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2 IEARETD/ECNE11057
AcknowledgementsThis report presents the outcomes of the project Business Models for Renewable Energy in the
BuiltEnvironment(REBIZZ),initiatedandfundedbytheIEAImplementingAgreementforRenew
ableEnergyTechnologyDeployment(IEARETD).Thisproject isregisteredatECNunderthenum
ber 5.1232. Contact person for this publication at ECN is Laura Wrtenberger
TheauthorswouldliketothanktheprojectsteeringgrouprepresentedbyMichaelPaunescu(Nat
ural Resources Canada), KjellOlav Skjlsvik (Enova Norway), Milou Beerepoot (IEA Secretariat),
Walt Patterson (Chatham House), David de Jager (Ecofys, IEARETD Operating Agent), Kristian
Petrick(IEARETDOperatingAgent)fortheirreviewandguidanceduringthecourseoftheproject.
A special thankyougoes toKristianPetrick,whowasalwaysavailable for feedbackandvaluable
discussions. TheauthorswouldalsoliketothankRonvanderSteenfromFinancialConsultNeder
landforhishelpfulfeedbackandreview,andSytzeDijkstraatECNforcoreadingthereport.
AbstractTheprojectREBIZZaimstoprovideinsighttopolicymakersandmarketactorsinthewaynewand
innovativebusinessmodels(and/orpolicymeasures)canstimulatethedeploymentofrenewable
energytechnologies
(RET)
and
energy
efficiency
(EE)
measures
in
the
built
environment.
The
pro
jectisinitiatedandfundedbytheIEAImplementingAgreementforRenewableEnergyTechnology
Deployment(IEARETD). Itanalysedtenbusinessmodels in threecategories (amongstothersdif
ferent typesofEnergyService Companies (ESCOs),Developing properties certified with a green
buildinglabel,BuildingownersprofitingfromrentincreasesafterEEmeasures,PropertyAssessed
CleanEnergy(PACE)financing,Onbillfinancing,andLeasingofRETequipment)includingtheiror
ganisational and financial structure, the existing market and policy context, and an analysis of
Strengths,Weaknesses,OpportunitiesandThreats(SWOT).Thestudyconcludeswithrecommen
dationsforpolicymakersandothermarketactors.
About IEA-RETD
RETDstands
for
Renewable
Energy
Technology
Deployment.
IEA
RETD
is
apolicy
focused,
tech
nologycrosscuttingplatformthatbringstogethertheexperienceandbestpracticesofsomeofthe
worldsleadingcountriesinrenewableenergywiththeexpertiseofrenownedconsultingfirmsand
academia. IEARETD is a socalled Implementing Agreement, i.e. a platform where a number of
countriescooperateundertheframeworkoftheInternationalEnergyAgency(IEA).
The mission of IEARETD is to accelerate the largescale deployment of renewable energies (RE).
ThisisachievedbyprovidinginformationandrecommendationsonREtechnologycrosscuttingis
sues to policy makers and other stakeholders. To this end, IEARETD commissions annually 57
studies performed by consultancies and academia. The reports and handbooks are publicly and
freelyavailableontheIEARETDswebsiteatwww.iearetd.org.Inaddition,IEARETDorganizesat
least two workshops per year and presents at nationaland international events. IEARETD exists
since2005andhascurrently9membercountries(Canada,Denmark,France,Germany,Ireland,Ja
pan,Netherlands,
Norway
and
the
UK).
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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 3
Contents
1. Introduction 10
1.1 Background 10
1.2 Scopeofthereport 10
1.2.1 Technologicalfocus,marketsegmentsandcountryfocus 10
1.2.2
Howto
define
business
models
for
RET
in
the
built
environment
11
1.3 Readingguideandmethodology 13
2. OvercomingbarriersforthedeploymentofRenewableEnergyTechnologies(RET)inthe
builtenvironment 15
2.1 Currentbarriers 15
2.1.1 Marketandsocialbarriers 15
2.1.2 Informationfailures 16
2.1.3 Regulatorybarriers 17
2.1.4 Financialbarriers 17
2.2 Barriersfromabusinesscaseperspective 18
3. BusinessmodelsforanincreaseddeploymentofRETinthebuiltenvironment 21
3.1 Categorizingbusinessmodels 21
3.2
Productservice
system
business
models
22
3.3 Businessmodelsbasedonnewrevenuemodels 23
3.1 Businessmodelsbasedonnewfinancingschemes 24
4. Analysisofbusinessmodels 25
4.1 ProductServiceSystems:EnergyContracting(ESCOorEnergyEfficiencyServices) 25
4.1.1 Introduction,DefinitionandCommonKeyFeaturesofallthreeESCOModels 25
4.1.2 EnergySupplyContracting 30
4.1.3 EnergyPerformanceContracting 33
4.1.4 IntegratedEnergyContracting 36
4.1.5 SWOTAnalyses,DiscussionandConclusionsforallthreeESCOModels 38
4.2 Businessmodelsbasedonnewrevenuemodels 43
4.2.1 Makinguseofafeedinremunerationscheme 43
4.2.2
Developingproperties
certified
with
agreen
building
label
49
4.2.1 Buildingownerprofitingfromrentincreasesaftertheimplementation of
energyefficiencymeasures 57
4.3 Businessmodelsbasedonnewfinancingschemes 62
4.3.1 PropertyAssessedCleanEnergy(PACE)financing 62
4.3.2 Onbillfinancing 68
4.3.3 Leasingofrenewableenergyequipment 74
4.3.4 BusinessmodelsbasedonEnergySavingObligations 80
5. Synthesis:businessmodels,barriers,marketsegmentsandactors 85
5.1 Whichbarriersareaddressedbybusinessmodels? 85
5.2 Inwhichmarketsegmentscanthebusinessmodelsbeapplied? 88
5.3 Whoaretheactorsinvolvedinthebusinessmodels? 90
5.4
Conclusionand
further
considerations
92
5.4.1 Conclusions 92
5.4.2 Furtherconsiderations 93
5.4.3 Potentialforfurtherresearch 97
6. Recommendations forpolicymakersandmarketactors 99
6.1 Recommendations forpolicymakers 99
6.2 Recommendations forbuildingowners 103
6.3 Recommendations forothermarketactors 103
AppendixA Casestudies 105
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4 IEARETD/ECNE11057
A.1 LIG,Austria IntegratedEnergyContractingPilots 105
A.2 BerkeleyFIRST thefirstPACEfinancingprogramme 107
A.3 FinancingcommercialbuildingretrofitswiththehelpofanEnvironmental Upgrade
ChargeinMelbourne 108
A.4 PROSOL:SupportingmarketgrowthofsolarwaterheatinginTunisia 109
A.5 Greenchoice: SolarsupplycontractingintheNetherlands 111
A.6 AdaptationoftherentalpriceevaluationsystemintheNetherlands 112
A.7
Marketintroduction
of
small
and
micro
CHP
systems
114
A.8 Leasingofaheatpumpsystem 115
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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 5
List of tables
Table2.1 Barriersandmarketsegments 19
Table3.1 Listofanalysedbusinessmodels 22
Table5.1
Barriers
addressed
by
the
business
models
86
Table5.2 Marketsegmentsaddressedbythebusinessmodels 89
Table5.3 Actorsdirectlyinvolvedinthevariousbusinessmodels 91
TableA.1 SamplecalculationfortheinstallationofasolarPVplantonaresidentialbuilding
underthepilotBerkeleyFIRSTPACEfinancingprogramme 107
List of figures
Figure3.1 ScopeofservicesofdifferentESCOmodels 23
Figure4.1
Energy
Contracting:
A
modular
energy
service
package
with
guaranteed
results
fortheclient.(Note:Theaddedvaluefortheclientofenergycontracting
comparedtoinhouseimplementationisdisplayedinred.) 26
Figure4.2 EnergyContracting: Componentsofservicepackageandoutsourcingof
interfacesandguaranteestoanESCO 27
Figure4.3 EnergyContractingmodelwherebuildingownerfinancesRETequipment
throughaloanfromafinancialinstitute 28
Figure4.4 EnergyContractingmodelwhereESCOfinancesRETequipment(optionallywith
financialinstitute) 28
Figure4.5 ESCmodel:Schematicstandardscopeofservicesincludingrenewables 30
Figure4.6 EnergySupplyContractingbusinessmodel 31
Figure4.7 EPCmodel:Schematicstandardscopeofservices 33
Figure4.8
Energy
Performance
Contracting
business
model 34
Figure4.9 IECmodel:Schematicstandardscopeofservices 36
Figure4.10 IntegratedEnergyContractingbusinessmodel 37
Figure4.11 EnergyContractingmodels:summaryofSWOTanalysis 40
Figure4.12 Valuechainfromprimaryenergytoenergyservices 41
Figure4.13 Schematicdepictionofabusinessmodelbasedonafeedintariffand
productionexceedingownuse,smartmeteroptional 45
Figure4.14 Schematicdepictionofabusinessmodelbasedonafeedinpremiumand
productionlessthanownuse,smartmeteroptional 45
Figure4.15 Businessmodelbasedonfeedinremuneration summaryoftheSWOT
analysis 47
Figure4.16 Schematicdepictionofthebusinesscaseofdevelopingapropertycertified
according
to
a
green
label 51
Figure4.17 Countrieswithgreenbuildingcertificationprograms 52
Figure4.18 Voluntarygreenbuildingcertification summaryoftheSWOTanalysis 55
Figure4.19 Schematicdepictionofthebusinessmodel 58
Figure4.20 Businessmodelbasedonhigherrentsafterimprovingenergyperformanceofa
building summaryoftheSWOTanalysis 60
Figure4.21 SchematicdepictionofPACEfinancingforRET 62
Figure4.22 PACEfinancing summaryoftheSWOTanalysis 66
Figure4.23 SchematicdepictionofonbillfinancingofRET 69
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6 IEARETD/ECNE11057
Figure4.24 Onbillfinancing summaryofSWOTanalysis 72
Figure4.25 LeaseagreementwithoutinvolvementofanESCO 75
Figure4.26 LeaseagreementwithinvolvementofanESCO 75
Figure4.27 Leasingarrangementbetweenacompanydistributingaspecifictechnology
andabuildingowner 76
Figure4.28 LeasingofRET summaryoftheSWOTanalysis 79
Figure
4.29
Schematic
depiction
of
Energy
Saving
Obligations,
depicting
one
building
owner
whoprofitsfromtheobligationbylowerenergypricesafteraninstallationof
RET/EEmeasureandanotherbuildingownerwhoonlypaysahigherpricefor
hiselectricity. 81
Figure4.30 EnergySavingObligation summaryoftheSWOTanalysis 84
FigureA.1 SchlossRetzhof:SeminarHouseoftheProvinceofStyria 105
FigureA.2 OrganisationalstructureofthePROSOLbusinessmodel 110
FigureA.3 Netcostsandbenefitsofrenovationforlandlordsandtenants,undertheadapted
rentalpriceevaluationsystem 113
List of boxes
Box4.1 Caseinpoint:BerkeleyFIRST thefirstPACEfinancingprogramme 68
Box4.2 Caseinpoint:PROSOL 73
Box4.3 Caseinpoint:MarketintroductionofsmallandmicroCHPsystems 80
Box5.1 Caseinpoint:Wonen++conceptanexampleofsmallscaleenergyservices 95
Box5.2 Caseinpoint:CosteffectivenessofRETmayvary 96
Box6.1 SupportingEnergyContractingbusinessmodels 100
Box6.2 Considerationsforsupportingbusinessmodelsbasedonnewfinancingschemes 101
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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 7
Summary
The project Business Models for Renewable Energy in the Built Environment (REBIZZ) aims to
providepolicymakersandothermarketactors insight intothewaynewand innovativebusiness
modelscan
stimulate
the
deployment
of
renewable
energy
technologies
(RET)
and
energy
efficien
cy(EE)measuresinthebuiltenvironment.
Today,variousbarrierspreventanincreaseddeploymentofRETinthebuiltenvironmentincluding
Marketandsocialbarriers:pricedistortionthroughexternalities, lowpriorityofenergy issues,
splitincentives,etc.
Informationfailures:lackofawareness,knowledgeandcompetence
Regulatorybarriers:restrictiveprocurementrules,cumbersomebuildingpermittingprocesses
Financialbarriers:low(orno)returnsoninvestment,highupfrontcosts,lackofaccesstocapi
taletc.
Forthescopeofthisstudy,abusinessmodelwasdefinedasastrategyto invest inRET(andEE
measures),whichcreatesvalueand leadstoan increasedpenetrationofRET inthebuiltenvi
ronment.Successful
business
models
represent
approaches
in
which
the
financing
and
implemen
tationofRETorEEinbuildingsisorganisedinsuchawaythatcertainbarriersforthedeployment
ofRETareovercome.Basedonthemaindriversforvaluecreation,businessmodelsforRETinthe
built environmentcan begrouped in threecategories, inwhichoverall10businessmodelswere
analysed:
ProductServiceSystems/EnergyServiceCompanies(ESCOs):
1) EnergySupplyContracting(ESC):AnEnergyServiceCompany(ESCO)suppliesusefulenergy,
suchaselectricity,hotwaterorsteamtoabuildingowner(asopposedtofinalenergysuch
as pellets or natural gas in a standard utility contract). The ESC model is particularly well
suitedforgeneratingelectricityandheatfromRET.
2) EnergyPerformanceContracting(EPC):AnESCOguaranteesenergycostsavingsincompari
sontoahistorical(orcalculated)energycostbaseline.Foritsservicesandthesavingsguar
anteethe
ESCO
receives
aperformance
based
remuneration.
3) Integrated Energy Contracting (IEC): The IEC model is a hybrid of ESC and EPC aiming to
combinesupplyofusefulenergy,preferablyfromrenewablesourceswithenergyconserva
tion measures in the entire building. The model is currently being piloted in Austria and
Germany.
Businessmodelsbasedonnewrevenuemodels:
4) Makinguseofafeedinremunerationscheme:Throughafeedinremunerationschemethe
producer of renewable energy receives a direct payment per unit of energy produced. A
feedinschemeguaranteesaccesstoapredictableandlongtermrevenuestream,whichcan
serveasastablebasisforabusinessmodel.
5) Developingpropertiescertifiedwithagreenbuildinglabel:Greenbuildingcertificationsys
tems assessabuildingsperformanceaccording toenvironmental andwidersustainability
criteria.Inthisbusinessmodelapropertydeveloperorarchitectdesignsandbuildsbuildings
certifiedaccording
to
avoluntary
green
certification
scheme,
expecting
to
realize
asales
pricepremiumcomparedtoconventionalbuildings.
6) Buildingownerprofiting fromrent increasesafter the implementation ofenergyefficiency
measures: Building owners who do not occupy a building themselves or housing corpora
tionscanprofitfromadditionalrevenueopportunitiesafterundertakinginvestmentsinRET
andEEmeasuresiftheyareallowedtochargehigherrentfromtheirtenantsafterthereno
vation.
Businessmodelsbasedonnewfinancingschemes:
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8 IEARETD/ECNE11057
7) PropertyAssessedCleanEnergy(PACE)financing:PACEfinancingisamechanismsetupbya
municipalgovernmentbywhichpropertyownersfinanceRETandEEmeasuresviaanaddi
tionaltaxassessment1ontheirproperty.Thepropertyownersrepaytheassessmentovera
periodof15to20yearsthroughanincrease intheirpropertytaxbills.Whentheproperty
changesownership,theremainingdebtistransferredwiththepropertytothenewowner.
8) Onbillfinancing: Utilitiesprovidefinancing(i.e.aloan)forRETandEEmeasures.Thebuild
ingowners(orbuildingusers)repaytheloansviaasurchargeontheirutilitybills.
9) Leasingof
renewable
energy
equipment:
Leasing
enables
abuilding
owner
to
use
arenewa
bleenergy installationwithouthavingtobuy it.The installation isownedor invested inby
anotherparty,usuallyafinancialinstitutionsuchasabank.Leasingcanbeacentralcompo
nentofthebusinessmodelofanESCOorofacompanythatintroducesanewtechnologyto
themarket.
10)BusinessmodelsbasedonEnergySavingObligations:EnergySavingObligationsareapolicy
instrumentthatobligesenergycompaniestorealiseenergysavingsatthelevelofendusers.
It stimulates business models based on financial incentives offered by energy suppliers to
buildingowners,rentersorenergyservicecompanies.
Theanalysisofthebusinessmodels includedananalysisoftheorganisational andfinancialstruc
ture,theexistingmarketandpolicycontextandananalysisofStrengths,Weaknesses,Opportuni
ties
and
Threats
(SWOT).
Some
of
the
analysed
business
models
are
specific
to
a
certain
market
segment (e.g. new vs. existing, owneroccupied vs. rented, residential vs. commercial buildings),
whereasotherscaneasilybegeneralised.Practicalexperiencewiththemodelsvariesamongcoun
tries.
Strongroleofpolicymakersrequired
Thestudydemonstratesthatbusinessmodelscanplayanimportantroleinincreasingthedeploy
mentofRETinthebuiltenvironment.Theyprovideopportunitiesforbuildingowners,e.g.facilitat
ingaccesstocapital,financingofupfrontcosts,outsourcingoftechnicalandeconomicrisks,and
offeringfurtherenergyrelatedservices.Inmanycasesbusinessmodelsrequireonlyasupporting
rolebygovernment,e.g.throughchangesof legislation. However,businessmodelsalonewillnot
lead toasignificantly increaseddeploymentofRET.Theanalysedbusinessmodelsgenerallyonly
lead to a deployment of costeffective technologies because they are unable to improve the re
turnson
investment
of
RET
and
EE
measures
by
themselves.
Moreover,
business
models
cannot
addressallbarriers,e.g.nobusinessmodeladdressesthebarrieroflowpriorityofenergyissues,
whichkeepsbuildingownersfromtakingaction.Thisimpliesthatastrongroleofpolicymakersis
stillrequired.
Inwhichmarketsegmentscanthebusinessmodelsbeapplied?
ThebuiltenvironmentisacomplexsectorwherebarriersforanincreaseddeploymentofRETdiffer
amongmarketsegments.Theresultsshowthatinexistingandnew,largecommercial,residential
andpublicbuildings,ESCOmodelscanaddressthebarriersofhighupfrontcostsandaccesstocap
ital.InsmallresidentialandcommercialbuildingsthiscanbeachievedbyPACEoronbillfinanc
ing.Thesebusinessmodelsmakealifecycleapproachpossiblewherebuildingownerscanspread
theinvestmentcostsacrosstheprojectlifetime. Forbusinessmodelstoworkinrentedbuildings,
thesplit incentivesbarriermustbeaddressed.Onewayofdoing this inregulatedrentalsectors,
especially the social housing sector, involves a change in legislation, allowing building owners topassonthecostoftheinvestmenttothetenantthrougharentincrease.Tocushionthesocialef
fectsofthemeasure, thebenefitsofenergysavingsshouldbehigherthantherentincreaseforthe
tenants.Businessmodelshavetheadvantagethattheycanworkwellforexistingbuildingswhere
1 Taxassessmentsarecomparabletoloansasthepropertyownerpaysoffitsdebtininstallmentsoveraperiod
ofvariousyears.
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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 9
asbuildingcodes/obligationssofartendtobe limitedtonewbuildingsandsubstantialrenova
tions.
Businessmodelsfornoncosteffectivetechnologies
Today, there are already many costeffective opportunities for a deployment of RET and EE
measures (e.g. insulation of buildings, solar water heating in sunny climates), although cost
effectivenesslargelydependsonthebackgroundsituation.Fortechnologiesthatarenot(yet)cost
effective,business
cases
may
be
based
on
supporting
policy
measures
such
as
feed
in
remunera
tionschemes. Greencertificationofbuildingscanstimulate investments inRETevenwhenthey
are not costeffective. However, becausesuch certification is voluntary, it typically onlyworks in
nichemarkets.
EnergysavingobligationsareintroducedbygovernmentstostimulateEEmeasuresandenergyser
vices through theparticipationofenergy suppliers. Inpractice, thispolicymeasurepromotes for
exampletheroleofESCOsandonbillfinancingbutoriginally itonlyfocusedonEE.Thescopeof
energysavingobligationscouldbebroadenedtoincludeRETinthebuiltenvironment.
Recommendationsforpolicymakers
PolicymakersshouldfirstanalysethecosteffectivenessofRET/EEmeasures indifferentmar
ketsegments
of
the
built
environment
within
their
jurisdiction.
To support costeffective RET in existing and new large commercial, residential and public
buildingspolicymakerscanstimulateESCOmodels,e.g.bysupportingmarketfacilitators,facili
tatingaccesstofinanceandchangingprocurementrulesforpublicbuildings.
To support costeffective RET in smaller residentialandcommercialbuildings, policy makers
canstimulatebusinessmodelssuchasonbillfinancingorPACEfinancing,e.g.by
- decidingonthemostpromisingmodelbasedonastakeholderanalysis(whichactorshavean
interestinRET,theabilitytoofferaccesstocapital,thetechnicalcapacityandaccesstothe
decisionmakers)
- mandatingorstrongly incentivisingutilities,e.g.throughenergysavingsobligationstotake
anactiverole
- clarifyingoutstandinglegalissues,e.g.onlinkingliabilitiestoaproperty.
Toaddresssplitincentivesinrentedbuildings,dependingonhowtheirrentalmarketisregulat
ed,policy
makers
may
change
rental
legislation
to
make
rent
increases
possible
after
RET
or
EE
investments.
Recommendationsforbuildingowners
Publicbuildingownersplayaspecialrole,astheycanserveasarolemodelandameanstodrive
the implementationofgovernmenttargetsforRETdeploymentandenergyefficiencyinthebuilt
environment.Governmentscanbeproactive inapplyingsuitablebusinessmodels.Publicbuilding
ownerscanforexample:
Applycertificationwithvoluntarygreenbuildinglabelstonewbuildingsandduringsubstantial
renovationofexistingfacilities,and;
DirectlysupportESCObusinessmodelsbyusingthesemodelsinthepublicbuildingstock.This
mayrequireachangeinpublicprocurementrules.
Thisprovides
aunique
opportunity
for
local
governments
to
become
active
in
increasing
the
de
ploymentofRETinthebuiltenvironment.
Theanalysisalsoshows thatoftenbusinessmodelsare mostsuccessfulwhen theyarebasedon
partnershipsbetweenactorswithcomplementary expertiseandresources,e.g.regardingaccessto
capital,technicalexpertiseandaccesstotheclients/buildingowners.
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10 IEARETD/ECNE11057
1. Introduction
1.1 Background
TheImplementingAgreementonRenewableEnergyTechnologyDevelopmentoftheInternational
EnergyAgency(IEARETD)hastheobjectivetosupportasignificantlyhigherutilisationofrenewa
bleenergytechnologies(RET)byencouragingmorerapidandefficientdeploymentofthesetech
nologies.RETare increasingly recognized for theirpotentialrolewithinaportfolioof lowcarbon
andcostcompetitiveenergy technologiescapableofresponding to thedualchallengeofclimate
changeandenergysecurity.Moreover,REThavethepotentialtoreduceenvironmentalpollution
causedbyfossilfuelbasedenergysources.
The building sector presents a large opportunity for reducing CO2 emissions in a costeffective
manner.About40%offinalenergyconsumptiontakesplaceinexistingbuildings,andbuildingsac
countforabout24%ofglobalCO2emissions.2Atthesametime,thebuildingsectorofferssomeof
thelargestpotentialsforreducingGHGemissionsatnegativecosts.TheIPCC(2007)estimatesthat
globallyabout30%ofthebusinessasusualCO2emissionsinbuildingsprojectedfor2020couldbe
mitigated
in
a
costeffective
way.
There
is
a
large
potential
for
meeting
the
energy
demand
ofbuildings by means of district heating and cooling schemes or through the direct use of RET in
buildings(IPCC,2011).
However,as illustrated inpreviousstudiesby the IEA(IEA,2007; IEA,2008; IEA,2010, IEARETD,
2007) and other organisations (e.g. WBCSD, 2010; Wuppertal Institute et al., 2010; European
Commission,2010/11)variousbarrierspreventtheaccelerateduptakeofRETandenergyefficiency
measures inthebuiltenvironment.Newand innovativebusinessmodelsmayhelptoexploitthe
potentialofasustainableenergyinthebuiltenvironmentbyaddressingoneormoreofthesebar
riers.
The IEARETD thereforecommissioned theproject Businessmodels forRenewableEnergy inthe
Built Environment (REBIZZ) to gain insights into the way new business models and/or policy
measurescan
stimulate
the
deployment
of
renewable
energy
technology
(RET)
and
energy
efficien
cy (EE) in the built environment. The project aims at providing recommendations to both policy
makersandmarketactors.Thisreportpresentstheworkundertakenwithinthisproject.
1.2 Scope of the report
1.2.1 Technological focus, market segments and country focus
Thestudy focusesonbusinessmodels for increasing thedeploymentofRET in thebuiltenviron
ment.Wherenecessary,thereportalsoaddressenergyefficiencymeasuresandhowenergyeffi
ciencymeasuresrelatetothedeploymentofrenewableenergy,asenergyefficiencyplaysan im
portantroleinreducingenergyuseinbuildings.Inaddition,manyexistingstudies,forexampleon
barriersfor
reducing
GHG
emissions
from
buildings,
focus
on
energy
efficiency.
Previous
research
commissionedbytheIEARETD(IEARETD,2010)suggeststhatthe lessonsfromthepromotionof
residentialenergyefficiencymay largelybetransferredtoprogrammespromotingtheresidential
useofrenewableenergy.
2 Thisisthecaseinmostcountriesoftheworld,i.e.bothglobally(UNEP,2007)andinOECDcountries(IEA,2008;
EC,2011).
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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 11
Theanalysiscoversrenewableelectricity,andheatingandcooling.Thefollowingrenewableenergy
technologies inbuildingsfallunderthescopeofthestudy:
SolarPV
Solarthermalforwaterandspaceheating(solarboilers)
Smallscalewindturbinesontheroofsofbuildingsforelectricitygeneration
Biomassheating(e.g.woodpellets)
Heatpumpsandsmallscaledistrictheating/CHPplantsbasedonrenewableenergy(e.g.when
installedbyapropertydeveloperonalargehousingorbusinesscomplex)
Heatandcoldstoragesystems
MicroCHPsystemsmaybeincludedbecause,althoughtheyarenotaRET,amicroCHPsystem
isgenerallymoreefficientthantraditionalelectricityandheatproduction,andmaybebasedon
renewableenergyinthefuture.
EEmeasuresarenotanexplicitfocusofthereport.However,wheretheanalysisdoesrefertoEE
measures,thesecouldincludethefollowing:
Insulation(wall,roof,floor,window,heatingandwaterpipes,cracksealing)
Lowtemperatureroomheating
Heatingboilercontrols
Heatrecoverysystems(ventilationsystem,shower)
Other(water
saving
shower
heads,
weatherstrips
etc.).
Thestudydistinguishesbetweenthefollowingmarketsegments:newvs.existingbuildings,owner
occupied versus rented, and commercial vs. residential (if needed further split into multifamily
dwellings,de/attachedhomesandstandalonehouses).Withinthesegmentofcommercialbuild
ings,whererequired,thespecificroleofpublicbuildingownersisaddressed.
Somepartsofthestudy includecountryspecificexplanations.Casestudiesfromacountryorre
gionareusedto illustrate thebusinessmodels.Inaddition,thebusinessmodelsareput intothe
contextofthecountryspecificregulatoryenvironment.Wherethisisthecase,theIEARETDmem
bercountries,i.e.Canada,Denmark,France,Germany,Ireland,Japan,Netherlands,Norway,United
Kingdom,areexamined.Thestudymayalsorefertoothercountriesandcountrysituationswhich
couldbepotentiallyinterestinginthelongtermforthebusinessmodelsevaluatedsuchas,butnot
limitedto,ChinaandtheUnitedStates.
1.2.2 How to define business models for RET in the built environment
Research on business models originated during the rise of ecommerce and the development of
other internetbasedcompanies inthe1990sandearly2000s.Sincethen,businessmodelshave
becomeanincreasinglypopularconceptinmanagementtheoryandpractice.Today,theconceptis
being applied to an ever wider range of sectors and topics (Wuestenhagen, 2004; Osterwalder,
2005).
Alargenumberofstudiesonthetheoryofbusinessmodelsexist,butsofarthere isnogenerally
accepteddefinitionofwhatabusinessmodelis,althoughthedefinitionsgenerallystatethatitde
scribes
how
a
business
creates
value
(Osterwalder,
2005,
Osterwalder
et
al
2005,
Porter
2001,
Shaferetal2005).Theapproachforvaluecreationcanthenbesplitintodifferentaspects,includ
ingforexamplethestrategicobjectiveandvalueproposition,sourcesofrevenue,criticalsuccess
factors,corecompetencies,customersegments,saleschannels(WeillandVitale,2001)andkeyac
tivitiesandresources.Otherdefinitionsaresimpler,e.g.definingabusinessmodelasthemethod
ofdoingbusinessbywhichacompanycansustainitself,thatis,generaterevenue(Rappa,2001).
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Basedontheseconsiderations,werecognizethefollowingdistinctionbetweenabusinesscaseand
abusinessmodel:
Abusinesscasecapturesthelogicandreasoningforinitiatinganactivity,suchasaninvestment
inRETinthebuiltenvironment.Thereasoningincludesafinancialcalculationdemonstrating
theprofitabilityoftheplannedinvestment.
Abusinessmodeldescribesthestructureandstrategybehindabusinesscase,andincludesel
ementssuchasvalueproposition,keyactivities,keyresources,coststructureandrevenue
streams.Theaimofabusinessmodelistohelpstructureaninitiativeinawaythatleadstoapositivebusinesscase,onethatleadstoinitiatingtheactivity.
Forthescopeofthisstudy,abusinessmodelisdefinedas:
astrategytoinvestinRETandinEEmeasures,whichcreatesvalueand
leadstoanincreasedpenetrationofRETandEEmeasuresinthebuiltenvironment.
Researchonbusinessmodelsgenerallyfocusonthestrategyatacompanylevel.However,forthe
concretecaseofdeploymentofRETinthebuiltenvironment,webroadenthedefinitionofabusi
nessmodeltoalso includestrategiesofnoncorporateactors.Thebuiltenvironment isanexcep
tionally multifaceted system, including different market segments and market actors. The World
Business Council for Sustainable Development (WBCSD) (2009) in its Roadmap for a Transfor
mationof
Energy
Use
in
Buildings
identifies
for
example
seven
different
group
of
actors
in
the
sec
tor:governmentauthorities;buildingdevelopers; investors;occupiers;suppliersand manufactur
ers;architects,engineers,contractorsandcraftsmen;andutilities.Inaddition,energyservicecom
paniesmaybeinvolved.Atleastfiveofthese,i.e.buildingdevelopers,investors(i.e.buildingown
ers),occupiers,energyservicecompaniesandutilitiesmaybedirectlyinvolvedininvestinginRET
inthebuiltenvironment,andcreatingvaluefromthisinvestment.
Business models vary from being relatively simple to being complex. More simple models exist
whenanactortakesadvantageofanexistingincentiveschemeforRET3,whilemorecomplexmod
els includeEnergyServiceCompanies (ESCOs)offeringenergyservicesranging fromproviding in
formationandadvice,identifyingpotentialREorEEmeasures,implementingthem,andundertak
ingoperationandmaintenanceservicesandfinancing.
Today, various barriers prevent an increased deployment of RET in the built environment (seeChapter2).Successfulbusinessmodelsrepresentsituations inwhichthefinancingandimplemen
tationofRETorEEinbuildingsisorganisedinsuchawaythatcertainbarriersforrealisationofre
newable energy are (to some degree) overcome. Financial barriers such as long payback times,
(perceived)highcostsandaccesstocapitalaremajorbarriersfortheimplementation ofRET(see
Chapter2).Thereforethefinancialstructureofthebusinessmodelsisanimportantelementinthe
descriptionandanalysisofbusinessmodelsinthisstudy.
Inaddition,theregulatoryenvironmentplaysacrucialroleforbusinessmodelsforthe increased
deploymentofRET.Policy interventions addressthebarriersforan increaseddeployment,either
bydirectincentives(e.g.subsidiesorpreferentialpricing),orbychangingtheregulatoryframework
(e.g.minimumtechnologystandards,obligations).Policyinterventions involvingfinancialincentives
usuallydirectly
stimulate
the
financial
structure
of
the
business
model.
Policies
in
the
category
of
regulatoryschemestendtobe indirectlybeneficialtobusinessmodels,e.g.bychangingthecom
petitivenessversusconventional energy.Inpractice,businessmodelsmaydependonmultiplepoli
cies,includingboth incentivesandfavorableregulatoryschemes.Thisstudyanalysesunderwhich
regulatoryenvironmentbusinessmodelsareviable.
3 Wuestenhagenetal.(2005)forexampleconsider intelligentmanagementofavailablesubsidiesapotentially
importantelementofbusinessmodelsforsustainableenergy.
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1.3 Reading guide and methodology
Thisreportconsistsofsixchapters:
Chapter1presentssomebackgroundtotheprojectanddescribesthescopeofthereport.
Chapter2 identifiescurrentbarriers to introducingRET/EEmeasures in thebuiltenvironment
anddescribeswhatthesebarriersimplyfromabusinesscaseperspective.
Chapter3presents categoriesof business models for sustainable energy in the built environ
mentand
introduces
the
new
and
innovative
models
that
are
analysed
in
the
report.
Chapter4describesandanalysesthesebusinessmodelsindetailwithrespecttotheirpotential
forsupportinganincreaseddeploymentofRETinthebuiltenvironment.
Chapter5presentasynthesisandconclusionsofthebusinessmodelanalysis.
Chapter6givesrecommendationsforpolicymakersandmarketactors.
TheidentificationofcurrentbarriersforanincreaseddeploymentofRET/EEmeasuresinthebuilt
environmentinChapter2isbasedonaliteraturereviewofrecentstudies.Barriersaregroupedin
4categoriesbasedonIPCC(2007),UNEP(2007)andIEA(2008).Thecategoriesofbusinessmodels
presentedinChapter3arederivedbasedonthetaxonomyofbusinessmodelsinexistingstudiesin
general,andspecificallyoncategoriesofbusinessmodelsforenvironmentalservicesandsustaina
bleenergy.Businessmodelscanbecategorizedaccordingto themaindrivers forvaluecreation.
For
environmental
services
and
sustainable
energy,
three
main
categories
were
identified
based
on
Wuestenhagen(2005)andCOWI(2008).Thesecategorieswereconfirmedbyareviewofexisting
andplannedbusinessmodelsconfirmingthatallpotentialbusinessmodelscanindeedbesumma
rizedunderthesecategories.
Toselectconcretebusinessmodelsforfurtheranalysis,informationonawiderangeofexistingand
plannedbusinessmodelswascollected.Inaddition,thestudyconsideredhowexistingandplanned
legislationandotherpotentialdriversforbusinessmodelssuchasan increasedawarenessofcli
matechangemay leadtonewbusinessmodels.Wealsoconsideredhowcurrentbarriersforthe
deploymentofRETcouldtheoretically beovercomebybusinessstrategies,andhowcertainbusi
nesscasesincludingRETbecomemoreviableiffossilfuelpricescontinuetorise.Basedonalonger
list,incollaborationwiththeProjectSteeringGrouptenbusinessmodelswereselectedforfurther
analysis.
Methodologyforbusinessmodelanalysis
The analysisof these business models (see Chapter4) follows the same general template for all
businessmodelstoensurecomparability.OnlyfortheEnergyContractingmodels(seeChapter4.1)
somepartsoftheanalysisarepresentedatthegenerallevelofEnergyContractingmodels,whilst
otherelementsareexplained for thespecificsubmodels inordertoavoid lengthyrepetitionsof
information.Thetemplateforthebusinessmodelanalysiscontainsamongstothersadescriptionof
theorganisationalandfinancialstructureandananalysisofStrengths,Weaknesses,Opportunities
andThreats(SWOT).Strengthsandweaknessesconsiderthebusinessmodelassuch,whileoppor
tunitiesandthreatslookattheconditionsforeffectiveimplementation andtheimpactofexternal
developments.
Theorganisationalandfinancialstructureofthebusinessmodelsisillustratedinaschematicrepre
sentationwhich
highlights
the
business
models
most
important
elements
(see
for
example
Figure
4.3) based on the formalismdevelopedbyWeillandVitale (2001) forso called ebusiness initia
tives.Similardiagramsareusedfrequentlyindifferentcontexts,e.g.byBleyl(2009)forESCObusi
nessmodels.
ThequestionsfortheSWOTanalysisarepartlybasedontheImpactAssessmentGuidelinesbythe
EuropeanCommission (EC,2009).The leadingquestion is, how suitable the business model is to
contributetoanincreaseddeploymentofRET(andEEmeasures)inthebuiltenvironment). Specific
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questionsfortheanalysisofstrengthsandweaknesses (i.e.effectiveness,efficiency,usefulness?)
are:
Isthebusinessmodeleffective?DoesitleadtoanincreasedpenetrationofRET?
Whichbarriersareremoved,ortowhichextentdecreased(usefulness)?
Isthebusinessmodelrealizedcosteffectively?
Doesitrequirealotoftimeoreffortforthepersonwhoimplementsit?
Aresignificanttransactioncostsinvolved?
Canthebusinessmodelbescaledup,orreplicatedinothercountries?
Areotherpolicymeasuresneededassupportingmeasures,e.g.informationcampaigns?
Questionsfortheopportunitiesandthreats(howviableandhowvulnerable isthebusinessmod
el?)are:
Inwhichpolicycontextorunderwhatmarketconditionsdoesthisbusinessmodelwork?
Howdochangesinthepolicycontextandmarketenvironmentaffectthebusinessmodel?
Isthebusinessmodelsustainableafterfinancialincentivesarediscontinued?
Impactsoftechnologydevelopments?Impactsofdevelopmentsinthebuildingstock?
Impactsoffossilfuelpricesandfeedstockprices?
However,thesequestionsareonlymeanttogiveguidance,asitisnotpossibletogivecomprehen
siveanswers
in
the
frame
of
this
study.
Ideally
the
SWOT
analysis
would
be
based
on
three
differ
enttypesofinformation:
Informationfromconcretecasestudies.
Information frommarketandevaluationstudies,e.g.on the impactofacertainpolicy instru
mentonabusinessmodel.
Generalizedstatementsontheeffectiveness, efficiency,usefulnessandontheviabilityandvul
nerabilityofthebusinessmodel.
However, inreality,thisdepthof information isnotavailable.Dependingontheavailabilityof in
formationonspecificbusinessmodels,theSWOTanalysesdifferinlengthandlevelofelaboration.
Thebusinessmodelanalysisiscomplementedbycasestudieswhichshowconcreteexampleofthe
businessmodelinaspecificcontext.Thebusinessmodelanalysisfocusesongeneralizedconcepts.
Reality
may
be
more
complex
than
the
stylized
business
models
discussed
in
this
report.
The
case
studiesgivesomeinsightastothecomplexityandvariationsfoundinrealimplementation.
Methodologyforsynthesis,conclusionsandrecommendations
The synthesis chapter evaluates the business models and puts them into a larger perspective.
Therebythequestion isaddressed,howtheanalysedbusinessmodelscanstimulateanincreased
deployment of RET in the built environment. The discussion also touches upon additional ques
tions,suchas:Willbusinessmodelsthataremainlybasedonvoluntaryactionsbesufficienttoin
creasetheenergyefficiencyanduseofRETinbuildings?Orarestricterpolicymeasuresrequired,
e.g.liketheEuropeanBuildingPerformanceDirectiveorlocalsolarordinances?Arethesepolicies,
that apply both sticks and carrots, sufficient? How can it be assured that the necessary invest
mentscanbefinanced?Andhowcanitbeensuredthattherehabilitation ofexistingbuildingstock
istackledquickly?However,basedontheresearchundertakenforthisreport,itisnotpossibleto
givecomprehensive
answers
to
these
questions.
Overview tables which illustrate which barriers are addressed by the business models, in which
marketsegmentsthebusinessmodelswork,andwhichactorsaredirectlyinvolvedformthebasis
forthecomparisonandsynthesis.Thesynthesisleadstosomegeneralconclusions,whichformthe
basis for recommendations for policy makers and marketactors. In addition, the SWOT analyses
leadtorecommendations forspecificbusinessmodels.
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2. Overcoming barriers for the deployment of Renewable EnergyTechnologies (RET) in the built environment
2.1 Current barriers
As illustrated inpreviousstudiesbytheIEA(IEA,2007;IEA,2008;IEA,2010,IEARETD,2007)and
other organisations (e.g. WBCSD, 2010; Wuppertal Institute et al., 2010; European Commission,
2010/11)variousbarrierspreventtheaccelerateduptakeofRETandEEmeasuresinthebuiltenvi
ronment.Mostof the existingstudieshave focusedonbarriers to increasingenergyefficiency in
thebuiltenvironment,whilesomerecentstudiesspecificallyaddressbarriersforanincreasedup
take of renewable heating and cooling (e.g. IEARETD, 2007). In most cases, barriers for RET de
ployment in the built environment dont differ significantly from barriers for energy efficiency
measures,asmostbarriersarespecifictothebuiltenvironment.
Foreasierconceptualizationbarriersaregroupedintofourcategories(basedonIPCC(2007),UNEP
(2007)andIEA(2008)):marketandsocialbarriers, informationfailures,regulatorybarriersandfi
nancialbarriers.Asthisstudyexplicitlytakesaninvestment/businesscaseperspective,technical
barriersare
reflected
mostly
in
the
higher
risk
of
RET
as
part
of
the
financial
barriers.
Political
barri
ersareconsideredtobepartoftheregulatorybarriers,andmarketandsocialbarriers.Similarly,
behavioural barriers arereflected in market and social barriers, and in financial barriers via high
discountrateswhichhinderupfrontcapitalinvestments.
2.1.1 Market and social barriers
ThefollowingbarriersrelatetothedemandsideofthemarketforRETandEEmeasuresinthebuilt
environment.
Lowpriorityofenergyissues
Inmanycases,energycostsinbuildingsarerelativelylowwhencomparedtoothercostsforprivate
persons
or
companies
(IEA,
2007).
As
a
consequence
there
is
little
incentive
to
invest
in
improving
theenergyperformanceofthebuilding.Consumersrathertendtoinvestinupgradesoftheirbuild
ingsforreasonsofcomfort,aesthetics,reliability,convenienceorstatus.Companiesfocustheirin
vestments on corebusiness assets, whereas investments into the buildingstock have only a low
priority(IEA,2007)
Pricedistortion
From a societal perspective energy is too cheap, as externalities such as the costs of natural re
sourcedepletion,healthimpactsfrompollution,andclimatechangearenotincludedinthemarket
priceforenergy.Thisimpliesthatconsumersandprojectdevelopersdonotreceiveaccurateprice
signalsreflectingthetruemarginalcostofenergyuse.
Thehasslefactor
Thebenefits
from
implementing
RET
or
EE
measures
may
be
outweighed
by
the
transaction
costs
andeffortsrequiredforgathering informationand theperceived inconvenienceof installingnew
equipmentinabuildingwhichisinuse.
Splitincentives
Split incentivesreferstosituationswherethe investorwhopaysfortheupfrontcostsforRETor
EEmeasuresisnotthesamepersonwhoreapsthebenefitsoflowerenergycosts.Splitincentives
occurforexampleinrentalpropertieswhenthereislittleincentiveforthebuildingownertoinvest
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ifthe tenantpaystheenergybill.Conversely,thetenantmaynotbe interested inan investment
intoRETeither,ashemaymoveoutbeforetheendofthepaybackperiod.
Theremayalsobeothersplit incentives,e.g.betweenprojectdeveloperandbuildingowner/user
innewbuildings,wheretheremaybenoorlittlebenefitforthedevelopertoincorporateRET,ifhe
does not expect to fully recover the higher initial cost from the building owner/user (IEARETD,
2007).Otherexamplesareelderlypeopleorpeoplewhomaymovesoon,whoarenotwilling to
makeany
more
investments
in
their
houses.
There
are
also
less
incentives
to
save
energy
in
rented
apartmentswheretheheatingcostsareevenlysplit.
Inaddition,therearebarriers to the increaseduptakeofRETandenergyefficiencymeasureson
thesupplysideofthemarket:
Fragmentationinthebuildingchain
Inmostcountries,thebuildingdevelopmentchainiscomplexandfragmented,whichinhibitsaho
listicapproachtobuildingdesignanduse,especiallyfornewbuildings.DecisionsonRETandener
gyefficiencymeasuresaretakenbydifferentactors, includingarchitects,projectdevelopers,con
struction workers or installers, often without coordination and too late in the development pro
cess,eventhoughasuccessfulintegrationofRETandEEmeasuresrequiresoptimizingthesystem
as
a
whole
(IPCC,
2007;
WBCSD,
2010).
Fragmentation
in
the
sector
is
also
an
issue
for
existing
buildings,forexamplewhentheinstallerofanewheatingsystemisnotabletoadviceonrelated
insulationmeasures.
Lackingintrinsicinterestbyenergycompanies
Energyprovidersoftenhavenointrinsicinterestinenergysavingsbytheircustomers.Inaddition,
theygenerallydonotfavorsmallscaledecentralizedsolutions,whichmaycompetewiththeirown
businessmodel.
SmallscalesuppliersofRET
Many smallscale renewable heating and cooling technologies are produced by local, small and
medium sized enterprises, where production levels have not reached sufficientlyhigh volume to
gaineconomiesofscale(IEARETD,2007).Inaddition,thelackofstandardisationofRETatthere
gional
or
global
level
means
that
companies
may
face
challengesto
penetrate
markets
abroad.
Manysuppliersthereforeremainsmallandmediumenterprises.Thesesupplierstendto lack the
necessaryskillstoadequatelypromoteRETproducts.
2.1.2 Information failures
Lackofawareness
ThereisagenerallackofawarenessonRETandEE.IfviableRETalternatives areunknown,theyare
nottakenintoaccountinbuildinginvestments.
Lackofinformationonfinancingoptions
Thereisalackofadequateinformationdescribingfinancingoptionsavailabletoindividualsinvest
ing
in
EE
or
RET.
Even
if
building
owners
are
willing
to
implement
EE
measures
or
RET,
they
often
finditdifficulttoobtainnotonlyqualified,butalsoindependentandobjectiveadvicefromfinan
cialexperts.FinanciersoftenhavenospecificknowledgeonEEandRET,andthuswillnotpromote
financingsuchprojects.
Lackofknowledgeandcompetencebyinstallers
Lackingknowledgeandcompetenceofprofessionals involved inthe installationandmaintenance
ofRETlimitsthediffusionofRET,asitlimitstheinvolvementoftheseprofessionals andmaylead
topoorinstallationofequipment(IEARETD,2007).
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2.1.3 Regulatory barriers
Restrictiveprocurementrules
Procurementrulesmayposebarriers to thedeployment of RET, for example ifgovernments are
notpermittedtooutsourcethemanagementofpublicbuildingstoprivateparties.
Cumbersomebuildingpermittingprocesses
Permits
for
the
installation
of
RET
may
be
difficult
to
obtain,
or
this
may
be
a
lengthy
process.
2.1.4 Financial barriers
Low(orno)returnsoninvestment
ManyRETarenotyetcostcompetitivewithtraditionalenergytechnologies(seeIEARETD(2007)
forrecentcostestimatesofrenewableheatingandcoolingtechnologiesandEC(2008)forrecent
costestimatesofelectricitygenerationfromRET).Peopletendtonotinvestinrenewableenergyor
energysavingmeasures ifthepaybackperiod is too longoreven longerthantheeconomic life
timeofthetechnologyandiftheinvestmentdoesnotmeettheirhurdlecriteria.
Highupfrontcosts
ManyEEmeasuresrequireasubstantialupfront investment,andmostREThaveahigherupfront
capitalcost
than
conventional
technologies.
This
poses
abarrier
to
investment,
as
decision
makers,
especiallyprivatehomeownersmaynotbewillingtomakelargeupfrontinvestments.Fuller(2008)
forexampledescribes implicitdiscountratesintheorderof25%to75%for investmentdecisions
byprivateconsumers,whichsubstantially increasethehurdleforanyupfrontinvestment.4
Difficultaccesstocapital
Especially low income private homeowners and small business owners lack internal capital and
facedifficulties gettingaccesstoexternalcapitalforfinancingRETorEEmeasures.
HigherriskofRETthanofconventionaltechnology
EEandRETprojectsareoftenconsideredriskyinvestments,e.g.becauseofhightechnologyriskor
regulatoryrisk.Higherrisksareincludedinprojectevaluationsbyapplyingahighdiscountrateor
requiringahigherreturnon investmenttocompensatefortherisk.Asaconsequence,EEandRE
projectsfrequentlybecomeunattractivetoinvestors.NotethatthehigherriskofRETcanalsobe
perceived rather than real risk. Many RET are already quite advanced and, apart from biomass
heating,arenotexposedtoanyfuelpricerisks,e.g.forpurchasingoilorgas.
Hightransactioncosts
Fromthepointofviewofservicecompaniesorfinancialinstitutions,investmentsinEEmeasuresor
RET in individual housesareoftenrelativelysmall.As technology implementationandassociated
servicessuchasfinancingandmonitoringofenergysavingsarecomplexandthusrelativelyexpen
sive,smallscalemeasuresareunattractiveforinvestmentbycommercialbanksorinvolvementof
ESCOs.
Incompletemortgageassessment
Foramortgage,
credit
capacity
and
risk
profile
of
customers
should
improve
after
implementing
EE
measuresorRETiftheselowerenergycosts,asconsequentlymoreincomeisavailabletoservein
terestanddownpayments.However,mortgagecriteriagenerallydonotreflectthisandfinanciers
areusuallynotallowedtoacknowledgetheincreasedcreditcapacity.
4 Assumingadiscountrateof8%asfrequentlyusedbypolicymakersandfinancialinstitutions,anintendedpay
back timeof5yearsandannualcostsavingsof$1.000 impliesanacceptableupfront investmentof $4.000.
However,iftheconsumersexplicitdiscountratewas50%ratherthan8%,theacceptableupfrontinvestment
woulddecreasetoonly$1.700.
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2.2 Barriers from a business case perspective
Notallbarriersdescribedabovearerelevantforallmarketsegments.Table2.1providesanover
viewwhich barriersarerelevant forwhich market segments.The importanceof the market seg
mentsdifferswidely amongcountries, e.g.because the general levelofhouseownership among
the
population
differs.
In
some
countries,
e.g.
in
the
Netherlands
and
Spain,
many
people
own
apartments in multifamily buildings whereas in other countries, e.g. in Germany, apartments in
multifamilybuildingsareprimarilyrented.
Some barriers arerelated toenergy ingeneralor togeneralcharacteristicsof renewable energy
technologies. These include the lowpriority ofenergy issues, pricedistortion, lacking intrinsic
interestbyenergycompanies,lackofawareness,lackofknowledgeandcompetencyby install
ers,cumbersomebuildingpermittingprocess,low(orno)returnsoninvestment,higherriskof
RETthanofconventionaltechnologiesandhighupfrontcosts.
Otherbarriersarespecificforsomemarketsegments:
Thehasslefactorismostlyrelevantforexistingresidentialbuildings,wheretheownersoccupy
thebuilding.Innewbuildingsthereisnoinconveniencerelatedto installingRET,becausethe
installationtakes
place
before
building
users
move
in.
In
commercial
buildings
or
rented
multi
family houses, RET are generally installed on the roof or in a separate room with technical
equipment.Inrentedresidentialbuildings,thedecisiontoinvestinRETistakenbytheowner
based on economical considerations. Here, inconvenience for the tenants is not such an im
portantcriterionasinowneroccupiedbuildings.
Split incentives are mostly an issue for rented buildings and for property developers of new
buildings.
Lack of information about financing options, mortgage assessment and transaction costs are
especially relevant for small scale projects which comprise of only one singlefamily house,
which is either newly built or owneroccupied. Commercial building owners are expected to
have more knowledge about financing options, and in larger buildings or property develop
mentstransactioncostsrelativetothesizeoftheinvestmentinequipmentarelower.
SuccessfulbusinessmodelsrepresentsituationsinwhichthefinancingandimplementationofRET
inbuildingsareorganisedinawaythatbarriersforrealisationofrenewableenergyare atleastto
somedegree overcome.Abusinessmodel isdefinedasastrategywheretheapplicationofRET
createsvalue,thusfromabusinesscaseperspectiveinthefirstinstancefinancialbarriersaremost
relevant.Financialbarriersinhibitvaluecreationifaninvestmentisnotprofitableorifitsnotreal
izedduetolackingaccesstocapitalorwillingnesstomakeupfrontinvestments.Generally,financial
viabilityisthefirstrequirementforasuccessfulbusinessmodel,exceptforsomecaseswherenon
financial drivers such as increased comfort, energy security or environmental considerations are
primarymotivesforthedeploymentforRET.
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Table2.1 Barriersandmarketsegments
Barriers Market segments in built environment
Residential buildings CoNew buildings Existing buildings New build
Built by a pro-ject
developerBuilt by the
building ownerOwner-occupied Rented Built by a pro-
ject
developer buMultifamilyhouses Single familyhouses Multifamilyhouses Single familyhousesMarket and social barriers
Low priority of energy issues Applicable to all market segmentsPrice distortion Applicable to all market segmentsThe hassle factor X XSplit incentives X X X XFragmentation in the building chain X X XLittle interest by energy companies Applicable to all market segmentsSmall scale suppliers of RET Applicable to all market segmentsInformation failures
Lack of awareness Applicable to all market segmentsLack of information on financing X X XLack of knowledge by installers Applicable to all market segmentsRegulatory barriers
Restrictive procurement rulesBuilding permitting process Applicable to all market segmentsFinancial barriers
Low returns on investment Applicable to all market segmentsHigh upfront costs X X X X X XDifficult access to capital X X X X XHigher risk of RET Applicable to all market segmentsHigh transaction costs X XIncomplete mortgage assessment X X X X
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Thisdoesnotmeanthatnon financialbarriersarenot important.Calculationsofnegativeabate
ment costs demonstrate the significance of other barriers than too low rates of return. WBCSD
(2009)calculatethatthereisapotentialforinvestmentsofUS$150billioninbuildingenergyeffi
ciency in the US, Japan, Europe, Brazil, China and India, which would have discounted payback
timesoffiveyearsor lessandwhichwouldreducethecarbonfootprintfromthebuildingssector
by40%compared to abaseline.McKinsey (2009) in their globalMarginal AbatementCost Curve
identifyasignificant
global
abatement
potential
of
2500
Mt
CO2 a year at negative costs
5in
the
buildingsector,whichincludesrenewableenergyandenergyefficiencymeasures.Thesedatashow
that there are significant opportunities for RET and energy efficiency measures in the built envi
ronment,whichareeconomically viable,butarenotrealizedbecauseofadditionalfinancialbarri
ers suchashigh upfront investment costs, but also because of a varietyof nonfinancial barriers
such as split incentives, information barriers and fragmentation in the building chain (WBCDS,
2009,McKinsey,2009).
OftenasuccessfulbusinessmodelthatcreatesaprofitablebusinesscaseforinvestmentsintoRET
inthebuiltenvironmentalsoaddressessomeofthenonfinancialbarrierswhichare important in
itsmarketsegment.ESCOsforexampleofferabuildingownertheopportunitytooutsourceenergy
related services such as installation, investment, operation andmaintenance and fuelpurchases.
This
decreases
non
financial
barriers
such
as
information
and
market
failures.
Thebarriersdescribedabove illustratethecurrentsituation.However,thebarriersarenotstatic,
andtheirimportancecanchangeinthefuture.Forexampleifoilpricesandrelatedfossilfuelprices
continuetorise,somefinancialbarriers,suchaslowreturnson investmentwillbecomeless im
portant.TheWBCSD(2009)calculationsforexampleassumeanoilpriceof60USDbarrel.An in
creasedmarketshareofRETmaydecreaseotherbarrierssuchastechnicalrisksand information
failures.ThisstudyfocusesoncurrentbarriersalthoughthecalculationexamplesinChapter5illus
tratehowRETbecomemoreviableiffossilfuelpricesincrease.
5 ThecalculationsforMcKinseysglobalMACcurvearebasedonasocietalperspectiveassumingadiscountrate
of4%.Thediscountrateforcorporateorprivate investmentswhichwouldhave tobeapplied forabusiness
caseperspectiveishigher,andisthusexpectedtoleadtoalowerabatementpotentialthanthe2500MtCO2
annually.However,thefiguredoesillustratethattherearesignificantotherbarriersinhibitinginvestments.
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3. Business models for an increased deployment of RET in thebuilt environment
3.1 Categorizing business models
NewandinnovativebusinessmodelsforanincreaseddeploymentofRETinthebuiltenvironment
may be categorized according to the main drivers for value creation. Based on Wuestenhagen
(2005)andCOWI(2008),thefollowingthreecategoriesofbusinessmodelscanbedistinguished:
i)Productservicesystems(PSS)
Productservicesystemsarebusinessmodelswhichmakeuseofthedeliveryofthe functionofa
productcombinedwitharelevantservice(COWI,2008). Intheareaofenergythesearebusiness
modelsofferingenergyrelatedservicesbeyondthesimplesaleofenergy.EnergyServiceCompa
nies(ESCOs)arethemostprominentexamplesofPSSbusinessmodelsintheenergysector.
ii)Businessmodelsbasedonnewandinnovativerevenuemodelsoriii)onnewfinancingschemes:
New and innovative revenue models have been a main driver for new business models in some
traditionalindustries
(Wuestenhagen,
2005).
For
the
deployment
of
RET
there
are
business
oppor
tunities in the intelligent use of available government incentives which contribute to revenues.
Newrevenuestreamsmayalsoemergefromrealizingtheadditionalvalueoftheintangibleclimate
or environmentalbenefit of a product, for example of a house with a high rating by a voluntary
greenbuildingcertificationscheme.Inaddition,therearebusinessopportunitiesinmakinguseof
newandinnovativefinancingschemes.
The regulatory environment plays a crucial role for business models for the deployment of RET.
Manyofthebusinessmodelsthatarebasedonnewand innovativerevenuemodelsorfinancing
schemesareactuallydrivenby incentiveschemes initiatedand financedbygovernment. Inaddi
tion,regulatoryschemessuchasobligationstodeployRETcanbean importantdriverfor invest
ments in RET in the built environment. However, obligations tend to not lead to direct business
cases for themarketactorwho takes the initiative to install RET. But theoretically,an obligation
cantriggerinnovativeschemessuchasafinancingscheme.Suchfinancingschemesemergeforexampleasaconsequenceofenergysavingobligationsforutilities.
Alternativelybusinessmodelscanbecategorizedaccordingtothemarketsegmentwheretheyare
applicable and according to the main actors involved. The built environment is an exceptionally
multifacetedsystem which including manydifferentmarketactors,suchasbuildingowners, ten
ants,governmentauthorities; buildingdevelopers;financialinstitutions,suppliersandmanufactur
ers;architects,engineers,contractors,craftsmenandservicecompanies;andutilities.Thebusiness
modelanalysesinChapter4describetheapplicablemarketsegmentsandmarketactorsinvolved.
Table3.1showsthebusinessmodelswhichareanalysedindetailinChapter4.Thesemodelswere
chosenbecausetheyareconsideredtohavethepotentialto leadtoan increaseddeploymentof
RETand/or
have
the
potential
to
be
implemented
widely.
Additional
considerations
were:
Ifpossible,themodelsshouldcoverallmarketsegmentsofthebuiltenvironment.
Ifpossible,themodelsshouldaddressawiderangeofbarriersforanincreaseddeploymentof
RET.
Theselectionshouldcoverbothverynewand innovativemodels, forwhichonly littleexperi
ence exists (e.g. Integrated Energy Contracting, PACE financing) as well as models that have
been applied widely enough to allow for a comprehensive evaluation of strengths and weak
nesses(e.g.onbillfinancing,feedinremunerationschemes).
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22 IEARETD/ECNE11057
Theanalysisshould includeEnergyContractingmodelsasthesearefrequentlydiscussedasan
importantmarketdrivenapproachforincreasingthedeploymentofRETandEEinthebuilten
vironment.
Chapters3.2and3.3provideashortdescriptionofthebusinessmodels.
Table3.1 Listofanalysedbusinessmodels
Businessmodels
ProductServiceSystems/EnergyContractingmodels
1 EnergySupplyContracting(ESC)
2 EnergyPerformanceContracting(EPC)
3 IntegratedEnergyContracting(IEC)
Businessmodelsbasedonnewrevenuemodels
4 Makinguseofafeedinremunerationscheme
5 Developingpropertiescertifiedwithagreenbuildinglabel
6 Building owner profiting from rent increases after the implementation of energy efficiency
measures
Businessmodelsbasedonnewfinancingschemes
7 PropertyAssessedCleanEnergy(PACE)financing
8 Onbillfinancing
9 Leasingofrenewableenergyequipment
10 BusinessmodelsbasedonEnergySavingObligations
3.2 Product-service-system business models
Energy Service Companies (ESCOs) are one of the most prominent examples of productservice
systembusinessmodelsforsustainableenergy.WithintheESCOsector,itispossibletodistinguish
betweentwo fundamentally differentbusinessmodelswhichprovideeitherusefulenergyvia(1)
EnergySupplyContracting(ESC)orenergysavingsvia(2)EnergyPerformanceContracting(EPC)to
theenduser.UnderanEnergySupplyContracting(ESC)model,anEnergyServiceCompany(ESCO)
suppliesusefulenergy,suchaselectricity,heat,orsteamunderalongtermcontracttoabuilding
ownerorbuildinguser.TheEPCmodelisbasedondeliveringenergysavingscomparedtoaprede
finedbaseline(formoredetailsseeChapter4.1).Figure3.1depictstypicalscopesofservicesofdif
ferentESCOmodels.
InpracticetherearealsomanyvariationswithintheESCandEPCmodels.Mostofthesevariations
relatedtotherangeofservicesdeliveredunderthecontractsandtothequestionhowtherequired
investments are financed. In the AngloSaxon EPC markets, two EPC models are differentiated
mainlywith
regards
to
who
finances
the
investment:
Guaranteed
Savings
refers
to
aservice
model
without financing by the ESCO,whereas SharedSavings includes financing in theESCOsservice
package.
In addition to the two basic models, a third, innovative approach is being piloted in Austria and
Germany, the (3) Integrated Energy Contracting (IEC) model. It is methodologically based on the
ESCmodelandissupplementedbyadeemedsavingsapproachfortheenergyefficiencymeasures.
Compared tostandard ESCmodels, the IEC approachextends the range of services and thus the
energyandemissionssavingspotentialtothewholebuilding(seeFigure3.1).
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IE
Fi
N
S
3
(4
F
anti
re
ca
pr
ti
(5
In
hi
Th
(6
mF
e
a
in
RETD/Bu
ure3.1 Sc
te:NWhref
urce:Bleyl,
.3 Busi
)Makinguse
edinschem
increased
dnaltechnol
newable en
ncoverthe
emiumsfor
ewillsoon
)Developing
dependent
gher salesp
isisfrequen
) Building o
easures
rbuildingo
ueopportu
higherrentf
gsintoaccou
inessModel
peofservic
erstoenerg
009.
ess mod
ofafeedin
eshaveeme
eployment
ogiesbycom
rgy. A feed
financialgap
electricityfr
eimplemen
propertiesc
fpolicyince
rice for abu
tlythecasei
wnerprofiti
nerswhod
itiesfroma
romtheten
nt.Therequ
sforRenewa
sofdifferen
savings,i.e.
els base
remuneratio
rgedasone
f
RET)
incentpensatingth
in remunera
betweenR
mrenewab
edintheUK
rtifiedwith
ntives,abus
ilding which
ntheNorth
gfrom ren
onotoccupy
investment
ntsafterth
iredchanges
bleEnergyin
tESCOmode
avoidedM
on new
nscheme
ofthemost
ive
schemes
eownerof
tion scheme
Tandconv
lesourcesar
forthefirst
greenbuil
inesscaseal
iscertified
mericanan
increases
thebuildin
inenergye
renovation.
inthelegal
theBuiltEn
ls
h.
evenue
commonan
covering
thheRET inst
creates opp
ntionaltech
ethemost
timeandisp
dinglabel
soexistsifa
ccording to
someAsian
fter the im
themselves
ficiencyaris
Thehigher
rameworka
vironment
odels
successful(
higher
cost
llationwith
ortunities f
nologies.Fe
ommon.Ar
lannedinth
propertyde
avoluntary
markets.
lementatio
andforhou
whenthey
enttakesth
dresstheis
intermsofl
of
RET
versuahigherpri
r business c
dintariffs
enewableh
Netherland
velopercan
greenbuild
of energy
ingcorporat
areallowed
etenantsen
ueofsplitin
23
eadingto
s
conven
eforthe
ases as it
rfeedin
at incen
s.
achievea
ing label.
efficiency
ions,rev
ocharge
ergysav
centives.
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24 IEARETD/ECNE11057
3.1 Business models based on new financing schemes
High upfront costs are a major barrier for an increased deployment of RET. Innovative financing
schemesmaythereforecreatebusinesscases,ifthefinancingschemeshelptoovercomethebarri
erofhighupfrontcosts.Aspublicbudgetsare limited,newand innovativefinancingschemesare
emergingwhichdonotburdengovernmentbudgets.
(7)Property
Assessed
Clean
Energy
(PACE)
financing
The Property Assessed Clean Energy (PACE) concept has for example been widely discussed and
pilotedintheUS.Underthisscheme,localgovernmentsissuebondsforRETprojects.Thebuilding
ownerrepaystheloanthroughanadditionalspecialassessmentpaymentonitspropertytaxbillfor
aspecifiedterm(InstituteforBuildingEfficiency,2010b).Whenthepropertychangesownership,
theremainingdebtistransferredwiththepropertytothenewowner.
(8)Onbillfinancing
Onbillfinancingprogramsareanothermodelforaddressingthebarrierofhighupfrontcostsand
access to capital: A utility provides capital to a home owner for the installation of RET or EE
measures.Thehomeownerrepaystheinvestmentviaitsenergybill.
(9)LeasingofRETequipment
Leasingof
RET
offers
another
opportunity
for
building
owners
to
use
RET
without
having
to
make
anupfront investment.Itspossiblebothforlargerscaleequipment in largecommercialbuildings
andinsomecasesalsoforsmallscale,innovativeRETforprivatehomeowners.Theopportunityto
leaseequipmentmay alsobe partof theenergyservices package offeredbyan ESCO. However,
leasingofRETequipmentisanalysedseparatelyasitistechnologyspecificandmayalsotargetin
dividualresidentialcustomers.
(10)BusinessmodelsbasedonEnergySavingObligations
Innovativefinancingoptionscanalsoemergeunderenergysavingobligationsforutilities.Theutili
ty(potentially viaanESCO)offers investment incentives forenergyefficiency investments,which
arefinancedbyoverallhigherenergyprices.Theseincentivesofferopportunitiesforbuildingown
ers.
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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 25
4. Analysis of business models
Thefollowingdescribesandanalysesthetenbusinessmodels inmoredetail.Theanalysesofthe
business models based on new revenue models and on new financing scheme follow the same
template(including
an
introduction
and
definition,
applicable
technologies,
market
segments,
in
volvedactors,organisational andfinancialstructure,existingpolicyandmarketcontext,analysisof
Strengths,Weaknesses, OpportunitiesandThreats (SWOT),discussion andconclusions). Toavoid
lengthyrepetitionsof information,fortheEnergyContracting(EC)/ESCObusinessmodels inthe
categoryProductservicesystems,firstcommonfeaturesofallECbusinessmodelsaredescribed,
followedbyadescriptionofthethreeindividualESCOmodels.Thesedescriptions arewrappedup
withaSWOTanalysis,anddiscussionandconclusionsfortheECmodelsingeneral.
4.1 Product-Service Systems: Energy-Contracting (ESCO or EnergyEfficiency Services)
4.1.1 Introduction, Definition and Common Key Features of all three ESCOModels
Introduction
anddefinition
EnergyContracting(EC) alsolabeledasEnergyServiceCompanies(ESCOs) is
oneofthemostprominentexamplesofproductservicesystembusinessmod
els for sustainable energy. Two basic ESCO business models can be distin
guished,whichprovideeitherusefulenergy(EnergySupplyContracting ESC)
or energysavings (EnergyPerformanceContracting EPC) to theenduser. In
additiontothetwobasicmodels,ahybridmodellabelledasIntegratedEnergy
Contracting(IEC)was introducedandisbeingpiloted inAustriaandGermany.
IECaimstocombineusefulenergysupply,preferablyfromrenewablesources
withenergyconservationsmeasuresintheentirebuilding.
Independentofthebusinessmodel,energyservices inamorenarrowsense
have
several
common
features,
which
are
outlined
in
this
first
subchapter.Most importantlyanESCOsremuneration isperformancebased(it ispaidfor
themeasuredoutputsasopposedto the inputsconsumed)and itguarantees
fortheoutcomeandallinclusivecostoftheservicepackage.AllESCObusiness
models investigatedhere,leadtoareductionoffinalenergydemand.Inaddi
tion, they achieve environmental benefits due to the associated energy and
emission savings in addition to nonenergetic benefits such as an increase in
comfortorreputationgains.
Variousdefinitionsofenergyservicescanbefoundinrespectivestandardsand
literature.6Howevermostcommonlyapplieddefinitionsfallshortwithregard
to important properties of real EnergyContracting services. Such properties
areoutsourcing ofcommercial and technicalrisks to anESCO,guarantees for
results,andallinclusivecostsofthemeasuresimplementedoroftheoptimizationaccordingtoprojectcyclecosts.Thesefeaturesmayconstituteanadded
value in comparison tostandard inhouse implementationofenergyservices.
Therefore,inanarrowsensewedefineEnergyContracting(EC)as:
6 SeeforexampleEC(2006),Bertholdiet.al.(2007),EN(2009),Satchwellet.al.(2010).
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26 IEARETD/ECNE11057
EnergyContractingisacomprehensiveenergyserviceconcepttoexecuteen
ergyefficiencyprojectsaccordingtominimizedprojectcyclecost.
TypicallyanEnergyServiceCompany(ESCO)actsasageneralcontractorand
implementsacustomizedservicepackage(consistingofe.g.design, installa
tion, (co)financing, operation&maintenance, optimization,fuelpurchase,
usermotivation).
Askey
features,
the
ESCOs
remuneration
is
performance
based,
it
guarantees
for theoutcomeandallinclusive costsof the servicesand takesover com
mercialaswellastechnicalandoperationalrisksovertheprojectterm.
(afterBleyl+Schinnerl(2008))
InadditiontorealEnergyContractingmodels,therearesocalledEnergySer
viceProviderswhichoffertechnicalandengineeringservicesfortheidentifica
tionand implementation ofRETandEEprojects,butdonotofferanyperfor
manceguarantees(seee.g.examplesinBox5.1).
ModularScopeof
services
ECservicesarenotaboutaparticular technologyorenergycarrier.InsteadEC
is a flexible and modular tool to execute energy efficiency and RET projects
accordingtothegoalsofthefacilityowner.
Allthetasksshown inFigure4.1suchasplanning,constructionandfinancing,
theongoingcomponentsof theservicepackage(operationandmaintenance,
purchasingoffuel,qualityassuranceandmeasurement&verification)aswell
ascompliancewiththelegislativeframeworkhavetobecoveredeitherbythe
buildingownerortheESCOthroughoutthecontractualperiod.
Figure4.1 EnergyContracting: Amodularenergyservicepackagewith
guaranteedresultsfortheclient.(Note:Theaddedvaluefortheclientofenergy
contractingcomparedtoinhouseimplementation isdisplayedinred.)
For
implementation,
the
building
owner
assigns
a
customized
energy
servicepackageanddemandsguaranteesfortheresultsofthemeasurestakenbythe
ESCO. The necessary components for implementing energy projects are sum
marizedinFigure4.2.
(Co-)Financing, Subsidies
Operat.& mainten.,
Troubleshooting,Optimization,User mvation
Project development,Rough planning
Detailed planning,
Construction,Initial start up
Energy-
Contracting- a modular service
package incl.
outcome
guaranteesOutsourcing of
commercialand technical risks
Function-,performance- and
price guarantees
Added valuethrough
outsourcing:
Fuel + power purchase
Source: after [Bleyl+Schinnerl 2008]
Controlling,M & V,Quality assuran
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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 27
Figure4.2 EnergyContracting: Componentsofservicepackageandoutsourc
ing
of
interfaces
and
guarantees
to
an
ESCO
TypicallyanESCOservesasageneralcontractorand isresponsibleforcoordi
nation and management of the individual components and interfaces of the
servicepackagetowardsthecustomer.Ithastodeliverthecommissioned en
ergy service (Megawatt hours of useful energy or energy savings (Negawatt
hours))tothecustomeratallinclusivepricesasdisplayedinFigure4.2.
Energy efficiency projects differ in their contents and general conditions.
Therefore, it has proven to be necessary and sensible to adapt the scope of
servicesspecificallytotheindividualproject.Thisalsoimpliesthatthebuilding
ownercandefine,whichcomponentsoftheenergyserviceareoutsourcedand
what he carries out himself (e.g. ongoing onsite maintenance provided by a
facilitymanager
or
financing
from
other
sources).
An important difference between inhouse (doityourself) implementation
and outsourcing to an ESCO root in the functional, performance and price
guarantees provided by the ESCO and the assumption of technical and eco
nomicrisksbytheESCO.
Actors DirectlyinvolvedactorsaretheESCO andthebuildingowner.Thesecondlayer
inthevaluechain includesequipmentandfinalenergysuppliersandfinancial
institutions, who provide capital for the investment into (RET and EE) equip
ment.Nodirectpolicyinterventionisrequired.
Financingof
therequired
investment
OutsourcingofupfrontfinancingofREorEEequipmentisoftenthekeydriver
toengage
with
an
ESCO.
However
ESCOs
are
not
necessarily
able
to
offer
more
attractive financing conditions in comparison to a building owner, especially
whentheclientisalargeorganisation,norisfinancingtypicallytheESCOscore
competence.Therefore,theESCOservicepackagedoesnotnecessarilyneedto
includefinancing.Financingcanbeprovidedbythebuildingowner(Figure4.3),
theESCO(Figure4.4)orathirdfinancingpartner,dependingonwhohasbetter
accesstocapitalandfinancingconditions.
Technology
Suppliers, construction,operation & maintenance
Energy
Gas, fuel oil,solar, woodchips
Money
Equity capital, banks,TPF, subsidies ...
Know-How
Engineers, architects,consultants, innovation
EnergyServ
iceCompany(ESCo)
Supply (MWh) orSavings (NWh)
incl. function,
performance +price guarantees
Legislative Framework
Laws, procurement,technical rules Grazer Energieagentur GmbH-For requests: [email protected]
(pot.)ESCoClient
Source: after [Bleyl 2009]
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28 IEARETD/ECNE11057
Figure4.3 EnergyContractingmodelwherebuildingownerfinancesRET
equipmentthroughaloanfromafinancialinstitute
Figure4.4
Energy
Contracting
model
where
ESCO
finances
RET
equipment
(optionallywithfinancialinstitute)
This distinction is also reflected in the AngloSaxon EPC markets, where two
basicEPCmodelsaredifferentiatedmainlywithregardtowhofinancesthein
vestment: Guaranteed Savings refers to a service model without ESCO fi
nance, whereas the Shared Savings model includes financing in the ESCOs
servicepackage.
Combinations oftheaboveoptionsarealsopossibletoaccountforthespecific
projectandtheactorsinvolved.Inreality,amixtureoffinancingsourcesisof
ten thebestchoice inordertobalancerisks. If theESCOdoesnotprovidefi
nancingitself,itcanstilltakeontheroleasafacilitatorsupportingthebuilding
ownerto
get
access
to
third
party
financing
solutions.7
Existingmarkets
andpolicy
context
Reliablemarketdataon ESCO marketsarescarceornotpubliclyavailable. In
the EU, Energy Supply Contracting (ESC) has by far the largest market share
withintheEnergyServicessector(Labanca,2011).
InGermany,ESChasforexampleamarketshareof85%90%oftheESCOmar
ket(Bleyl,2011).WhileEnergyPerformanceContracting istalkedabouta lot,
its market share in the German ESCO market is only between 10% and 15%
(Prognos2009,VfW2009).InGermany,themostrecentmarketestimateindi
catesthatthereareabout250companiesactiveintheenergyservicesmarket,
mostly using the ESC model (Eikmeier et al., 2009). The total volume of the
German
energy
services
market
is
estimated
to
be
about
2
billion
annually,
ofwhichabout60%takesplaceintheresidentialbuildings(Bunseetal.,2010).
IntegratedEnergyContracting(IEC) isan innovativemodelwhichhasbeenpi
lotedinAustria.Experiencescollectedfromuptonoweightprojectshavecon
7 MoredetailsonfinancingoptionsforenergycontractingprojectscanbefoundinBleyl(2008),whointroduces
thecustomerdemandprofilemethodology.Thisisatooltodefineandstructurefinancingneedsfromthecus
tomerperspectiveandcanbeusedasachecklisttocomparedifferentfinancingoptions.
ESCO Buildingowner
RET equipment
Installation
Financialinstitution
Loan
Principal +
InterestUp-front cost
Energy services+ guarantees
Performance-based fees
ESCO Buildingowner
RETequipment
Installation
Financialinstitution
Loan, lease orforfaiting
Repayment orcessions
Energy services
and guarantees
Performance-based fees
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IEARETD/BusinessModelsforRenewableEnergyintheBuiltEnvironment 29
firmedthepracticalfeasibilityofthe IECmodel.Beyondthat, itremainstobe
seenwhatcontribution IECwillmakeasatoolfor the implementation ofsus
tainableenergyprojects.(Bleyl2011)
In order to support energy services in general, in the EU, a large number of
countries propose or have implemented policies and supporting measures,
suchasinformationcampaigns(Boonekampetal.,2010).Oneofthedriversfor
such
legislation
is
the
EU
Directive
on
Energy
End
Use
and
Energy
Services
(2006/32/EC).Thereseemtobenospecificpoliciesdirectlysupportingspecific
energycontractingmodels,suchasESCorEPC(Szomolanyiovaetal.,2011).In
Japan, the 2007 New Procurement Law for the Environment encourages au
thoritiestoprocureESCOservicesforpublicbuildings(WBCDS,2008).It isex
pectedthatthepolicycontextofacountrydoesplayanimportantroleinthe
development of the energy services market. In Denmark for example, energy
servicesareimplementedbecauseenergysavingobligationsforenergysuppli
ersmayonlybeimplementedbythirdpartyenergyservicecompanies.
For the market development of EPC, a key enabling factor has been the in
volvementofindependent3rd
partyorganisations, actingasmarketandproject
facilitators
between
potential
customers
and
ESCOs.
Often
they
are
energy
agencies (e.g. Grazer Energie Agentur8 or Berliner Energieagentur
9), who de
velop concrete EPC projects, mostly on behalf of the client, prepare calls for
proposals and model contracts and put them out on the market to bid for
(EACI,2011).
Insomepartsoftheworld,socalledpublicSuperESCOshavebeenproposed
or implemented, e.g. Energy Efficiency Services Limited in India, FEDESCO in
Belgiumor HEP ESCO in Croatia. The scopeof their (planned) activities is ex
tremely broad and ranges frommarketand project facilitation for (potential)
clientsandESCOstoactingasafullfledgedESCOthemselves.Moreover,these
organisationsmaybetaskedamongstotherstosolvefinancingbottlenecksand
undertakegeneral informationcampaigns (Limaye, 2011). The success of this
broadconcept
remains
to
be
seen.
The
portfolio
of
Super
ESCOs
may
require
a
morefocussedapproach,particularly regardingmarketdevelopmentandpro
jectfacilitationactivities.
8 Seewww.grazerea.at
9 Seewww.berlinereagentur.de
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30
4.1.2
Descripti
Market
Segment
Energy Su
on U
s
o
in
h
y
E
w
b
T
t
in
e
a
o
s
bR
Fi
T
e
fi
g
m
e
p
s
E
o
si
o
r
n
g
o
pply Cont
nderanEne
pplies usefu
nerorbuil
astandard
ursdelivere
ars,
depend
tended proj
ith longer p
ildingshells
is business
chnicaland
cludingthe
uipmentfo
dtobuyser
finalenerg
opeofservi
sementof
a
Tasdisplay
gure4.5
eESCOsre
gyoutputd
iencyofthe
aranteesfo
ercialaswel
ate the upt
ojectbecau
Cisapplied
public buil
zestobeec
100kWasl
sultsfroma
alenergyc
upto10M
heat,steam
racting
rgySupplyC
l energy, su
inguser(as
tilitycontra
d.ESCmode
ing
on
the
te
ect terms o
yback time
aswell.
model gives
economical
lanning,inst
heating,co
vicesinstead
throughth
esislimited
buildingbu
dinthefigu
SCmodel:S
enewables
munerationi
livered.Thu
finalenergy
theoutcom
lastechnica
ke of RET, i
eESCOs
hav
indifferent
ings. For th
nomicallyvi
owerthresh
marketque
stofabout
ormoref
,(backup)e
ontracting (
ch as electr
opposedtof
t).Theoutp
lsrununder
chnical
lifeti
building co
like facade
the buildin
isksassociat
allation,ope
lingorelec
ofindividua
ESCO,how
totheener
may
very
rebelow.
hematicsta
sperforman
stheESCm
conversion
eandallcos
landoperat
f RET are co
ean
inheren
ndusesect
e housing s
bleexist:Ei
ldbasedon
y.Inasimpl
20,000.Up
rlargeindu
lectricityor
SC)model,
icity, hot wa
inalenergys
utismeasur
longtermc
e
of
the
eq
st allowance
s with integ
g owner th
edwithene
rationandm
ricitygenera
lcomponent
everon its
ysupplysid
ellinclude
s
dardscope
cebasedan
delprovides