1. International ESCO experiences: Contracting in Germany
TUEWAS Energy Efficiency Working Group Workshop Chongqing December 17th – 20th 2012
Dr. Wolfram Herppich

2. Due to the different market structures, the European ESCO-markets are highly different
On the one side: great political emphasis on Contracting
On the other side: very different market structures in the EU
The recently amended and extend Energy Efficiency Directive focusses on several Instruments to promote energy efficiency,
EU sees contracting as one main approach to improve energy efficiency
Aim of the directive is to support the development on an energy service market
Remove regulatory and non-regulatory barriers in the member states
Encourage utilities and ESCOs to offer contracting products
Support the public sector taking advantage of the opportunities of contracting (=overcoming emotional barriers)
EU support the implementation in member stares by a variety of helpful materials, e.g. pattern contracts
But: different market structures lead to different developed energy service markets
Extend of market liberalization
Number of Players
Existing energy efficiency potentials
Energy efficiency policy, in particular energy efficiency support regime
Level of Energy prices

3. The German contracting market in brief
Approx. 250 to 500 ESC-providers
About half of the companies are very active
Utilities are the main group of ESC-providers
Most utilities found subsidiaries (some are listed as ESCO)
Only the minority of utilities offers Energy Performance Contracting
Major differences between ESCOs
Number of current contracts (range from less than five contracts to several hundred per ESCO).
Offerd contract period
Preferred type of contracting
Main customer segments (business customers, public sector, residential)
Key energy usage (heating/cooling, building equipment industrial usage, compressed air, lighting)

4. German energy efficiency policy leads to demand for Contracting – and places no obligation on the utilities
Energy efficiency policy
Information
Free and general information
Individual energy analysis as a consulting service
Financial support
German state owned development bank (KfW) is offering programs for residential, public and commercial customers to improve energy efficiency
Financial support basically by
direct subsidies, above all for energy efficiency consulting
subsidized loans, for implementing of measures in particular
Public customers: low-interest loans for public entities
Regulation
Energy efficiency standards
Mainly building sector
Energy Management Systems (commercial customers)
Tax benefits in 2013 only with the introduction of an EMS
Leads to demand for energy efficiency investments
ESCOs are one essential player to meet demand
Example:
KfW Energy Efficiency Program
For small and medium enterprises (> 250 employees)
Investments must achieve at least 20% energy-savings compared to the average consumption of the previous 3 years, new investments must at lead be 15% better than industry average.
Interest from 1% (present conditions), maximum loan EUR 25 million per project
Contracting explicitly mentioned
Conditions: Up to 3 repayment-free start-up years, disbursement 100%

5. Financing of contracting projects is dependent on customers individual situation
Internal financing
Most German utilities that offering Contracting models traditionally rely on cash flow financing
The logic of this type of financing can be compared with the BCG portfolio: cash flow is from old, well-run businesses to invest in new, future-oriented businesses
But: this type of financing is more expensive than a full debt financing, especially if the customer has access to low interest-loans
Because many customers often can get subsidized low-interest loans, project financing today considered these individual benefits, and proceeds to a mixed financing
Poor dogs
Cash cow ?
Star
Market share
Market growth
BCG-Portfolio
External financing
Bank loan (including subsidized interests like KfW-loans)
Third Party Financing

6. Energy Performance Contracting is not very common at German utilities, because of …
many providers, especially utilities, are not willing to take the risks associated with performance contracting projects
These are
Definition of baseline of energy consumption and energy costs
Low impact on active customer behavior that influences the energy consumption
Change of use of buildings by customer
Change in the energy consumption based on amount and structure (e.g. increase temperature, longer working hours)
consideration of inflation and not foreseeable events
Transferring the technical and economic facts in an unequivocal agreement
Definition of maintenance measures
But German policy sees performance contracting an important tool for achieving the energy efficiency goals
Therefore, many pilot projects promoted and developed guidance for other customers
Nevertheless, many utilities focus on the energy supply contracting

7. Utility as an ESCo – a perfect match!
Utilities
Engineers
Hardware supplier
Operating companies
Long term customer orientation  ? ? ?
Existing customer relationships  ? ? ?
Planning and engineering expertise    
Neutrality in technology choice   
not applicable
Financing of Investment / Access to capital  ?  
Maintenance and operating   ? 
Comprehensive customer oriented solution inclusive energy supply    
non -liberalized market
non -liberalized market
non -liberalized market
risk tolerance ?   ?

8. One Example out of the RWE-Group that shows optional future development strategies
From Energy contracting to facility management
Example: Ford Industrial Supplier Park
Offered by “famis services”, a small and flexible service-company within the RWE-Group
Contractual services: management and coordination of the entire property for the customer
Main data:
Approximately 100,000 m² of hall space
currently 10 suppliers
Facility Management is available around the clock
Activities:
technical management
repair
maintenance
Coordination of all trades
24 h monitoring
Reception and reception service
Cleaning Services
Winter Service
settlement of charges
Integrated Facility Management for the following customers:
Johnson Controls Schwalbach GmbH
Benteler Automobiltechnik GmbH
Tenneco Automotive Deutschland GmbH
LMS Logistik Magazin Saarlouis GmbH
SAS Autosystemtechnik Saarlouis GmbH & Co. KG
LEAR Corporation GmbH
STADCO Saarlouis Ltd. & Co. KG
iSL Automotive GmbH
Grupo Antolin Logistik Deutschland GmbH
Losito GmbH

9. Thank you very much for your attention and feel free for Questions!