ManagEnergy is a technical support initiative of the Intelligent Energy - Europe (IEE) programme of the European Commission which aims to assist actors from the public sector and their advisers working on energy efficiency and renewable energy at the local and regional level.

EU ESCO market not up to scratch, says Volker Dragon

Energy performance contracting (EPC) has been in place in the EU for over thirty years, but the market remains underdeveloped. This is despite increasing and volatile energy prices, federal and state energy-savings mandates, and a growing awareness of the need for large-scale action to limit greenhouse gas emissions. This is the assessment of Volker Dragon, Senior Manager Industry Affairs with Siemens Technologies and Chairman of the European Association of Energy Service Companies. ‘We are still far away from the EU ambition to renovate the existing building stock by 2050 and the EPC market is stagnating at a low level.’

Towards a greater engagement with EPC at public authority level and beyond

He observes that municipalities, especially smaller and medium-sized ones, are afraid of making mistakes because of the complexity level of the EPC contracts.

‘A major improvement to overcome this obstacle could be the recently launched ‘European Code of Conduct’*, established by the ‘ Transparense’ project. ’ It supports the work of EPC contractors by positioning all the companies who are committed to Code of Conduct as diligent, prudent and reliable partners towards potential customers. ‘This gives the market a positive signal, and establishes a resilient foundation for long-term business development, which is extremely important in times of economic and financial insecurity’, he explains.

Certainly one of the biggest obstacles is the limitation on debt that exists for public authorities in some European Member States. Volker Dragon points out that due to the current wording of ESA standards (European System of Integrated Economic Accounts), Member States are not motivated to support EPC projects – on the contrary, they are motivated to reject EPCs in order not to increase their budgetary deficit.

*EFIEES - European Federation of Intelligent Energy Efficiency Services and eu.ESCO - European Association of Energy Service Companies are co-administrators of the European Code of Conduct.

Barriers to progress and potential solutions

Dragon’s analysis of the market is as follows. He sees certain key barriers that have to be addressed (and subsequently removed) to boost the EPC market in Europe. Despite EU-funded initiatives being active in this area, there is still a lack of awareness, information and trust in both the private and public sectors of most European Member States. The situation at the European level is the same. ‘Only a limited number of European civil servants and politicians are aware of this outstanding business model. The ‘silver bullet’ to overcome this obstacle has always been and will remain communication and active bridge building towards all parties involved’, he explains, which includes in particular initiatives like ManagEnergy.

He deems it essential to have a clear positioning of the values and benefits of EPC towards stakeholders (public and private), in order for the entire EPC business model to be able to reach a higher level. The introduction of specific policies and government-backed support mechanisms designed to promote performance contracting would help the rapid and fruitful implementation of this business model.

Another aggravating factor he identifies, (especially in cases where awareness about EPC, as well as sufficient support policies and regulatory mechanisms exist), is that building owners or operators do not have the technical expertise or skills to find an experienced EPC provider in order to negotiate a performance contract.

He concludes that uncertainty and confusion have been caused by a lack of homogeneous service descriptions and definitions of EPC contract scopes as well as different implementation process sequences in the EU Member States. ‘This creates confusion and prevents the development of best practice examples, standard procedures and economies of scale. The ‘Code of Conduct’ will also help to provide clarification and trust in this area.’

Success stories

Despite the low EPC growth rate, Dragon is proud of some recently implemented projects with public authorities in Europe (as well as several more in the USA). He is particularly pleased to have convinced some private sector customers of the merits of this outstanding business model.

Among examples of local and regional authorities benefitting from the use of energy performance contracting are the following.

Aller-Weser Hospital (Achim, Germany)
270,000 € energy cost reduction p.a. / CO2 emission reduction of 50% p.a.

Hamburg University of Applied Sciences (Hamburg, Germany)

Annual energy savings of 27% = 2,077 metric tons of CO2 / 500,000€ p.a.
200,000€ saved on top due to the improved operation of the HVAC systems.

17 Educational Buildings (Bytom, Poland)

Guaranteed reduction of 48% of heating power and 20% of electrical power.

Municipal Buildings (Lahti, Finland)

30% cut in energy consumption.