Periodic Reporting for period 2 - NOVICE (New Buildings Energy Renovation Business Models incorporating dual energy services)
Période du rapport: 2018-12-01 au 2020-05-31
Building renovation rates in Europe must double in the coming years in order to achieve the energy targets set out in the Energy Efficiency Directive. At the same time, the energy sector must transition to a flexible network of prosumers able to change their demand profiles in response to the intermittent nature of renewable energy generation. Many assets that are commonly installed or upgraded during energy efficiency (EE) retrofit projects (such as HVAC systems, CHP and RES installations, BEMS and heat pumps) can also be used to provide flexibility services to the electricity grid. Taking advantage of revenues from both energy efficiency and demand response (DR) in one integrated service could increase the value that these assets deliver to the building owner and improve the return on investment (ROI) of energy efficiency renovation projects. An Enhanced Energy Performance Contract (EPC) will guarantee building owners a minimum level of energy savings and occupancy comfort whilst ensuring that maximum value can be extracted from the flexibility potential of on-site energy assets.
NOVICE aimed to develop and demonstrate an innovative new business model that combines both EE and DR into a single service offering and allows ESCO to work together with demand response aggregators to provide a holistic package of energy services, enhancing the business case for renovation projects and driving up renovation rates across Europe.
The main objectives of NOVICE were to:
• Engage and train new actors and stakeholders (aggregators, ESCOs, technology providers, FMs, engineering consultants) to implement the proposed augmented building renovation process
• Address regulatory, market, technological and financial barriers to the implementation of dual energy services business model in building renovation
• Prescribe the building energy renovation technologies that increase both demand response flexibility and energy efficiency of participating buildings
• Develop an innovative business model and a new Energy Performance Contracting template for providing dual energy services.
• Demonstrate the effectiveness and advantages of the NOVICE innovative business model for dual energy services in building retrofitting projects.
NOVICE aimed to develop and demonstrate an innovative new business model that combines both EE and DR into a single service offering and allows ESCO to work together with demand response aggregators to provide a holistic package of energy services, enhancing the business case for renovation projects and driving up renovation rates across Europe.
The main objectives of NOVICE were to:
• Engage and train new actors and stakeholders (aggregators, ESCOs, technology providers, FMs, engineering consultants) to implement the proposed augmented building renovation process
• Address regulatory, market, technological and financial barriers to the implementation of dual energy services business model in building renovation
• Prescribe the building energy renovation technologies that increase both demand response flexibility and energy efficiency of participating buildings
• Develop an innovative business model and a new Energy Performance Contracting template for providing dual energy services.
• Demonstrate the effectiveness and advantages of the NOVICE innovative business model for dual energy services in building retrofitting projects.
The NOVICE project has shown that when scoping energy efficient building refurbishments, including DR as an opportunity can generate an additional revenue stream that could reduce overall project payback period by up to 16% without negatively impacting on occupant comfort. Whilst the value of the DR revenue stream is always likely to be small in comparison to the revenues from energy savings and reduced maintenance costs, a 16% reduction in payback period (and therefore improved return on investment) is likely to turn projects that were on the borderline of being investible into projects that are economically viable. It is therefore worth considering the potential for DR in every whole building energy refurbishment, but in particular in cases where the economic viability is marginal. This could help to drive up building renovation rates in Europe whilst at the same time accelerating the smart energy transition.
The NOVICE dual services approach of combining EE with DR via an EPC becomes more viable as more of the following conditions are met:
• The right equipment: The building must include energy assets that can be used in a flexible way such as industrial equipment, HVAC equipment, refrigeration equipment, energy generation, battery storage, renewable energy generation with battery storage and a Building Management System. The more types of equipment on site, the more DR markets the site can participate in, therefore the greater the value of flexibility.
• The right building type: Buildings more than 20 years old, that have not yet undergone a refurbishment often have lots of opportunity for energy saving. Buildings with a large annual energy consumption, where energy is a significant cost to the building owner are more likely to take up EPC. Buildings with a wider range of acceptable operating parameters have a bigger opportunity for flexibility revenues. Large hotels, large offices, hospitals, and large retail premises appear to be the most suited to NOVICE.
• The right market: NOVICE will be most successful in a country with both a mature EPC market and a mature DR market. Building owners and ESCOs must accept the EPC model as an acceptable and trusted method of achieving improved energy performance. Aggregation must be allowed. Energy assets must be allowed to participate in a range of DR programmes, rather than having commit to only one.
• The right contractual models: Standard EPC contractual templates are needed to minimise the legal and administrative burden and cost of procuring dual services EPCs, particularly because these are likely to be more complex than standard EPCs. ESCOs must be willing and able to sell, finance, and operate an EPC. ESCOs and aggregators must be willing to work together and must find suitable contractual approaches to managing the relationship between them including: client management; roles and responsibilities; distribution of revenue streams.
• The right finance: In order to drive up building renovation rates in Europe, the barrier of access to finance for EE projects must be overcome. Due to the uncertainty over revenues from DR, most third party investors would not consider a dual services EPC to be any more bankable than a standard EPC. Standardisation of contracts and processes, and bundling of similar projects will increase the attractiveness to investors.
The NOVICE dual services approach of combining EE with DR via an EPC becomes more viable as more of the following conditions are met:
• The right equipment: The building must include energy assets that can be used in a flexible way such as industrial equipment, HVAC equipment, refrigeration equipment, energy generation, battery storage, renewable energy generation with battery storage and a Building Management System. The more types of equipment on site, the more DR markets the site can participate in, therefore the greater the value of flexibility.
• The right building type: Buildings more than 20 years old, that have not yet undergone a refurbishment often have lots of opportunity for energy saving. Buildings with a large annual energy consumption, where energy is a significant cost to the building owner are more likely to take up EPC. Buildings with a wider range of acceptable operating parameters have a bigger opportunity for flexibility revenues. Large hotels, large offices, hospitals, and large retail premises appear to be the most suited to NOVICE.
• The right market: NOVICE will be most successful in a country with both a mature EPC market and a mature DR market. Building owners and ESCOs must accept the EPC model as an acceptable and trusted method of achieving improved energy performance. Aggregation must be allowed. Energy assets must be allowed to participate in a range of DR programmes, rather than having commit to only one.
• The right contractual models: Standard EPC contractual templates are needed to minimise the legal and administrative burden and cost of procuring dual services EPCs, particularly because these are likely to be more complex than standard EPCs. ESCOs must be willing and able to sell, finance, and operate an EPC. ESCOs and aggregators must be willing to work together and must find suitable contractual approaches to managing the relationship between them including: client management; roles and responsibilities; distribution of revenue streams.
• The right finance: In order to drive up building renovation rates in Europe, the barrier of access to finance for EE projects must be overcome. Due to the uncertainty over revenues from DR, most third party investors would not consider a dual services EPC to be any more bankable than a standard EPC. Standardisation of contracts and processes, and bundling of similar projects will increase the attractiveness to investors.
NOVICE has made progress beyond state-of-the-art by developing an enhanced EPC template that incorporates both DR and EE measures into the same contract. From the client’s perspective this is advantageous as it transfers any risk associated with both services to the ESCO and reduces the administrative burden as only one contract is needed to cover both revenue streams. The project has shown that an ESCO presenting their client with a dual services project either with or without EPC is, in theory, likely to have a competitive advantage over an ESCO presenting a traditional EPC that considers energy efficiency alone, due to the shorter contract duration and better return on investment. NOVICE also proposed a contractual template for a Memorandum of Understanding (MoU) between ESCO and aggregator governing the roles and responsibilities of each party, their obligations to each other and how the split of revenues will be handled. After market testing, it was concluded that the NOVICE MoU template forms a good basis for negotiations between the ESCO and the aggregator for providing demand response services to a new or existing ESCO client. However, the MoU is not the right tool in every situation and other models, such as cross-referral of clients or strategic partnerships between ESCOs and aggregators should also be considered.