Friedrich Seefeldt, Klemens Leutgb

PaperID: 5158

Energy Performance Contracting

Success in Austria and Germany
Dead End for Europe?
Dipl.-Ing. Friedrich Seefeldt
Berliner Energieagentur GmbH
Rudolfstr. 9, D-10245 Berlin
seefeldt@berliner-e-agentur.de
Keywords...........................................................................................................................................................................................1
Abstract..............................................................................................................................................................................................1
Introduction.......................................................................................................................................................................................2
EPC: Idea and Conception..............................................................................................................................................................2
Market Situation...............................................................................................................................................................................6
Conclusions on Success Factors..................................................................................................................................................10
EPC on its way through Europe...................................................................................................................................................12
References .......................................................................................................................................................................................14

Keywords
Energy Performance Contracting, Third Party Financing, Outsourcing, Success Factors, Demand Side Management,
Public Sector, Tertiary Sector, Facility Management, Market Penetration, Market Development,

Abstract
At the beginning of the 21st century, the European market for Energy Performance Contracting (EPC) is extremely
diverse:
Without a doubt, Germany and Austria are the pioneers, standing out due to their already high market standards and
consistent market growth. The market in Germany is characterised by more than 200 EPC-agreements made since
the mid-90s with high-tech individual buildings like hospitals, as well as building pools of up to 100 separate
buildings. In Austria, EPC projects have been implemented in approximately 500 buildings during the last four
years with the public building administrations as the driving forces.
While EPC has become a standard instrument in facility management in Germany and Austria, in most other
European countries the market is still at its very beginning.
First, the basic idea and conception of the instrument will be presented in a short introduction, illustrated by
concrete project examples with an emphasis on discussing the perspectives from the demand side, especially the
public and tertiary sectors.
Next, the question centres on how a deliberate energy (efficiency) policy can accelerate the successful market
introduction of EPC (role of public building administration as pioneers, support of building owners during project
preparation; energy agencies with specific know-how etc.). A last reflection discusses the consequences for a
possible directive on Energy Services.
In all this, the authors draw continuous attention to the common traits, but also take a look at barriers and success
factors. The analysis is based on both authors broad practical experience in EPC project development and
dissemination of best practices.
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EPC: Success Story in Austria and Germany - Dead End for Europe?

Introduction
In some european markets, especially Austria and Germany energy service schemes including energy efficiency
measures (EPC:Energy Perfomance Contracting) have been increasing considerably during the last 5 years. In
these markets the sector of public buildings has been proven as market opener.
Third-Party-Financing schemes (TPF / Contracting) with the involvement of external Energy Service
Companies (ESCOs) have shown on various occasions that information and openness towards private investors
can reduce specific energy needs in buildings by 20 % and more. Substantial savings can even be achieved by lowcost measures using sophisticated technologies, e. g. for the control of heat flows. Due to the large number of public
buildings and the huge specific energy demand of complex buildings such as hospitals and swimming pools, public
institutions are a prime target within every community.
In our practical work both authors are intensively concerned with questions of market development of EPC
schemes. Our work addresses both the market in Middle Europe as well as the markets of different member states
and accession states. In our daily work we hear the question behind this paper at least twice a week: is it possible to
transfer market development and market tools for complex energy services to other markets with very different legal
fra mework conditions and very different stadiums of liberalisation?
We want to show market development in two of the leading EPC markets. Our survey is based on practical
experience in the project development of EPC projects in the public sector in both Austria and Germany. Both
markets show a significant development during the last five years. The process of market development is
demonstrated by way of model projects. Guidelines, model contracts and procurement schemes for public building
owners have been developed to provide a secure basis for the EPC market.

EPC: Idea and Conception

Having a closer look of the market development of EPC schemes, means also to have a clear understanding of the
basic idea, the economical concept and the project process. What are the specific features about energy performance
contracting ? What are the basic steps to start a project ?

Definitions
There are basically two term that are closely connected to the term of Energy Performance Contracting, the idea
of an energy service (company) - ESCO and the term of third party financing - TPF.

Energy Services Companies (ESCos) are private companies that provide comprehensive energy efficiency or
load reduction services to customers that own or operate facilities such as factories and buildings.
[WEEA, 1995]

Third party financing (TPF) is the funding of energy savings investments by an outside company, using
energy (savings) to pay for the investment [WEEA, 1995]. Contracting rates are either based on the amount of
energy supplied (energy supply contracting) or the amount of energy saved (energy performance contracting).

Practical experience has shown, that financing by a third party often plays a decisive role. It has to be taken into
account that EPC does not necessarily need third party financing. EPC also works when the building owners take
over financing and the ESCo carries out the design, implementation and operation of the energy efficiency
investment. Financing is often offered as an additional motivation for the building owner. For this purpose, ESCos
co-operate intensively with a banking partner and/or national investment banks. This aspect is highlighted in the
definition of VDMA (german association of suppliers for technical equipment) and DIN (german institute for
standardsation):

EPC is a scheme for the operation and financing of energy efficiency investments. The scheme aims at energy
and cost savings through the modernisation and optimisation of buildings and technical building equipment.
EPC is not only a third party financing scheme, but comprises the operation and management of (the technical
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equipment of) the building and may even include the training and motivation of the building users. [VDMA
24198, 2000] [DIN 8930 (draft version), 2002]
As the authors are convinced, that the aspect of sharing risks is a basic one in the EPC, we would like to go further
and want to highlight the aspect of the energy savings guarantee in the following practical working definition:
Energy Performance Contracting (EPC) is a complex energy service aiming at the guaranteed improvement of
energy performance and cost efficiency of buildings. An Energy Service Company (ESCo) carries out a cluster of
services and carries the risks of performance and operation. The services are paid out of saved energy costs, with
most cases including financing services.

Economic Parameters
There are basically four economic parameters defining an EPC project
-

energy savings (guarantee)

energy effiency investment
participation of the building owner
contract duration

Fig. 1 shows the relations between the basic economic parameters. The total project volume is defined by
performance guarantee and contract duration. The total revenues cover both the share of the building owner and the
contractors rate. The capital value of the total revenues is a suitable parameter for the project volume, because it is
decisive for the investment and the additional services provided by an EPC project.
The contractors revenue hast to cover both investment (including capital service and interest rates), the initial
service (project transfer costs, conceptual design, engineering, implementation) and operational services (project
administration, optimisation, maintenance, education of the technical staff, information and motivation of the
building users)
It has to be taken into account that energy services are usually designed implementing the most efficient packages
(return on invest: 0.5-2 years) at first hand, followed by medium efficient measures (simple pay back: 2-7 years) and
low efficient measures, (e.g. retrofitting boilers and piping: 8-15 years). Retrofittings of the building envelope (roof,
walls and windows) often have simple pay back times of 15 years and more, thus requiring contract duration of 20
years and more, or an additional grant by the building owners.

EPC participation model

energy costs

share of customer
real cost
contracting rate

performance
guarantee

time[years]
contract duration
efficiency investment

Figure 1: Basic parameters of EPC

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Steps Towards a Project

A careful project development is crucial for success, as technical, legal and economical aspects have to be
considered in the same time. This type of complex project management is often a basic barrier for building owners,
because target orientated thinking and inter-disciplinary decisions are required.
As figure 2 shows, there are basically five phases for project realisation.

Implementation of Guaranteed Energy Savings Contract

Responsible
Customer

Project Phases
Project Preparation
- Inspection of data availability
- Selection of buildings

Customer

Project Development
- Constitution of steering committee
- Evaluation of building data
- Determination of baseline for energy cost
- Stipulation of system's requirements

Customer

Tender
- Appointment of allocating office
- Compilation of ternder documents
- Statements of interest
- Call for tenders

Contracting
Providers
(3-10)

1st Validation Phase

- Inspection of buildings
- Validation of data sheets (Building data sheets)
- Determination of the state of technical plats
- Determination of saving potential

Customer/
Contracting Provider

Contract Negotiation

Customer/Contractor

Guaranteed Energy Savings Contract

if necessary:
Termination of
procedure, no
competitive offer

Contractor

2nd Validation Phase

Preparation Phase

Contractor

Realisation of Energy Saving Measures

Obligation of
Performance

Project Preparation
Starting the project takes often a longer time as the simple word may suggest. Among others, there is basically the
problem of the identification of suitable objects and the assesment of the data basis. As energy services include a
broad range of services (investment, financing, operation, motivation, etc) there is uncertainity about the
administration or the person in charge. A rough feasibility is required and the data basis has to be defined, including
energy consumption, technical equipment, operation parameters and the typical pattern of use of the building stock.

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Project Development
In order to achieve the maximum added value, the building owner has to set economic and quality targets. Quality
targets may be comfort levels (room temperatures, moisture) level of maintenance, reaction time in case of system
breakdown, quality of technical equipment and clear requirements for the integration (training and motivation) of
technical staff and building users
Economic targets have to be set by defining the minimum expectations of the economic parameters (energy
savings guarantee, investment, participation and contract duration) as lined out in the previous chapter. Basically ,
the total project is defined by the functional description of the energy service. This is one aspect which leads often
to misunderstanding: energy services are to be defined by functional requirements (e.g. light rooms, warm water and
a maximum of costs) while many building owners are used to make very tight technical requirements (e.g. 500 x 60
W light bulbs, 340 kW low temperature boiler), thus leaving no room for functional optimisation of the equipment.

Project Procurement (call for tenders)

For public institutions, a public procurement scheme is employed according to the specific EC regulations for
public procurement, according the EC directive No 92/40 and/or EC directive Nr. 89/440. [STRAUBE 1999]
mandatory steps are
-

call for interest

call for tenders
submission
negotiation of service and investment programme
final definition of service and investment programme
contract assignment

Basically this is carried out as a single step procedure with the contract assignment on the basis of a negotiated
standard contract and a negotiated service and investment programme [HMULF 1998]. Sometimes, mostly in cases
of technical complex buildings a two step procedure is employed to give the ESCO the chance to have his first
rough analysis confirmed by a second much more detailed analysis [BMVBW 1998] While private institutions do
not carry out a public procurement they use basically similar, but less formal procedures.

Model Contracts
Most (public) building owners are only used to very standardised contracts as construction contracts (in the german
market defined by the directive on constructional measures VOB/B and VOB/C), very simple service contracts as
maintenance contracts (in the german market often defined by AMEV) and energy supply contracts (in the german
market defined by the AVB Elt and AVB Fernwrme).
In the late nineties the first model contracts on EPC schemes were made available by federal and state institutions.
[HMULF 1998], [EVA 1998], [BMVBW 1998], [UBA 2000].
The following agreements have been implemented in all of the available models:
-

guaranteed performance
functional description of the service programme
definition of service and comfort levels
remuneration model (participation model, payments)

Experience has shown that the acceptance of EPC schemes is much higher when standards are available. This does
not necessarily mean that the negotiated contracts are all looking the same. An existing model contract can be
adapted to the requirements of the building owner, e.g. technical interfaces (maintenance and operation), cooperation model (information and dissemination), risk sharing model (climate changes, price changes, changes of
the building)
In addition there are several contract details which have to be adapted to federal, state and regional law, including
regulations of ownership, tax deduction, comfort regulations, insurance and others. This is the reason, why contracts
may appear quite complex at first sight but beside these mentioned aspects, no legal barriers were identified in
either Germany or Austria.

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Market Situation
Success Stories Example Germany
In the beginning and middle of the 90s, only very few EPC projects were initiated by a few selected ESCos, mostly
through informal EPC contracting. There were no standard contracts, there was no public procurement and no
transparency regarding the detailed contract agreements. Hence, there was no real publicity about the projects,
although there were some technically properly designed concepts and energy saving investments programmes.
There was a young and growing market of heat supply contracting, meaning a simpler case of energy services,
focussing on heat supply (combined with electricity supply in case of micro CHP). Building owners were hesitating
to approach the EPC offers made by the few existing contractors for EPC in the market. They did not know whether
offers were trustworthy, whether submitted contracts were legally reliable, they were not sure what the real value
of the contract was. Transparency, procedural and contractual security and the economic evaluation of EPC offers
were (and still are) the main barriers for the EPC market.

Energy Saving Partnership Starting the market in Berlin

At the beginning of 1995, Energy Saving Partnership (ESP) was developed and implemented in Berlin with the
aim of reaching ambitious objectives for climate protection and reducing energy costs in the face of a tight
budgetary position. A first assessment of the public building sector showed a huge potential for energy savings, with
the following market figures:
-

number of public buildings (federal state of Berlin)

total energy costs per year:
estimated saving potential (average)
annual CO2 -emission by public buildings
targeted CO2 -reduction in public buildings:

6,000 buildings
about 250 Mio /a
25 %
about 3 Mio t/a
by 2530 % until 2010

The State of Berlin started a first model project by bundling the 100 public real estates (about 300 buildings) in
two building pools with more than 4 Mio of annual energy costs each. The idea of bundling the buildings was
created in order to increase the project volume to make it attractive for the national market, to minimise the specific
transaction costs to make it more profitable and also to avoid cherry picking: smaller buildings, that are normally
not subject for EPC schemes, should be as well included in the efficiency programme.
As the results of the model project showed very good results, the state of Berlin implemented EPC schemes as a
political strategy for climate protection, taking advantage of the cost-effective modernisation and rehabilitation of
the building stock by a third party. The success of the model was overwhelming, resulting in the following
development until now:
-

number of real estates in ESP

number of public buildings in ESP
number of EPC contracts (building pools)
total energy costs per year :
total guaranteed savings per year :
total investments (1996-2002)
annual CO2-reduction in ESP buildings:

350 real estates

750 buildings
11 EPC contracts
25 Mio /a
about 6 Mio /a
20 Mio
90,000 t/a

[SenStadt/BE 2002, 1]

Accompanying Measures
The state of Berlin made EPC in public buildings to a decisive part in the municipal climate protection
programme , thus encouraging all building owners to carry out feasibility studies and first assessment for EPC
schemes in their building stock.
Based on the experiences of the first building pools, a model contract for public building owners was set up [see
chapter model contract], approved by the federal states of both Berlin and Hessia. A standard procurement
procedure was established, thus providing a secure legal basis for EPC schemes [HMULF 1998], [BMVBW 1998].
Contracting guidelines were established, with both practical and formal advice [UBA 2000].
An important role was the dissemination of the positive results. Since best practice projects were at hand, major
dissemination campaigns were initiated, focussing different target groups, e. g. the residential sector and the health
sector [BE 2001] and adressing multiplicators as the association of the German Municipal Corporations [DST 1997]
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The project model was succesfully transferred to the tertiary sectors: university, hospitals, hotels, swimming pools,
to residential buildings. An energy performance retrofitting model was established, thus including conservation
measures at the building envelope [SenStadt/BE 2002, 2].
Practical experience and project knowhow was made available to the building owner by assigning the key role for
the project management to Berlin Energy Agency. All municipal institutions are allowed to adress the experts of
Berlin Energy Agency to get their EPC projects defined, to get assistance for the procurement. The negotiation and
final recommendation as well as the assignment of the contract is carried out by the experts. The consultancy for
project management is paid by the state of Berlin, while all the ESCO investments are expressively not subject to
public funding schemes. Similar programmes were adapted by the federal states of Hessia and Bavaria other
federal states following this example with similar offers for municipalities.
As a consequence of the succesful implementation tools and standard instruments were transferred to
neighbouring states of Germany (Austria, Slovenia, Czech Republic, Poland, Bulgaria). The demand for EPC and
TPF expertise resulted in the establishment of a Clearing House for Contracting Schemes (ClearContract) for
(almost) all accessions states of the european union, carried by the Austrian National Energy Agency and Berlin
Energy Agency.

Key Factors of Success

As a preliminary conclusion there was a clear and visible start signal needed. It was important that this signal was
sent out by the demand side: ESCos should smell projects with a comparably high potential! Berlin was bundling
one hundred public buildings, thus creating a demand for EPC which could be perceived in the whole federal
republic.
Clear economic targets have to be defined, detailing what the expected results and targets of the project should
be. A clear and transparent data basis, giving information about energy consumption, energy costs, energy prices
and the state of the buildings.
The perceived risks in a new and innovative market are high. The pooling (bundling) of buildings minimises the
risks and transaction costs for the ESCos. The public sector as a reliable contract partner is the most important
sector to start with.
A competetive market thus enabling competition of ideas and know-how are key factors for success. There was a
European wide call for tenders with a declaration of interest in the first phase. In all projects, 10-20 companies
declared their interest, 5-10 of them were usually invited for the call of tenders.
A defined procurement process is basis for competition. It encourages the supply side to supply competitive
offers and gives a secure and transparent basis for stake holders on the demand side: Both sides take advantage of
the security, transparency and competition.
Energy Agencies are successful mediators of the market. They provide consultancy, practical support and a broad
technical background to building owners, thus acting as a neutral market actor. They supply standard materials and
guidelines. They are key actors for the dissemination of positive results and lessons learnt.

Success Stories Example Austria

Market development in general
In the last 5 years the Austrian EPC market has seen a quick take-up. Starting from a level around zero in 1998,
500 to 600 buildings have been undergoing a thermal-energetic optimisation with an energy performance contract
till the end of 2002. This represents roughly 3% of all public and private service buildings (related to the useful
floor area). It is obvious, of course, that there is still a vast potential for energy efficiency, in general, and the
application of EPC, in particular, in the Austrian service building sector. However, if we compare, the level of the
Austrian EPC to that of the most famous EPC market the US market we can estimate that actual EPC project
volume in Austria is related to its potential at the same level as the average EPC market in the US .

Public buildings as drivers

At the middle of the nineties the so-called Omnibus-Directive put some pressure on public authorities to think
about energy efficiency in the public building stock. This was the starting point for a big and therefore visible
pilot project in the federal building stock.

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The pilot project was very carefully prepared and accompanied by standardisation work (model contract,
standardisation of the tender procedure). After a positive evaluation of the results of the pilot project, the federal
building administration was interested in replicating the EPC model also in other buildings. In the phase of starting
replication where EPC is now increasingly perceived as a standard tool in facility management with it was
very important to get high-level political support: In March 2001 the Council of Ministers of the Federal
Government to apply the EPC approach to all suitable buildings in the federal building stock i.e. about 50%
related to the total useful floor area.
Besides the EPC track in the federal building stock a lot of information and supporting activities have been
organised at the regional and local level. Therefore rather surprisingly the Austrian EPC market observes plenty
of project in medium-sized and small municipalities. In this segment of public buildings administration the
following arguments have been decisive: improvement of buildings without own financing; environmental effects;
attractive offers for advice on how to realise in EPC project in practice.

Energy service companies with different backgrounds

The ESCos that are at the moment active on the Austrian EPC market have developed from different starting
positions:

On one hand, some international companies from the building techniques industry have expanded into the EPC
business;

On the other hand, there are engaged a few civil engineers, that cover the energy saving planning and
management aspect of the business and engage subcontractors for the operative work;

And last but not least: A limited number of utilities has developed towards the energy service concept and is
offering ESCO services.

Key Success Factors in the Austrian EPC market

In contrast to the US market, where EPC was strongly pushed through ratepayer-funded energy efficiency
programmes, the increase of the Austrian EPC market is based mainly on increased know-how. The building owners
and administrators got increasingly convinced, that EPC is helping them in solving day-to-day problems in facility
management (market transformation approach). The focus has therefore been on marketing and information
activities and on competent advice to building owners and administrators on how to use the EPC approach in
practice.
Except in one region, no direct subsidies from public money have been allocated to EPC projects. Public money
has been only used for information and marketing activities and for advice to potential EPC customers. Several
energy agencies at the national, regional and local level have become important carriers of EPC-related knowhow. The energy agencies played a crucial role in convincing potential customers of the feasibility and advantages
of the EPC model, because they are seen as neutral advisors.
Furthermore, starting with public buildings has proven to be a successful approach: Public buildings represent a
volume big enough to arouse interest of (potential) ESCos. However, there needs to be a starting point attractive
pilot projects that gives an incentive to the supply side to build up capacities [EVA 1998],.

Markets in CEEE and the US

Central an Eastern Europe Example Slovenia
Slovenia is one of the accession states of Central and Eastern Europe that aims at joining the European Union in the
first group. Only 44.6 % of the energy consumption of the country is covered from domestic energy sources. The
energy intensity is higher than in the European Union by a factor of around 1.4. The energy price level of Slovenia
is at approx. 85 % of the Western European level.
Since 1999, the Berlin Energy Agency has carried out a consultancy project to introduce EPC in Slovenia as a part
of the TRANSFORM programme offered by the Reconstruction Loan Corporation (KfW). In this context, a model
contract for EPC was developed under Slovenian legal and procurement conditions. Several municipalities were
identified for possible pilot projects. The investigations showed that the conditions for developing the EPC market
are good. As a result of the analysis, EPC pilot projects were developed in the municipalities of Koper and Kranj,
similar to the proceedings accomplished in Berlin, calls for EPC partners were launched.

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Example Kranj: The Local Authority of Kranj, an industrial centre some 30 km north of the capital city Ljubljana,
has to pay energy costs of roughly 350,000 Euro (1999) for its 14 buildings contained in the building pool (made up
of adminis trative buildings, schools and sports centres).
Municipality of Koper

26 Buildings
Schools
Kindergardens
Others

Basic Energy Cost:

90 Mio SIT

Municipality of Kranj

14 Buildings
Schools
Sports Facilities
Administr. Buildings
Basic Energy Costs: 130
Mio SIT

Figure 3: The pilot municipalities in Slovenia

The Steirische Fernwrme (District Heating Company) GmbH entered into the tendering process in cooperation
with its Slovenian partner EL-TEC MULEJ and, after a negotiation process, was awarded the assignment to carry
out a detailed analysis and to implement the project. In November 2001, the Energy Saving Guarantee Contract was
signed: In the 15-year contract duration, the annual energy costs of the town will sink from 348,000 Euro to 295,000
Euro: a total of 15.1 %.
The investments of roughly 340,000 Euro will go into the following energy saving measures:

Exchange of boilers and thermostats

Installation of new control centres

Adjustment of heating systems

Renovation of heat distribution systems

Fitting of thermostats to radiators

The national Energy Agency (AURE in close cooperation with Jozef Stefan Institute JSI, Lubljana) have been
trained on EPC during the project development and took over responsibility for the project implementation phase.
Actually JSI is carrying out a dissemination campaign focussing hospitals as selected target group. Both institutions
and the involved actors are highly motivated to continue on their way to success. [SenStadt/BE 2002, 1]

Example U.S. market

Over the last 20 years, a fairly large private sector energy-efficiency services industry has developed in the U.S. In
the year 2000 the U.S. ESCo industry revenues reached $ 2 bil./year for energy-efficiency related services, half of
which is related to energy performance contracting in a more narrow sense. After a decade of high market growth
rates (roughly 25% each year), since 1996 the EPC market is more ore less stagnating.
In average the actual market level (realised project compared to the market potential) of the U.S. EPC market is
equal to the level of the German resp. the Austrian EPC market. It has to be mentioned, however, that there exist
considerable differences between the single states in the U.S.. Four states (New York, New Jersey, California,
Texas) account for nearly half of the market activity.
Compared to the market situation in Europe mainly in the EPC pioneer markets in Austria and Germany the U.S.
market is characterised by several peculiarities, that have to be taken into account on thinking about transferring the
U.S. approach of market development to Europe: [NAESCO 2002]

From the technical point of view, there is a far higher efficiency potential in U.S. EPC projects than in Europe,
especially in Germany and Austria. Due to strict(er) legislation in the building sector [EnEV 2001] european
energy efficiency benchmarks are (in average) much better [VDI 1998], cost-benefit-ratios of energy saving
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measures are in general lower under European conditions. This is of course only the general picture, with
considerable differences between the different states and regions.

The U.S. EPC market is strongly pushed by ratepayer-funded energy efficiency programmes, such as Standard
Performance Contract, rebate and DSM bidding. Although the importance of these financial incentive
programmes is decreasing, still about one third of the EPC projects benefit from these programmes (after about
50% in the period between 1985 and 1995). This framework is completely missing in Europe.

Perhaps it is the strong influence of ratepayer-funded energy efficiency programmes, that explains the strong
focus of EPC project in the U.S. market on the electricity consumption. In contrast, European EPC projects
mainly in Germany and Austria concentrate prevailingly on the savings related to heat consumption.

Conclusions on Success Factors

Starting the market
Starting at the Demand Side!
The implementation of model projects has given clear and distinct start signals on the demand side: It was the first
time the ESCos did not have to wait for projects, but could read about them in the newspaper! Berlin, for example,
was bundling one hundred public buildings, thus creating a demand for EPC which could be perceived in the whole
federal republic. This resulted in sufficient involvement of potential EPC suppliers: 11 relevant ESCos were
declaring interest in participation. Additionally, the pooling (bundling) of the buildings made it possible to include
comparably small objects like primary schools and kindergartens, which were normally too small to make up a
single EPC contract. The bundling of buildings also diminished the risks and transaction costs for the ESCos.

Starting the Supply Side: basically no problem

Neither in Germany nor in Austria the supply of the EPC-market with capable ESCos has proven to be a barrier.
ESCos have a strong interest in market development. ESCOs are basically companies from one of the following
groups: suppliers for building techniques; engineering companies; utilities. Even in countries such as in Slovenia when no ESCo is available on the national level, there are ESCos that operate in the international market. They are
open for co-operation and will collaborate with national, regional and local actors. They provide know-how, design,
products and operational experiences (and money see below).
One has to keep in mind, that the crucial capability of ESCos is their technical know-how and design and
operational issues related to energy savings. Although third party financing is an important motivation for many
building owners, financing is not the key business of ESCos. They offer financing of the investment as an added
value and as a marketing instrument, but usually ESCos do not earn money on financing.

Model Contract, Quality Standards and Data Basis

Well-functioning competitive markets need standards . The existence of one (or several) approved model contracts
and quality standards helps the building owners to understand the service, to compare and evaluate services, and to
trust the service providers. A solid legal basis diminishes the risks for the building owner, who thus receives a
guaranteed service package and a guaranteed result.
The building owners have to announce clear expectations and targets of the project. This has to be supported by
clear and transparent data basis about energy consumption, energy costs, energy prices and the state of the buildings.

Public Procurement and Competition

Competition secures cost effective services and quality: For the prevailing number of EPC projects in Germany and
Austrian a (European or for smaller projects an national-wide) call for tenders with a declaration of interest in the
first phase, a call for bids in the second phase with contract negotiations in the third phase has proven to be a
successful approach.
The use of a defined procurement process encouraged contractors to supply competitive offers and established a
clear basis for decision-making: the building owners were able to evaluate and compare the offers and investment
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programmes. Usually, there were offers with more than the standard investment programme, some with very
innovative additional ideas, and hence with attractive economic conditions. In addition to that, the negotiation of an
EPC contract makes it possible to adapt the investment programme to the specific needs to the building owner.

Energy Agencies as Key Actors

Energy Agencies are successful mediators on the EPC market. They provide consultancy, practical support and a
broad technical background to building owners, thus acting as a neutral advisor. They supply standard materials and
guidelines. Energy Agencies can also take over the role of a neutral project controller and advisor in conflict
situations. They take over monitoring and project evaluation (if the building has no personnel resources to do so).
They communicate experiences and disseminate success stories and best practice projects. The experience in Austria
and Germany shows, that the availability of ESCO-independent neutral advise through energy agencies reduces the
entrance barrier of building owners considerably. Thus energy agencies seem to play in important role mainly in the
start-up phase of the EPC market.
The Role of Energy Agencies
Information on technology &
economy, partnerships

Decision maker, consumers, other

energy agencies

Planning schemes / process

moderation

Project initiators and developers

Energy Services

Role of
E-Agencies / their
respective clients

Policy Consultancy

Industry, trade, housing

companies, public authorities

Political groups/parties,
legislative body ...

Key Barriers
There are minor technical barriers, such as difficulties in putting the necessary solid data basis. It is indispensable,
that the building owner very often assisted by energy agencies prepares the basic data on the building (energy
consumption and cost, state of the building). In practice, this is a time and money consuming process.
Legal barriers, such as the provision of a secure and fair contract basis and the definition of the procurement
scheme for a functional description of targets and services, are usually of minor importance, too, since the necessary
model contracts and standards have been already developed and need usually only adaptation to the concrete project
conditions. Additionally, the EU directives referring to public tendering give enough flexibility related to the
characteristics of EPC projects (functional description of services, need for negotiations in the tendering process).
There are some economical barriers based in the following aspects:

Some energy efficiency measures (e.g. retrofitting the building envelope) need comparably long contracts or
need an additional budget.

Sectors other than the public sector want to be more flexible and do not want to fix contracts with a duration of
more than 5 years.

Sectors other than the public sector bear the risk of bankruptcy for the ESCo in this case, access to cheap
credits for a comparably high investment becomes more and more difficult.

The most typical barriers are human! Building owners and administrators lack know-how and understanding of
energy services. The operational staff which needs to be directly involved in the preparation and implementation of
an EPC projects is very often afraid outsourcing, which is perceived as a threat of losing job and position. A general
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mistrust in a third party can be observed frequently (Why should they know something which I do not know by
myself?)

EPC on its way through Europe

What energy efficiency policy can do: An Action Plan
The success stories of Germany and Austria give rise to the assumption, that an active energy efficiency policy can
strongly influence the development of the EPC market in a given region or country. Based on the success factors,
which have been decisive in Germany and Austria, we can develop the following key elements of an Action Plan
for EPC Market Development:
1.

Starting with the demand side and there with the right target group: Starting with (simple) public
buildings has proven to be a successful approach, because on one hand they represent an attractive volume and
on the other hand energy efficiency policy can more or less! directly influence the decisions of the public
building administrations. In the starting phase it is crucial to make EPC visible to (potential) ESCos as well as
to (potential) customers of energy services. Visibility can be assured in the most effective way through big pilot
projects usually consisting of pools of buildings that come up with good project results.

2.

The German example with the City of Berlin and the Austrian example with the federal building administration
show that pilot projects should be realised in building segments that offer direct potential for replication.
Replication on a large scale needs political commitment and standardisation of contracts and procurement
processes .

3.

In the next phase the EPC approach can be transferred to further building segments, which can be more
difficult than public buildings, such as private service buildings (offices, shopping centres, etc.) and with
several adjustments also to residential buildings. Furthermore, the experience from Germany and Austria
shows that complex buildings such as hospitals, universities etc. need already consolidated know-how on
the application of the EPC model in practice. It is the general goal of this phase of market development to make
EPC a standard tool of facility management. Besides targeted marketing and information activities easy
access of building owners and administrators to competent advice is the key element. Therefore it is
necessary to set up a network of reliable, experienced and independent advisors, that are (partly) financed by
public means.

4.

It is the role of energy agencies to gather EPC-related know-how and to feed it back into the market mainly
by supporting potential EPC customers. The German and Austrian example prove that an involvement of
energy agencies speeds up the market development considerably.

5.

If the EPC market would grow very quickly in a very short time as this was the case in Austria additionally
to demand-side oriented activities, energy efficiency policy should be also prepared to set up programmes
that help improving the supply of energy services (qualification of companies that are interested in entering
the EPC market).

The proposed Action Plan does neither include necessary adaptations of the legal frame work nor direct subsidies for
EPC projects is it via ratepayer-funded energy efficiency programmes like in the U.S., is it via subsidy
programmes from public budgets. The reasons are simple: On one hand, in general there are no relevant legal
barriers that would make EPC impossible. On the other hand, there is enough economic potential for energy
efficiency improvement in the building sector, already without additional financial incentives.

Would a European Directive on Energy Services Help?

What does the experience with the EPC market development in Austria and Germany mean in the light of a much
discussed European Directive on Energy Services? An answer would address at least the following issues:

A European Directive that would focus on harmonising the legal framework conditions (which ones?) or on
improving the cost-benefit-ratio of energy efficiency measures possibly by imposing ratepayer-funded energy
efficiency programmes would not address the real barriers towards EPC.

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In the worst case, a European Directive or the nationals implementation processes afterwards, could even lead
to a distortion of the EPC market, if (only) utilities get (financial) support for the realisation of energy saving
measures, which others would do on ordinary business bas is.

However, a European directive that is properly designed can advance the political commitment to EPC, if it
forces the Member states to define certain targets (market levels), which have to be reached within a certain
time period accompanied, of course by monitoring and networking at the European level.

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References
Literature

World Energy Efficiency Association (WEEA), 1995, Report on Energy Services [WEEA 1995]
Hessisches Ministerium fr Umwelt, Landwirtschaft und Forsten, 1998, Contracting-Leitfaden fr
ffentliche Liegenschaften, Wiesbaden [HMULF 1998]
BMVBW Bundesministerium fr Verkehr, Bau- und Wohnungswesen / Oberfinanzdirektion Stuttgart, 2000,
Leitfaden Energiespar-Contracting, 1998, Stuttgart [BMVBW 1998]
Umweltbundesamt, 2000, Energiespar -Contracting als Beitrag zu Klimaschutz und Kostensenkung,
Ratgeber, Berlin [UBA 2000]
Senatsverwaltung fr Stadtentwicklung des Landes Berlin / Berliner Energieagentur GmbH, 2002, Die
Energiesparpartnerschaft ein Berliner Erfolgsmodell, Berlin [SenStadt/BE 2002, 1]
Berliner Energieagentur GmbH, 2001, Anlagenmodernisierung und Kostensenkung garantiert
Energiespar-Contracting als Managementstrategie im Gesundheitswesen, Berlin [BE 2001]
Senatsverwaltung fr Stadtentwicklung des Landes Berlin / Berliner Energieagentur GmbH, 2002,
Kombinierte Energiedienstleistungen Die Strategie mit Einspargarantie fr Wohngebude, Berlin
[SenStadt/BE 2002, 2]
Deutscher Stdtetag, 1997, Energie-Contracting fr kommunale Liegenschaften Hinweise zum
kommunalen Energiemanagement, Kln [DST 1997]
Goldman, Ch., Osborn, J., Hopper, N., Singer, T.: Market Trends in the U.S. ESCO Industry: Results from
the NAESCO Database Project, May 2002 [NAESCO 2002]
Energieverwertungsagentur, 1998, Einspar-Contracting in der Praxis, Ein Leitfaden, Dezember 1998, Wien
[EVA 1998]
Straube, M., Zehetner, F., Vergaberechtliche Aspekte von Einspar -Contracting-Modellen, 1999, Wien
[STRAUBE 1999]

Legislation and Standards

VDMA Verband Deutscher Maschinen- und Anlagenbau e. V. 2000: VDMA-Einheitsblatt 24198 Performance
Contracting, Begriffe, Prozessbeschreibung, Leistungen, Frankfurt/Main [VDMA 2000]
DIN Deutsches Institut fr Normung e. V., Normenausschsse Instandhaltung (NIN), Maschinenbau (NAM):
DIN 31051 Grundlagen der Instandhaltung, Entwurf Oktober 2001 [DIN 2001]
Verordnung ber energiesparenden Wrmeschutz und energiesparende Anlagentechnik bei Gebuden
(Energieeinsparverordnung - EnEV) v. 16.11.2001 [EnEV 2001]
DIN Deutsches Institut fr Normung e. V., Normenausschu Kltetechnik (FNK), 2002, ContractingDefinitionen (draft version DIN 8930 part 5) [DIN 2002]
DIN Deutsche Institut fr Normung e. V.: DIN 18 386, VOB Teil C, Allgemeine Technische
Vertragsbedingungen fr Bauleistungen, Gebudeautomation, Ausgabe 12/2000
VDI-Gesellschaft Technische Gebudeausrstung 1998, VDI 3807, Energieverbrauchskennwerte fr
Gebude, Anhang A Bauwerkszuordnungskatalog [VDI 3801]
Die Verdingungsordnung fr Leistungen mit Ausnahme Bauleistungen- (VOL) wurde am 24.10.2000 als
Beilage Nr. 200a im Bundesanzeiger verffentlicht. Die Verdingungsordnung fr Bauleistungen (VOB) war
bereits am 30.06.2000 als Beilage Nr. 120a im Bundesanzeiger bekannt gemacht worden. Die Bekanntmachung
der Verdingungsordnung fr freiberufliche Leistungen (VOF) erfolgte am 13.09.2000 als Beilage Nr. 173a.
VDI Gesellschaft Technische Gebudeausrstung, 1991, VDI-Richtlinie 2067, Blatt 1, Beiblatt: Berechnung
der Kosten von Wrmeversorgungsanlage [VDI 1991]

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