Could energy performance contracts put the green deal in the shade?
Energy performance contracts offer an energy efficient solution for the complexities of commercial buildings. Mike Hardware reports
Report from – Mike Hardware
Residential and commercial buildings account for a large proportion of total energy use, and buildings are globally responsible for 21 percent of all greenhouse gas emissions. Waste levels are staggering. Although newbuild homes and commercial buildings increasingly reach acceptable levels of energy use, existing building stock remains a problem – especially in Europe with its huge number of older buildings, and the low rate of replacement and refurbishment.
To meet its 2050 carbon reduction commitment, the UK government has prioritised existing buildings and is about to introduce the green deal for homes and smaller commercial properties. The deal enables homeowners to install energy efficiency measures that are financed through their energy bills over a 25 year period, with the energy savings meeting or exceeding the loan interest and repayments.
The government has postponed the introduction of the green deal for the larger commercial sector because this poses greater challenges. But the sector is subject to the carbon reduction commitment energy efficiency scheme (CRC EES) – although these regulations are viewed as particularly complex, and not really an incentive to improve energy efficiency. The scheme is being reviewed.
Energy performance contracts
The industry itself came up with a solution to improving energy efficiency in the 1990s. Energy performance contracts (EPC) come in various forms and combine energy supply and efficiency – in effect using wasted energy to fund lower energy costs and carbon emissions. In many ways, they are similar to the green deal.
John Field, vice president of the Chartered Institution of Building Services Engineers (CIBSE), views EPCs as a ‘silver bullet’. He says: “EPCs are very much like the development of the Apple iPad: we all know what it should be like, but someone has to make it work.
“EPCs are very much in the evolutionary stage, but when someone gets it right – like the iPad – then the rest of the industry will have a model to emulate.”
Gary Perry, director of sustainability, energy and projects at Norland Managed Services, one of the UK’s growing energy services and facilities management companies, agrees that EPCs are the way forward, but feels that the market is already starting to develop the right models. “Existing EPCs already guarantee cost savings, have cost certainty and are low risk,” he says. “These are significant incentives to convince a growing number of owners and occupiers of the merits of this approach.”
EPCs in action
An EPC was used to refurbish the Empire State Building in New York recently, and the approach has been used successfully across Europe since the mid-90s. They have been around in the UK for a similar length of time: Petbow Cogeneration, then part of British Gas and now part of ENER-G, introduced a combined heat and power (CHP) discount energy purchase scheme in the mid-1990s whereby the customer bought the heat and power at a set price, with the capital cost being recovered over the period of the contract. ENER-G launched its ‘pay as you save’ energy performance contract model over a decade ago. This energy supply-based approach was similar to Petbow’s with guaranteed prices for the supply of heat and power with no capital outlay from the customer. ENER-G has extended its guaranteed savings contracts into building energy management and control systems, and lighting systems, on a similar basis.
E.ON has a similar scheme and recently signed a contract with Newham University Hospital for a six year EPC guaranteeing a level of energy saving and carbon reduction within a fixed budget. The project is expected to pay for itself, and cut the hospital’s carbon emissions by 3,000 tonnes, within seven years.
The evolution of the EPC in the UK commercial property sector has been quite slow, and no company has yet achieved a solution to ignite the market.
Neil Pennell, head of sustainability and engineering at major UK property company Land Securities, says that although the firm does not use EPCs, he is looking for the opportunity to do so. “EPCs are mainly being used in the public sector, as there is a split incentive within the large commercial rental market,” he says. “Retrofitting existing buildings using EPCs to improve performance is of benefit to the users, who are the tenants and not the landlords. What incentive is there for the landlord unless the tenants agree to fund the EPC? Also, trying to get agreement to an EPC across a multi-tenanted site can be extremely complex.
“However, where there is a strong landlord and tenant relationship or if a site is to be redeveloped or refurbished, then there are opportunities for EPC models to work very effectively.”
Pennell is also chair of the Retrofit Working Group of the Better Buildings Partnership. This has produced a toolkit for low carbon retrofitting, and is looking at the challenges for EPCs in the private sector.
Lighting up the NHS
Norland launched its EPC service offering earlier this year. “We have been overwhelmed by the level of interest in NorlandGreen, and we have already had our first success, continues Gary Perry. “Norland has been selected as a preferred supplier to provide energy efficient lighting to members of the NHS Commercial Procurement Collaborative (NHSCPC). This is one of the largest framework agreements for energy efficient lighting in UK history, and allows the 55 NHS Trust members of NHSCPC to benefit from our lighting and performance guarantees for energy conservation measures through NorlandGreen.”
MITIE, another major facilities, property and asset management company, has been offering EPCs for over four years. Mike Tivey, managing director of its asset management division, predicts growing popularity for this approach. “We are getting more and more requests to go through an EPC, both from public and private clients,” he says.
“Building services and energy are non-core activities for many clients. Offering to guarantee energy costs for a set period below those they are already paying is a ‘no brainer’ in most cases.
“We operate an EPC at the Royal Free Hospital in Hampstead which provided savings from day one, and guarantees savings of £850,000 a year.”