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Risk management for energy efficiency investments

Here, we discover that the EFFECT4buildings project provides a set of financial tools and instruments for lowering the risks of energy efficiency investments

40% of energy consumption and 36% of CO2 emissions in the European Union relates to buildings. To achieve a climate-neutral Europe by 2050, energy efficiency in buildings must be improved. Key actors to make the change is building managers. They are often aware of possible technical solutions, but at the same time facing challenges with limited human and financial resources. To convince decision-makers to invest in energy efficiency measures, both financial and technical risks have to be limited.

With a more systematic way of analysing risks, more capital can be attracted for energy efficiency investments. Policy plays and important role in risk mitigation, since investors try to avoid future uncertainties. At the same, the willingness to face risks depend on how strong the commitment is to climate mitigation and to avoid much larger risks from climate change.

The Interreg Baltic Sea Program project EFFECT4buildings is providing building managers with a set of financial tools and instruments for risk management to support the implementation of more energy efficiency measures, developed and improved in real cases.

energy efficiency investments

Toolbox for financial calculations

92% of all interviewed building managers stated that financial calculation methods are extremely important when justifying energy investments, but only half of them found it easy to do or even to understand them. The most common way for calculations of energy measures is pay-back-method, but it does not take aspects of technical lifetime and profitability demand in consideration. Conclusions from recalculations of measures have shown that using Net present value method or internal rate of return, investments with a longer lifetime will benefit and many more measures will be profitable.

Another very useful tool is the Total Concept method. When bundling several measures into a larger investment package, the profitability of the whole package can be calculated. Less profitable measures will then be covered by the more profitable ones, making it possible to implement more energy efficiency measures in total.

The Prosumerism calculation tool helps building managers to find out if and when it is recommended to invest in solar energy and what the optimal size of a solar energy power plant is, both from the financial and energy production perspective.

Tools for partnering

Investment decisions will, of course, be facilitated by funding, green loans or bonds. Financial and technical risks can also be lowered by contracting partnership with an external service company.

The Energy Performance Contracting (EPC) model results are guaranteed by the Energy Service Company (ESCO), ensuring that energy savings cover the costs of the investments. The project introduces an improved implementation model for EPC based on the present market situation and experiences in the partner countries. The main novelty aspect being contract-based partnership during the analysis phase of EPC projects. Adapted tender documents proposing new selection criteria better suited to the goals of public building owners, as well as contract templates, an EPC presentation and a step-by-step guideline for starting up an EPC project are all gathered in a tangible EPC toolbox.

The Multi-Service Contracting (MSC) model, based on some of the same ideas as EPC, includes several benefits, makes investments more effective, lowers the risk of sub-optimization and gives more value for money spent. MSC can include all relevant services for a renovation project such as energy, maintenance, indoor climate, operation, etc. The purpose of MSC is to become aware of how different services are interlinked and how a unilateral prioritisation of one can impact on others. An MSC does not have to include all services, but the building owner makes an informed prioritisation. Furthermore, MSC focuses more resources and time into the planning phase and collaboration with the MSC contractor. Thus, using more time to map and analyse the building or project at focus, minimises unexpected challenges later on when implementing the project. More so, the building owner and MSC contractor continuously follow up by setting; clear requirements to the building’s performance, key performance indicators and a verification programme and, thereby, lowering the risk of unexpected cost in the operation phase. Overall, to reduce project risks, MSC requires that the MSC contractor is involved from the very beginning of the planning phase.

The Green Lease Contract (GLC) model support owners of buildings and tenants to cooperate in increased sustainability, through contracts with common goals and dialogue. Increased understanding of the symbiose with energy use in a building and behaviour will support the right choice of solutions in a way that limits financial and technology risks. Also, when tenants are more involved and are given more trust, the interest in identifying and reporting maintenance needs increases.

Technology solutions

Last, but not least, it is of great importance to lower the risk of investing in the wrong technology. To make sure building managers invest in the best available solutions, more knowledge on different possibilities is needed as well as confirmation from colleagues that the solutions actually performs well. Therefore, a wise part of risk management is to actively participate in forums for sharing experience of technical solutions with other building managers/owners.

The full toolbox will be presented in autumn 2020 on project webpage www.effect4buildings.se

About EFFECT4buildings project

The goal is to implement more energy efficiency measures in public buildings in the Baltic Sea Region. 

EFFECT4buildings is implemented with the support from the EU funding Program Interreg Baltic Sea Region (European Regional Development Fund) and Norwegian national funding.

Partner countries – SE, FI, NO, LV, EE, PL, DK. 

Project manager: Marit Ragnarsson, County Board of Dalarna, Sweden. marit.ragnarsson@lansstyrelsen.se

EFFECT4buildings project

www.effect4buildings.se

Please note: This is a commercial profile

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