A model of energy performance contracting
Before 2005, the municipality of Middelfart in southern Denmark had little experience with energy conservation in their buildings portfolio. But, facing a backlog in the maintenance of many buildings and a growing interest in reducing CO2 emissions, the municipality decided to tackle energy conservation head-on.
A preliminary study of 15 public buildings found potential energy savings of 20-25% and cost savings of around 20%. However, the municipality reached the conclusion that its administration was just too small to handle the measures all by themselves. So they began to consider the idea of outsourcing the work through a local energy services company (ESCO).
For a fee, an ESCO would help the municipality assess their potential for yearly energy savings, design an energy efficient solution, install the required elements, and then maintain the system to ensure that those energy savings are achieved. By setting up an energy performance contract (EPC), a guarantee on the investment would be established, which would oblige the ESCO to pay the remaining amount of the initial fee if energy savings (and cost savings) did not meet agreed projections.
From left to right: Renovations at Aulby Skole, Hyllehøj Skole, and Strib Skole
In collaboration with the municipality, Schneider Electric, an energy services company, drew up a seven year contract worth €6 million, guaranteeing annual energy savings of 21%.
The main challenge for Middelfart was securing a loan for this initial payment; unfortunately, the project’s cost of €6 million exceeded the limit of what the Danish government could lend. Middelfart overcame this problem, however, by successfully applying for an exemption from Welfare Minister Karen Jespersen.
In 2007, Middelfart took out the loan — due in three installments with an expected payback of 10 to 11 years — and signed the contract with Schneider Electric.
Renovations went ahead: boilers were replaced; ventilation was installed; better control technology and monitoring systems were established; and technical staff were trained on how to optimise the operation of municipal facilities and buildings.
The Middelfart project has so far proved to be a huge success with total energy savings of more than 3,840MWh and a reduction of over 1000 tons of CO2 emissions per year. These energy savings were attained through the renovation of 100 municipal buildings — a total floor area of 190,000m2 — and have achieved higher than expected results: 24% energy savings. This is 3% more than expected, the benefits of which are shared between the municipality and the ESCO.
Total energy savings to date:
|Energy Savings||MWh||CO2 Reduction (tons)|
|Heating and Electricity (projected)||2,679||752.5|
|Heat Savings as a Result of Lower Water Consumption (projected)||85||23.9|
Citizens meet about the ESCO project and attend a field trip on energy saving.
The project has been acknowledged as a great success both locally and across Denmark. Middelfart’s achievement has also been recognized through several award schemes, including the European Service Award in 2010.
The municipality is now building upon its own success with this project by setting up other smaller scale ventures, including an ESCO-light project for the renovation of local homes.
Middelfart’s ESCO project is an excellent example of how energy can be saved on a large scale in a municipality. Many municipalities face maintenance backlog problems for their buildings, and Middelfart’s experience shows of how this can be turned into an opportunity to save on energy and costs.
The main question for any municipality considering similar measures will be how to secure funding, since a large initial investment is often required. For a loaning institution, though, the guarantee that comes with an energy performance contract — i.e., a steady return on investment for the duration of the contract — can offer a real boost of confidence.
Middelfart municipality: http://www.middelfart.dk/
Schneider Electric,the energy service contractor: www.schneider-electric.com
TRE-FOR supplied energy to the local area and provide information to the ESCO agreement concerning energy savings:www.trefor.dk
KommuneKredit is the Danish credit institution for local governments that allowed Middelfart to finance the ESCO project:http://www.kommunekredit.com