EU energy policy for efficiencyAs public budgets are squeezed in the grip of a long and weary recession, European policymakers are pushing hard to promote energy performance contracting as the silver bullet which can deliver public sector energy efficiency.  

Through legislation and policy initiatives, the long-term strategy is to create markets for sustainable products and services – usually calling upon the public sector to lead by example.  In this vein, the new Energy Efficiency Directive obliges member states to renovate public buildings, and to establish financing facilities for energy efficiency measures. To support the legislation, the European Commission’s Directorate-General for Energy has launched a year-long campaign to promote energy performance contracting across Europe. The campaign is targeted at multiple levels of governance – with the European Investment Bank’s EPEC unit addressing national government level, the popular Covenant of Mayors initiative getting the message across to city leaders and town halls, and ManagEnergy delivering training and capacity building to local authority staff.

As with so many other markets, the European market for outsourced energy services is in markedly different stages of development. Largest and most advanced national markets can be found in Germany, France, Spain and the UK. There’s still room for growth in these markets though – as shown in the UK, where the Department for Energy and Climate Change is funding a nationwide scheme to increase energy performance contracting in the public sector. First trialed in London and specifically targeting the public sector, the scheme RE:FIT streamlines the procurement process for energy services by providing pre-negotiated, EU-regulation-compliant contracts that can be used with a group of 13 pre-qualified ESCos.

Early stage markets have also responded, with Ireland recently launching an Energy Efficiency Fund, where it is expected that loans supporting energy performance contracting deals will form a significant component of the fund’s activities. In Portugal, the government plans to launch ESCO contracts worth €10M in 2013, €20M in 2014 and €30M in 2015. Overall it is estimated that the public sector market in Portugal is worth up to €100M. The cost of capital is a challenge facing those states where the economic recession is most acutely felt – in Cyprus for example, where all bets are off until the terms of the bailout are agreed later this spring.

Elsewhere, the well-organised Danish are typically showing the way, with the municipality Middelfart teaming up with Schneider-Electric in a seven year contract for energy efficient retrofit and supply for the municipality’s public buildings. This has achieved 24% annual savings, with a second project now underway to extend the concept to the renovation of local homes. Fortunately the Danish government was able to help with the most difficult challenge – securing the initial loan for the project.  

The business case for loaning against future energy savings is not yet widely accepted by financial institutions, and there may yet be an opportunity for related financial products such as energy savings insurance to make an entry onto the European market. Public sector managers are risk-averse, and many lack the know-how to make informed decisions about what are typically long-term and high value binding contracts.

Nonetheless, the regulatory framework is set and the message is clear – these multiple local markets are open for business, and savvy energy services companies would do well to get in on the action.