IEA Annex 61
Subtask B:
Development of Business
Models for Deep Energy
Retrofits in Public Buildings
Rüdiger Lohse
Dan Howett
IEA Annex 61 Meeting
April 13, 2015
Reading, UK
Originally Given By
John Shonder
TC 7.6 Meeting
January 25, 2015
Chicago, IL
ORNL is managed by UT-Battelle
for the US Department of Energy
The Problem
• Governments worldwide are targeting more stringent energy reductions
in their buildings
– In the US, EISA 2007 requires 30% reduction by 2015 compared to a
2003 baseline
– EU targets 2050 carbon neutral building stock
• Lack of funding and know- how: Funding for projects required to meet
these targets is limited
• Lack of high effective business models to implement energy
conservation in buildings
• Private investment – obtained through performance-based contracts –
can fill the gap, but these projects have typically yielded savings in the
range of 10% to 30% (ESCO business)
• IEA-EBC Annex 61 is developing technical and business solutions to
allow deeper savings to be achieved using a combination of public and
private funding
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Objective of Subtask B
• Develop business models for deep energy
retrofit/refurbishment of government buildings and
building groups using combined government/public and
private funding to overcome existing barriers and to
support the necessary increase in pace and quality of
refurbishment activities
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Subtask B Strategy
a) Lessons learnt from accomplished DER: Gather case study
information on business models used in existing deep retrofit projects 
planning tools, impacts and investment costs of DER measure bundles,
quality assurance mechanisms.
Annex 61 Subtask A
Reliable
planning
tools
Impacts of DER
measure
bundles
Investment
costs for DER
bundles
Quality
assurance
mechanisms
b) Depict life- cycle cash- flows accounting monetized benefits resulting
from DER projects
•
•
Energy related benefits:
E- consumption
E- source modification
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•
•
•
•
Non energy related savings:
Maintenance costs
Improved indoor climate
Extended floor area
Asset value
Case study benefits/cash flows: Modeling Results
for Office Building 224 kWh/m²yr H / 62 kWh/m²yr. E
Scenario
1:”base
case”
Primary energy
savings
a)Heating energy
savings
b)incremental
primary
investment
energy (€/m²)
bb) delta primary
investment costs
in comparison to
scenario 1
c)delta cost
savings)in
comparison to
€/m²yr
bb/c
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3: - 50%
4: Passive
House
34%
2: new
building
adopted
60%
54%
70%
33%
68%
60%
83%
200- 230
300- 330
280- 310
380- 430
100- 110
80- 100
180- 200
-
10
7- 10
10- 14
-
10
10-11
14-18
-
Subtask B Strategy
• Develop of advanced business model allocating investments and
services between building owner and ESCos, development of financing
mechanism by accounting and securing life- cycle costs and benefits
(table shows new advanced business model for SMESCos in Germany)
ESCO
Private Equity
Building Owner
Funding
Payment of
Performance i.e.
energy savings
Design
Investment DER
bundles
O&M
Performance
guarantee
Loan
Guarantee PPP
Quality Assurance
Facilitator
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Subtask B Strategy
• Development of advanced financing mechanisms:
• a) securing monetary streams between building owner and ESCO
(performance guarantee with/without loan guarantee)
performance
guarantee
Building
owner
ESCO
• b) securing third party investments by a quality assurance process such
as ICP
Private equity
Planning process
Performance projection
ESCO
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Quality
assurance
i.e. ICP
O&M process
Monitoring &verification
Subtask B Strategy
• Development of advanced financing mechanisms:
c) Setting up an inventory of accomplished and evaluated DER and other
EE measures in buildings on EU and USA:
– Comparison of ex ante / ex prediction/ ex post refurbishment energy consumption
– Investment costs
– Performance indexes (EUIs etc.)
• Business Model Market application:
• a) Analyze regulatory framework in the participating countries to
determine barriers project implementation
• b) Engage with stakeholders (building owners and managers, financial
community, and energy services companies) to develop improved
business models corresponding to the environment in each country
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Challenges: Do we really use the
appropriate business models?
The “owner- directed”/”inhouse”- approach lacks EE incentive mechanisms:
• In EU 95% of building refurbishments are carried out in “owner- directed or inhouse” business models:
– Architects/planners are responsible for planning, procurement, quality
assurance in the construction phase
– Building owner- provides (mostly non- experts) funding, engages bank loans
for funding and is in charge for the building operations after the
accomplishment of the construction phase
– Crafts- /Trades Men: construction, maintenance services
• Experienced malfunctions of “owner- directed/in- house- business models”:
– Open feed back model with no feed- back and response (PERFORMANCE)
integrated
– Decision making is typically not referring to life- cycle based criteria
– lacking stimulation to meet calculated efficiency targets and fixed
investment budgets
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Challenges: do we really use the
appropriate business models?
• ESPC – Energy Saving Performance Contracting: virtues of performance
related business model in comparison to “owner- directed” business models:
 Strong contract based stimulation for both contract parties to achieve a
high cost effectiveness by providing a better savings/investment ratio
 Guaranteed energy and maintenance cost savings between 25 and 40%
in US, EU
 Bankable energy- and maintenance cost savings create revenue streams
which are reliable positions of the funding of deep retrofit projects
 Cost structure and decision making criteria aligned to life- cycle costs
 ESCOs are using design and experience based knowledge on different ECM
(1) bundles (HVAC/biomass/CHP..) and are performing with satisfactory
results
 EPC in its current approach is not the chosen vehicle for deep retrofit
projects
• One main target of IEA- Annex 61 is the advancement of existing EPC- related
business models for deep retrofit projects
(1)
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ECM Energy Conservation Measures
Regional energy efficiency
strategies in buildings and
neighborhoods
Deep
Energy
Retrofit
50%
25%
75%
Energy Savings(%)
How to advance EPC into a tool building strategy
Energy
Supply
Contractin
g
25
750
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Regional
KEA- EPC
Model
EPC „first
generation“
50
75
100
Investment /m² (€/m²)
250
500
Market Application: Workshop
Investing into Energy Efficiency Projects: Why and
How
• Organized by Annex 61/ Building Performance Institute/ KEA
• Focused on European market
• Held in Brussels, Belgium November 9 at the Buildings Performance
Institute Europe
• Brought together public officials, non-governmental organizations,
ESCOs, investors, and technical experts
• 12 speakers
• 85 individuals in attendance
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Keynote Address by Paul Hodson, Head of the
European Commission's Energy Efficiency Unit
Lack of evaluated data from
accomplished projects is a major
issue:
• There is insufficient data on the
effectiveness of retrofit projects
• Each project is considered to be
different and results not
comparable
• This makes benchmarking difficult
• If governments are to see energy
efficiency as a resource, there is a
need for more and better
information on the benefits
availablewe
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Rudiger Lohse, Co-Operating Agent of
IEA-EBC Annex 61
• Many barriers to implementing energy efficiency projects
in the EU
– Market, Financing, Information
– Regulatory/Institutional
– Technical
– Wrong business model is mostly in use
• Using public capital alone to implement EE projects
brings no measurement of savings, no guarantees, and
reduces the viability of future financed projects
• Using public capital alone to implement EE projects
brings no measurement of savings, no guarantees, and
reduces the viability of future financed projects
• Annex 61 will focus on performance related business
model which will guarantee benefits, reduce demand for
third party financing and
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Mark LaFrance, IEA: Key Policy and
Metrics to Enable Investments in Deep
Energy Renovation
• Each renovation project that is done without
incorporating deep energy retrofits is a wasted
opportunity
• Paradigm shift is needed
– Highest priority should be to document
and replicate cost effective DER as part of
normal building renovation activity.
– Establish business case for buildings not
currently planned for renovation by
targeting a challenging goal and looking
beyond energy efficiency. Energy and
non- energy related benefits have to be
quantitatively valued.
– Establish mitigation cost for early
renovation – this would likely require
carbon trading and be a lower cost option
compared to other solutions such as
carbon capture and storage.
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John Coolen, Factor 4, Belgium
• Project facilitation is key to guide owners
and ESCO through the process
• Combine non-energy-related building
upgrades with energy retrofits
• Provides calculation methods to make the
non- energy related savings accountable
and gives guidance on how to assess and
to verify their performance
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Ove Moerck on Annex 61 Subtask A
• Evaluation of accomplished DER
projects in EU and USA
• Which major benefits have been
achieved
• Cost- /benefit- curves
• Will be presented in this session
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Eric Berman, RenESCO (Latvia) on DER
EPC business models
• Upgrade of Soviet-era residential
housing stock
• RenESCO upgrades the buildings at no
cost to residents
• Residents then pay their utility bills to
RenESCO, who pays the utility and
uses the remainder (savings) to pay
debt service on the project financing
• Business has been in operation for
three years
• Difficulties include lack of consistent
policies from governments and financial
institutions
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Matt Golden of Environmental Defense
Fund, USA and Panama Bartholomy, ICP
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Main takeaways from Investor’s Day
• Large participation in this event shows the great interest in energy retrofit
projects in Europe
• The barriers to projects include
– Lack of information about energy efficiency as a resource
– Lack of clear policies at many levels of government, compounded by
the autonomy of the European member countries
– Lack of private capital
– Insufficient business models in use for EE implementation
• Investor´s Day is providing a platform to move barriers and to bring
together investors, building owners, ESCos and research
• Investor´s Day is to be considered as groundwork follow up of EEFIG
(Energy Efficiency Financial Institution Group (EEFIG)
• Next Investor´s Day will take place in autumn 2015 and will be
announced in the next few days
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