transfer (BOOT) business model, the ESCO has complete control of the energy-saving measure. They build, deploy, and operate the project through a given contracted period of time. At the end of the contract, the ESCO transfers the installation/system to the customer.

During the contracted period of time, the ESCO is in control of the energy-saving measure and a fee is charged to the customer for the service delivered. This way, the ESCO investment and operational costs are covered by the fees. The BOOT model is similar to a loan made by the ESCO to the customer, which also includes energy management during the contract period.

Chauffage (EU JRC, 2021)

In a Chauffage Business Model, the ESCO takes over complete responsibility for providing the energy services (e.g. space heat, lighting, motive power, etc.) to the customer. As a form of outsourcing energy management, Chauffage is typically used in municipalities where the energy supply market is competitive. 

The ESCO assumes the responsibility for providing the agreed energy service for a cost lower than the previous service or for a more efficient service for the same cost. The more efficient and cost-effective it can supply energy, the greater earnings the ESCO will have. Chauffage contracts give the strongest incentive to ESCOs to provide services in an efficient way. The fee paid by the municipality under a Chauffage arrangement is calculated on the basis of its existing energy bill minus a percentage saving (often in the range of 5-10%). Thus, the municipality is guaranteed an immediate savings relative to its current bill.

Chauffage contracts are typically quite long (20-30 years) and the ESCO provides all the associated maintenance and operation during the contract. Chauffage contracts are very useful whenever the customer wants to outsource facility services and investment.

Stakeholder Mapping

Stakeholder Map for a municipal energy saving system (BABLE, 2021)

City Context

The United Nations Economic Commission for Europe (UNECE, 2020) has listed seven recommendations to implement and adopt energy savings systems:

1. Continue harmonisation of building energy codes by ensuring comprehensive coverage of all types of buildings.
2. Define national energy efficiency target, which is to be based on primary (or final) energy consumption, primary (or final) energy savings, or on energy intensity.
3. Continue strengthening requirements for insulation, ventilation and technical installations.
   • Give more attention to the airtightness of the building envelope
   • Ensure building codes include requirements for air conditioning, lighting, use of renewable energy sources, and natural lighting
   • Make mandatory requirement for inspection of boilers and air-conditioning systems to improve quality and precision of energy performance certification in multi-family buildings
   • Follow a holistic approach in building energy codes based on building energy performance requirements (heat, ventilation, air conditioning, lighting, etc.)
4. Introduce or strengthen quality assurance measures, especially during the early stage of energy performance certification.
   • Requirements for certifying experts should be harmonised
   • Certifier needs to be physically present on-site
   • Quality check procedure of energy performance certification should be harmonised
   • Development of centralised energy performance certification databases and digitalisation of certification process
5. Challenges of infrastructure energy performance data collection on energy use and the existing gaps should be priority areas for research.
6. Establish or strengthen proper electronic monitoring system of compliance, enforcement and quality control processes to ensure compliance with international building energy codes and standards.
7. Define measures to ensure that materials and products used in construction are subject to rigorous quality control to meet energy efficiency requirements, to maintain resistance of buildings to local environmental loads, and to ensure they do not threaten safety of people and property.

Government Initiatives

• European Green Deal: In October 2020, the Commission presented its renovation wave strategy, as part of the European Green Deal. The strategy contains an action plan with concrete regulatory, financing and enabling measures to boost building renovation. Its objective is to at least double the annual energy renovation rate of buildings by 2030 and to foster deep renovation.
• Energy Efficiency Obligation Scheme: Created as a result of the EE Directive, these schemes require energy companies to achieve energy savings at the level of 1.5% of their annual energy sales to final consumers by implementing energy efficiency measures. Alternatively, countries may introduce other policy measures to stimulate energy savings. EEOSs target energy suppliers, retailers and distributors as these groups are best placed to identify and carry out energy savings with their customers.
• Energy Performance Certificates: Energy performance certificates provide information to consumers on buildings they plan to purchase or rent. They include an energy performance rating and recommendations for cost-effective improvements of the energy performance of a building or building unit.

Data and Standards

• LEED – Leadership in energy and Environmental Design
• BREEAM – Building Research Establishment Environmental Assessment Method
• German Energy Saving Ordinance - EnEV