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Advanced business and financial models for Deep Energy Retrofit (DER)
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Advanced business and financial models for Deep Energy Retrofit (DER)

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Session 15 Paper 2, Heriot-Watt University Edinburgh, 14-15 April 2016

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To deploy the high efficiency potential by 2050 IEA1 calls for a major paradigm shift. If the “business as usual scenario” is continued, the energy demand is to be expected to increase by 50% in the building sector. The energy equivalent to current energy use in Russia and India combined could be saved by 2050 if best level technologies are widely deployed. Most of the technologies are already available on the market currently focused component policies need to be aligned to support DER.

This paper is targeting one of the major hurdles to implement DER projects: according to EEFIG´s final report building owners and private capital are hesitant to invest in energy efficiency in buildings due to lack of confidence in the results of DER projects. This paper is providing information on the definition and potential of Deep Energy Retrofits (DER) and is explaining financial mechanisms and two business models, owner- directed and energy performance contracting (EPC). It is assessed how these two business models match with the decision making criteria of the building owners and private investors. The main conclusions of this paper are:

  • To facilitate the decision making process of any energy efficiency measure and especially of high- value Deep Energy Retrofits one of the major decision making criteria is reliability of the planned savings and investment costs.
  • The reliability of energy performance and investment cost predictions can be well provided in the EPC business models. However EPC is currently a proven tool mainly for HVAC mechanical systems; the integration of the thermal insulation and glazing of buildings in to the scope of EPC will increase the pay back and contract period towards 20 and more years.
  • EPC is a life cycle cost related business model and usually the ESCO takes the responsibility for the energy and operational performance of the EPC investments.
  • Additional risks have to be considered as 20 years are exceeding the technical life time of some of the HVAC components; also it is likely that within 20 years the usage of the building may change.
  • To enable EPC business models which are viable for the execution of DER projects mechanisms to de- risk the technical risks (maintenance, operability and performance) and organizational risks (change of building usage etc.) are necessary.
  • This can be achieved by using least- cost- planning for the optimization of cost- effectiveness of measure bundles and by considering additional LCC benefits besides energy savings.
  • First approaches for DER EPC business models have been recently developed in Belgium, Germany and in the USA.
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