Financial viability of school retrofit projects for clients and ESCOs

Abstract

The energy performance contracting market is potentially substantial but very little work has been undertaken to understand the characteristics of successful projects. This study uses a probabilistic analysis of four hypothetical projects in the UK schools sector under the 2014 policy regime, combined with qualitative interviews with practitioners, to explore the conditions for a viable project. It finds that the proposed approach has the potential to allow more detailed exploration of project structures and scope for creating greater understanding of likely returns and the factors affecting them. Evidence is found that the use of deterministic risk screening techniques such as simple payback results in viable opportunities being overlooked. The risk profiles for clients and contractors (energy service companies -ESCOs) are not symmetrical and they will each find different projects more attractive. The results suggest that greater consideration needs to be given to the precise risk allocation between client and contractor to ensure that likely returns are properly understood. This study demonstrates a method for exploring project characteristics that can be used to understand their impacts on the financial returns for clients and contractors.

Risk Mitigation in Energy Efficiency Retrofit Projects Using Automated Performance Control

“…Under the guaranteed energy savings model, project clients are typically responsible for obtaining financing either from internal funds or from external third-party investors (e.g. a bank or financial institution) [11,36,37]. A range of factors can cause energy savings uncertainty, including monitoring and verification risk, financing risk, and technology risk ( Table 1).…”

“…[75][76][77]). This ECM selection was further supported by data from the Building Component Library and several articles using a similar methodological approach [11,36,43,71]. Finally, our research team had access to guaranteed energy savings agreements (GESAs) provided by ESCOs for other projects in Delaware and across the United States.…”

“…The tool has been used in similar investigations to determine sensitivity or optimize energy systems [82,83]. This set-up enables Monte Carlo analysis for risk estimation and management of, among others, renewable energy projects, system planning, or system optimization [84,85] and for energy efficiency projects in general and monitoring and verification efforts specifically [36,44,82]. Latin Hypercube Sampling (LHS) was used to run 10,000 simulations per jEPlus model run.…”