POLITECNICO DI MILANO

Scuola di Ingegneria Industriale e dell’Informazione

Corso di Laurea Magistrale inIngegneria Gestionale

“Analysis and evolution of the Energy Service

Companies' Italian market”

Relatore: Prof. Davide CHIARONI

Autore: Michele BassiMatr. 837629

Anno Accademico 2015 – 2016

SUMMARY

1. Figures index.......................................................................................................................2. Tables index........................................................................................................................3. Acronyms index..................................................................................................................4. Abstract...............................................................................................................................5. Abstract (Italian version)....................................................................................................6. General introduction.........................................................................................................7. Introduction and contextualization of the market.......................................................... 7.1 The energy efficiency target and the role of the ESCos................................................

7.2 What is an ESCo...........................................................................................................

7.2.1 Definitions...........................................................................................................................

7.2.2 Classifications and business models..................................................................................

7.3 The contracts................................................................................................................

7.3.1 Contracts typologies and financing modes.........................................................................

7.3.2 The contracts related risks.................................................................................................

7.3.3 SPINs and EPC+ contracts................................................................................................

8. Practical example of an energy efficiency project.........................................................9. The state-of-the-art of the Italian Energy Efficiency market.........................................10. Methodology of the analysis..........................................................................................11. The ESCo-market analysis by industry and by technology........................................ 11.1 Results and comments by industry.............................................................................

11.1.1 The “revenues-proportional” approach.............................................................................

11.1.2 The “absolute percentage” approach...............................................................................

11.2 Results and comments by technology.........................................................................

11.2.1 The “revenues-proportional” approach.............................................................................

11.2.2 The “absolute percentage” approach...............................................................................

11.3 Results and comments per specific sectors and tecnologies......................................

12. ESCos’ market analysis by contract............................................................................. 12.1 Results and comments................................................................................................

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SUMMARY

13. Insights and trends......................................................................................................... 13.1 Energy Service Companies and Small-Medium Enterprises.......................................

13.2 Energy Service Companies and Logistics...................................................................

14. Conclusions and future perspectives...........................................................................15. Bibliography..................................................................................................................

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1. FIGURES INDEX

Fig.1 The 20-20-20 targets.....................................................................................................

Fig.2 The specialized operators’ market composition.............................................................

Fig.3 The integrated operators’ market composition...............................................................

Fig.4 The Energy Efficiency Service Providers’ market..........................................................

Fig.5 The target markets.........................................................................................................

Fig.6 Third parties financing with ESCo borrowing.................................................................

Fig.7 Third parties financing with energy user/customer borrowing........................................

Fig.8 The phases of an energy efficiency project...................................................................

Fig.9 The phases of an energy efficiency project...................................................................

Fig.10 The growth of the Italian market for energy efficiency.................................................

Fig.11 The partitioning of the investments per sector.............................................................

Fig.12 The partitioning of the investments per technology.....................................................

Fig.13 The investments in GDO and Hotels...........................................................................

Fig.14 Detailed investments of Food Industry.........................................................................

Fig.15 Detailed investments of Paper Industry.......................................................................

Fig.16 Detailed Investments of Chemical Industry..................................................................

Fig.17 Detailed investments of Mechanical Industry...............................................................

Fig.18 Detailed investments of Products for Metallurgy Industry............................................

Fig.19 Detailed investments of Products for Building Industry................................................

Fig.20 Detailed investments of Glass Industry........................................................................

Fig.21 Detailed investments of the GDO industry...................................................................

Fig.22 Detailed investments of the Hotel Industry..................................................................

Fig.23 The ESCos incidence on core and non-core activities................................................

Fig.24 The incidence of the TEE on the investments.............................................................

Fig.25 The revenues of the sample per industry.....................................................................

Fig.26 The revenues of the market per industry (1st approach)..............................................

Fig.27 The revenues of the market per industry (2nd approach)..............................................

Fig.28 The revenues of the sample per technology................................................................

Fig.29 The revenues of the market per technology (1st approach) ........................................

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1. FIGURES INDEX

Fig.30 The revenues of the market per technology (2nd approach).........................................

Fig.31 The partitioning of the contracts typologies.................................................................

Fig.32 The revenues of the market per contract typology.......................................................

Fig.33 Relations between barriers and drivers for energy efficiency......................................

Fig.34 Relations between ESCos and drivers for energy efficiency.......................................

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2. TABLES INDEX

Tab.1 Activities and phases of typical intervention.................................................................

Tab.2 Activities and phases of a typical intervention..............................................................

Tab.3 The specialized operators’ activities.............................................................................

Tab.4 The integrated operators’ activities...............................................................................

Tab.5 The contracts’ typologies..............................................................................................

Tab.6 SPIN’s strength and weaknesses.................................................................................

Tab.7 SPIN’s opportunities and threats..................................................................................

Tab.8 Economic evaluation of an energy efficiency project....................................................

Tab.9 Total energy consumption per industry.........................................................................

Tab.10 The partitioning of the Italian market for energy efficiency.........................................

Tab.11 The inclination index towards energy efficiency..........................................................

Tab.12 The inclination index for GDO and Hotels...................................................................

Tab.13 The revenues of the sample.......................................................................................

Tab.14 The revenues of the sample.......................................................................................

Tab 15-16 Investments and revenues rankings......................................................................

Tab 17 The revenues rankings...............................................................................................

Tab 18 The shares of revenues per sector.............................................................................

Tab 19 The shares of revenues per technology......................................................................

Tab 20 The revenues of the market........................................................................................

Tab 21 The revenues of the market........................................................................................

Tab 22 Categories of logistics operators................................................................................

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3. ACRONYMS INDEX

EESP Energy Efficiency Service Providers

ESCO Energy Service Company

P&P Pulp and Paper industry

F&B Food and Beverage industry

ROI Return on equity

NPV Net Present Value

UNI Ente Nazionale Italiano di Unificazione

OEM Original Equipment Manufacturer

TPF Third Party Financing

O&M Operation & Management

SPIN SME Partnerships for Innovative Energy Services

EPC Energy Performance Contract

EPC+ Energy Performance Contract Plus

GDO Grande Distribuzione Organizzata

PBT Payback Time

IRR Internal Rate of Return

TEE Titoli di Efficienza Energetica

EER Energy Efficiency Report

SME Small and Medium Enterprises

LE Large enterprises

PPM Parts per million

tCO2e Tones of CO2 equivalent

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4. ABSTRACT

The concept of energy efficiency must not be confused with the “energy

conservation” one; with this one indeed, it is meant a decrease in

consumption which, not necessarily, coincide with the subsistence of the

expected level of performance. To switch-off lights at home it’s energy

conservation; to substitute an hold lamp with a LED one, and keep it

switched-on for the same time, it’ energy efficiency.

The actions of Energy Service Companies are based on this fundamental

but simple concept: to grant an equal (or even better) level of performance to

the customer, compared to a decrease in consumptions, and, consequently,

in the energy costs. The appropriation of a quote of the savings is the key to

success of this business model and it allows to offer to the customer “cash-

free” installations.

This thesis work, basing on previous industries classification studies, wants

to deepen the way ESCos interface with customers in the real world and

how they face the intrinsic complexity of the energy efficiency market. As

shown in the literature indeed, in this field there are many possible business

models, as well as many specific know-hows, portfolio of offered services

and levels of integration. About that, the ultimate goal of this thesis won’t be

the one of purposing further categorizations, but instead the one of analyzing

the contact mechanisms with the client, the barriers, the trends of the single

industries and the possible future developments for a market which was born

more than 10 years ago.

The nature of this work will be twofold: quantitative and qualitative. It is

quantitative for what concerns the definition of the weights of the industries

and technologies, in terms of turnover. It is qualitative, once the dimensions

of the market have been understood, in terms of investigating the

relationships with customers before, during and AFTER an energy efficiency

intervention.

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The ESCos are a facilitator and an implementer, recognized by law, of the

achievement of the environmental goals: their mission is not just to “make

the business” but to create and to stimulate demand too.

5. ABSTRACT (ITALIAN VERSION)

Il concetto di efficienza energetica non va confuso con quello di

“conservazione dell’energia”; con quest’ultimo infatti, si intende una

diminuzione dei consumi, che non per forza coincide con il mantenimento

del livello atteso di performance. Spegnere la luce di casa è conservare

energia; sostituire la vecchia lampada con una a LED, utilizzandola per lo

stesso tempo, è fare efficienza energetica.

Su questo concetto basilare si fonda l’operato di una Energy Service

Company: garantire al cliente un livello di performance equivalente (o

migliorato), a fronte di una riduzione dei consumi e, conseguentemente, dei

costi energetici. L’appropriamento di una quota del risparmio è la chiave di

successo di questo modello di business e consente di offrire al cliente

un’installazione “cash-free”.

Questo lavoro di tesi, basandosi su precedenti studi di inquadramento del

settore, intende approfondire il modo in cui le ESCo si interfacciano con i

clienti nel mondo reale e come esse affrontino la complessità intrinseca del

mercato dell’efficienza energetica. Come si evince dalla letteratura infatti, i

modelli di business in questo campo sono molteplici, così come i know-how

specifici, i portafogli di servizi offerti ed i possibili livelli di integrazione. A tal

proposito, il fine ultimo della tesi non sarà quello di proporre ulteriori

categorizzazioni, ma bensì di analizzare i meccanismi di contatto col cliente,

le barriere, le tendenze dei singoli segmenti e i possibili sviluppi futuri di un

mercato che esiste ormai da più di un decennio.

La natura del lavoro sarà dunque duplice: quantitativa e qualitativa.

Quantitativa nella definizione dei pesi dei segmenti e delle tecnologie sul

piano dei fatturati. Qualitativa, una volta comprese le dimensioni del

mercato, nell’indagare i rapporti con i clienti prima, dopo e durante un

intervento di efficientamento energetico.

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Le ESCo sono un facilitatore ed un attuatore, riconosciuto a norma di legge,

del raggiungimento degli obiettivi ambientali: la loro mission non è soltanto

“fare il business” ma è anche creare e stimolare la domanda.

6. GENERAL INTRODUCTION

The thesis work has been organized through eight main chapters, which

will guide the reader through a dissertation about the dynamics of the

Energy Service Companies’ market.

The chapters, from seven to fourteen, can be grouped into three phases:

1) The first phase will provide definitions and frameworks to give a

precise contextualization of the operators in terms of structures, level of

integration, portfolios of services and contracts. Chapter seven will

focus on the relationships between European Regulations and the role

of the ESCos and, in a second moment, on the theoretical classification

of the different actors and contracts. Chapter nine will provide the

results of previous market-analyses (mainly from the Energy Efficiency

Report 2016 by the Energy & Strategy Group), which will be used as a

basis and a benchmark for the correct quantification of the results

(chapters 10 and 11). Chapter eight describes instead the phases of a

“typical” energy efficiency project.

2) The second phase consists in the presentation of the results, coming

from the surveys and the interviews. The numerical data from the

surveys will be organized with a similar structure with respect to the

Energy Efficiency Report, so as to be able to make considerations

about their accuracy and affordability. The operative and “real-business”

issues will be discussed with reference to the interviews, to favor a

better framing of the dynamics and mechanisms which lay “behind the

numbers”. Chapter ten explains the methodologies used for the

analysis of industries and technologies (chapter eleven) and of the

contracts (chapter twelve).3) The third and last phase of the work consists in the evaluation of the

evolutionary dynamics in the short-medium and long term. Some topics

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(which have been the objects of personal and direct experiences) will be

deeply analyzed and final conclusions will be presented together with

future perspectives (chapters thirteen and fourteen).

7. INTRODUCTION AND CONTEXTUALIZATION OF THE MARKET.

7.1 The energy efficiency target and the role of the ESCOs.

In 2010 the European Union established the 20-20-20 goals for energy

efficiency, Co2 Emissions and renewable sources. The 2020 threshold was

a fundamental step for World’s sustainability and the whole green economy,

being the first pragmatic set of objectives, which derived from the well-known

conferences undertaken at the end of the century and during the 2000’s.

Today these targets are continuously monitored and are going to be

updated, new protocols are going to become effective and new conferences

like the Paris one are setting long terms strategies and new goals for the

near future. The institutional attention towards the sustainability cause is

increasing year after year; the time needed for protocols’ ratification overtime

is a proof of this global trend: Kyoto protocols took years to be confirmed

while the Paris COP21 just took some months, thanks to the stronger will of

European leaders and to the earlier participation of new countries and

institutions.

In the graph below the three objectives are reported together with the

timeline of the real progresses.

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Fig.1-The 20-20-20 targets.

Some observations about this representation are then needed to clearly

understand what is the real distance from the benchmarks and to realize if

the current trends have the right intensity to meet them within the deadlines.

The Renewables and Greenhouse Gases objectives have been defined

compared with 1990, with the result that, when they were set in 2010, a part

of them had already been satisfied. Today these 2 goals have very good

projection for the future and they can be supposed to reach or even exceed

final targets by 2020.

As for the Energy Efficiency Goal instead, the evaluation of the progresses

with respect to the final target must be particularly careful, given that it must

be compared to 2005 consumptions (which was the first year in which

consumptions started to decrease, and so the first useful year to set the

target), so that it is practically a more recent target. Looking at future

projections, it is understandable that it will not be easy to reach the decrease

of 20% of consumptions by 2020, even if some nations like Italy have

already reached it. During the next decade the Energy Efficiency target

together with the Renewable Sources one will be fundamental as a driver for

the Emissions Reduction target, which is actually set on the 450 ppm (Parts

per million); indeed, even if this target is going to be reached, it seems that it

will not be consistent enough to keep world temperature under the “2

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degrees maximum increase”. The Paris COP21 wants to move right on this

direction, enforcing measures and placing stricter standards, even if at the

moment, the global scientific community is skeptical about the containment

of temperatures increases within the 2 degrees. Given all these very generic

considerations, it is easy to understand that there are almost two main

reasons why enforcing the energy efficiency market is fundamental for the

entire world: the energy efficiency target is currently the most challenging

one and it is a strong driver to furtherly reduce CO2 emissions.

By relying on this strategic vision and on these macro trends, the European

Union issued the first Energy Efficiency Plan in 2011, which aims to put into

practice measures and guidelines to reach objectives, with a more

“operational” vocation. It is basically articulated over three main priorities:

1. Renewal of building stocks

2. Promoting the exemplary role of the public sector (3% restructuring

per year)

3. Promoting the development of the business model of the ESCOs

In 2012 with the directive 2012/27/EU each member state had to set its own

national energy efficiency targets in a non-binding way. For Italy, for

example, the quote was 126 Mtoe (Million tons of oil equivalent) and each

state had to bring into force these directives by 5 th June 2014. During 2011

the three aforementioned priorities were a little modified and redefined (the

fact of updating guidelines and priorities at a European level is crucial to

keep contact with the single countries in the medium term, putting “steps” for

markets and “references” for institutions and laws-adjournments) as

following:

1. Promotion of long term strategies for renewal of building stocks

2. Promote the exemplary role of the public sector (3% restructuring per

year)

3. Reduction of the energy sales by 1.5% each year (importance of TEE

market)

4. Promotion of specific measures for energy audits and energy management systems involving large enterprises.

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These two lists of priorities constitute the “pillars” of the Energy Efficiency

market definition for what concerns operational procedures aimed to

demand stimulation and market development; furthermore it is possible to

notice that the individuation of the Energy Service Companies as enabling-

actors of the market is clear and well-defined. This is the evidence of the fact

that the ESCo ,as an “entity”, is strongly incentivized by the European

regulation, which also certifies them uniformly (UNI-CEI11352): the ESCo is

described as an actor which works as a “trait d’ union” between EU

guidelines and their application into the real market, guaranteeing

standardization, reliability and legality. Anyway, as it will be explained

afterwards in the next sections, the ESCos are uniformly defined only for

what concerns their final purpose (Energy Efficiency) and European

certifications: the structure, the size, the role in the market, the contracting

and the core activities instead, can slightly vary from one company to

another.

Now that the “macro” institutional role of the ESCOs is clarified, the aim of

the introduction will be the one to explain what they are, how they work,

what are the main contract forms and what is the state of the Italian energy

efficiency market.

7.2 What is an ESCO.

7.2.1 Definitions.

The energy efficiency objectives can bring very different types of

advantages: the decrease in the degree of energetic dependence from other

countries and from fossil fuels, the possibility to pursue costs reductions and

the GHG reduction are just some of them. It is evident that energy efficiency

takes with it a large series of benefits but it is also true that there are a lot of

barriers to it: some of them are the lack of information and knowledge, the

presence of not qualified entities carrying out projects, the high initial costs

and sometimes a sort of “general apathy” of the specific sectors. In this

contest the Energy Service Companies acts exactly as an “Access door to energy efficiency”, offering consultancy, knowledge, experience,

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historical data, dedicated solutions, assuming technological and financial

risks.

It is very difficult to give a precise definition of an Energy Service Company,

because they sell very different services, have different internal structures,

work at different stages of the supply chain and have very different ranges of

integration and specialization, by the way a first definition was given in Italy

in the Decreto Legislativo 115/2008 :

“A person or a company selling energy services and efficiency actions in the user’ s property assuming a well-defined financial risk. The remuneration depends totally or partially on the value of the amount of energy saved thanks to the efficiency intervention”.

The ESCos are different from the ESPCos (Energy Service Provider

Companies) which have not the same focus on energy efficiency that we find

in the previous definition, they are indeed a sort of more “generic actors”

which operate in the market for energy efficiency, but which have not the

same institutional value and do not mandatorily assumes technological or

financial risks. These are two central concepts for the definition of an Energy

Service Company which:

“assumes the technological risk of the intervention”

And moreover:

“assumes the financial risk of the intervention”

In the reality, none of these two last sentences is strictly necessary to define

an ESCO, but they are two key points for the framing of the entire business

model of an Energy Service Company which, as a consequence, will always

have to be technologically upgraded and able to make investments by itself

or through third parties. Some other general characteristics describing the

ESCOs, found out in the decrees and in literature, are the model of

remuneration (which is directly dependent on the customer savings), the

guarantee of the savings given by the ESCO itself and the general focus

towards energy efficiency topics.

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At this point, it is almost clear that an ESCo, as it is defined, must use

financial and technological resources in the most effective way during the

phases of a project, so that this can be identified as an always-present

characteristic for every kind of company working in this sector. There is then

another crucial perspective which is useful to give definitions and generic

figures of Energy Service Companies: looking at its behavior and portfolio of

offered services over the different phases of a project. During the design &

engineering, construction, running and maintenance phases the ESCos are

normally the only responsible of the actions taken, so that the next step will

be the one of understanding the width and depth levels referred to the sets

of actions provided during an Energy Efficiency Project. These actions can

be grouped for every step of a “typical intervention” like it is proposed in the

following tab:

Energy Audit Contracting DesignSite inspection and

data collectionContract Definition Definition of technical

specificationsData Analysis Funding Definition Technical Design

Energy Consulting Terms Executive planningVerification of safety

standardsTab 1-Activities and phases of a typical intervention.

Execution Monitoring Operation & Maintentance

Facilities supply Results verification Management

Installation Measurement MaintenanceStarting Eventual corrective-

actionsTab 2-Activities and phases of a typical intervention.

The first step coincides with the energy audit phase; even if it can have very

different levels of analysis, (basically depending on the needed accuracy

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degree, on the available financial resources, on the possibility to stop the

lines, on the endurance degree compared with invasive investigations, on

the availability of time and on other factors) it is usually composed of some

of the following typical actions: taking physical measurement, making

surveys (dedicated to personnel and to the different levels of management),

drawing up an initial “as is” situation of the site and of the employed

machines, gathering all the technical characteristics and coming up with final

consumptions over time. During these stages ERP data as SAP databases

are usually asked to the company’ s management and are used to select

and extract only pertaining categories.

An ESCO can decide to implement very different types of energy audits: the

ones which are currently (after 2015) mandatory for law belongs to the “very

low detail level” type. Depending on the detail degree required by the

customer and by the kind of process, different types of procedures are used;

with the increasing of the detail level, practices like simulations become

fundamental. The right setting of the level of detail is a very challenging

issue for an ESCO because it is a key-point to satisfy the customer need in

the right way: to give an example the typical Small-Medium Italian Enterprise

does not need high level of details and does not want to stop processes

during inspection phases, so the ESCOs are moving towards light solutions,

quick methodologies and software to make energy audits in the less invasive

possible way (it is important to remember that the basic concept to be

respected in this case, is that the final benefit brought by the energy audit

actions must exceed the total cost the energy audit itself). Another key-

issue, besides quickness and low invasiveness of procedures, is to provide

forecasted economic results (with the best approximation possible), in order

to give the customer an early idea of the savings, before going into deeper

investigations; this is a generic and fundamental principle for the “sales-

area”, and it is particularly effective when the customer is not completely

aware of the benefits given by the product/service: trying to sell the basic

product/service first, providing certain results, then going deeper into further

investigations and interventions opportunities. Another important issue at

this stage of an energy efficiency project is setting the right priorities both

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from an economical-advantage point of view and from a “customer-

preference” point of view, so that the final solutions will be recommended in

order of priority for easier selection.

Once the type of intervention, together with very general parameters, has

been defined, the ESCO is in charge to offer a contract for each new plant or

retrofit-solution (i.e. the installation of new LED lamps into old fixtures

previously mounting neon lamps). The parameters of a contract are various

and this topic will be deepened in a dedicated chapter (depending on the

kind of contract the parameters can change in typology and value too),

anyway the most frequent elements inside this type of contracts are: the

share of savings dedicated to the ESCO, the share of saving dedicated to

the customer, the guaranteed saving performance, the duration of the

contract, the condition given by the ESCO for operating and managing the

plant in the first years, the presence or not of the possibility for the customer

to redeem the plant and the guaranteed payback-time. In this phase also the

funding methodology is defined, the investment indeed, can be carried out

by the customer, by the ESCO, by a bank institute or again by mixed quotes

of different actors (this final solution can get high degrees of complexity as

returns must be divided by taking into account different weights of the

invested quotes and different degrees of financial risk and cost of capital).

The third phase of an energy efficiency project is the design of the new

solution or of the retrofit solution; in the first case the design is simpler and

requires less collaboration between the ESCO and the customer. The

definition of the technical specification must coincide with the technical

translation of the economical parameters defined in the contracting phase:

the plant must be dimensioned to give the best possible economical result,

under the constraints of space, time required for installation, minimum

performance, health & safety, productivity and so on. At this point an

executive planning can be defined and, at the end of this procedure, all the

safety standards must be checked and valued as compliant both with law

regulations and with company’ s safety policies.

As it will be better explained in the next chapter, an ESCO does not always

undertake all the previous and the next phases but its business model can

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be focused just on some of them. An example of this fact is the frequent

outsourcing of the installation procedures (in particular for integrated

operators) or interventions (typical plants whose installation is outsourced by

the ESCOs are PV plant).

The installation follows the gathering of all the necessary components which

are rarely produced by the ESCO, (there are just some examples of big and

very specialized ESCO which produce some components for their own

plants) indeed in the current market the components are supplied by

specialized operators mainly for higher specialization and cost efficiency

reasons.

After the plant has been installed and tested, and after that fixed parameters

have been confirmed by the real functioning of the plant, it can start working

under continuous monitoring. In this phase the role of the ESCO is

fundamental for the optimization of the plant, indeed even though the plant

have been properly designed and it is in line with the customer needs, some

changings in settings and parameters are always needed after the

installation (let’s think about the effects of the increase of external

temperatures over the setting of heating systems, or increasing the

“lumen/m2” in a given area of a site, due to changes in regulations), in order

to get the best possible efficiency from the plant. An ESCo is indeed much

more qualified in monitoring plants with respect to the customer; the data

coming the monitoring activities anyway, are usually available also for

customer’s consultations. As for operations & maintenance practices, the

ESCos often support the customers during the period in which it runs the

plant so that the company will be able to do it better when the period of

competence for the ESCo will come to an end.

7.2.2 Classifications and Business models.

An ESCO can provide all or just a part of the six aforementioned actions, so

each ESCO can have a different degree of coverage over Energy Efficiency

Projects; for this reason, a first categorization is needed, dividing the ESCOs

in specialized and integrated, depending on the number of carried out

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activities. The criteria and the data reported in the following lines have been

taken from the energy efficiency report 2015, in which all the Energy

Efficiency Operators (not only certified ESCOs) have been classified. The

specialized operators work on no more than 2/3 phases and are more likely

to focus on the upstream part of the projects (almost 30% of the sample

makes the Energy Audit phase).

Energy Audits

Solution design

Installation Maintenance &

Monitoring

Incentives Manageme

nt

Frequence

X 11%

X X 9%

X X X 8%

X X 8%

Tab.3-The specialized operators’ activities.

The most diffused configuration is the first one, followed by the second,

these operators are usually consultancy studies which specialize over

energy efficiency topics; they normally have a network of installers’

companies they use to collaborate with, in order to link the energy audits and

the design solutions with the final installation. The Operators which use to

effectuate also the installation stages have more complex structures and

need more personnel and more heterogeneous competences. In the end a

minority of the operators focuses on monitoring and maintenance issues,

these operators rarely identify with ESCos because they don’ t carry out the

first three phases which are fundamental for being considered an ESCo

(they do not assume technological or financial risks and they do not

stimulate demand in any way).

The second category is identified by the integrated operators, which instead

work on almost all the phases of an energy efficiency project; in particular,

28% of the sample of the integrated operators work on all the six phases.

These actors are obviously more likely to be larger companies than the ones

belonging to the category of the specialized operators. The two stages which

are more frequently outsourced are the installation and the maintenance and

monitoring phase: the first one is usually outsourced to specialized installers

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(to give an example, PV installers can have a much more specialized and

dedicated company structure than an ESCO which offers various types of

installations and services); this choice is mainly due to the different operative

nature competing to this kind of activity. The second one instead, is

frequently outsourced to societies which are specialized in quality-control

and in the monitoring of the processes.

Energy Audits

Solution

design

Installation

Maintenance & Monitoring

Incentives Managemen

t

Frequence

X X X X X 28%

X X X X 9%

X X X X 7%

Tab.4-The integrated operators’ activities.

Energy Efficiency Report

The specialized operators are 56% of the total number of the operators and

are divided into Energy Efficiency Service Provider (the category in which

ESCOs are included) and Original Energy Efficiency Equipment

Manufacturers. The majority of the specialized operators is represented by

EESPs which are indeed dedicated operators for this kind of activities, while

the OEEEM’ s focus is the manufacturing of energy efficiency solutions.

96%

4%

Market composition

EESPOEEEM

Fig.2-The specialized operators’ market composition.

Energy Efficiency Report

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The integrated operators are 44% of the total number of the operators and

are divided into Energy Efficiency Service Providers and Original Energy

Efficiency Equipment Manufacturers. The majority of the integrated

operators are again EESPs (for the same motivations of the previous case).

85%

15%

Market composition

EESPsOEEEM

Fig.3-The integrated operators’ market composition.

Energy Efficiency Report

As mentioned before, ESCOs are included into EESPs, which is a much

more generic and less restrictive group of companies in terms of distinctive

characteristics: in the following graph we can notice that Energy Service

Companies are 58% of this wider categorization.

27%

4%11%

58%

The Energy Efficiency Service Providers

Facility and plant managementUtilityAdvisoryEnergy Efficiency

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Fig.4-The Energy Efficiency Service Providers’ market.

Energy Efficiency Report

By analyzing these graphs, it is finally possible to conclude that ESCOs are

almost equally distributed between specialized and integrated operators

(with a prevalence of specialized operators).

Another, and probably more significant categorization, from a merely “market

perspective”, is related to the ESCos’ target market. This kind of perspective

indeed, gives the opportunity to group ESCos’ activities and competences

with a horizontal logic (basically concerning the width of the services and

products offered on the different target markets), while the previous

categorization was more likely to distinguish different portions of a sort of

“extended supply-chain” for energy efficiency. In the specific case of the

Energy Efficiency market, it is important to specify that the most fitting

definition of supply chain (which is a very wide, and sometimes undefined

concept) is the one given by Mentzer in 2001 (“The Supply Chain is a series

of three or more entities, organizations or individuals, which are directly

involved in upstream or downstream fluxes of products, services, money or

information from primary sources to the final customer”), considering the

“efficiency project” as the “object” of the supply chain and treating it as a

unique product/service which is sold to the customer.

By going back to the subject, an ESCO has today three possibilities to set its

target market: focusing on the industrial sector, focusing on the tertiary,

residential and building sector or focus on both these two categories. In this

case the ESCO obviously needs a much more complex and developed

structure together with a spread knowledge, enabling to invest over different

realities which have completely different capability to invest, needs to be

satisfied, risks perceptions and type of competences. The diffusion of the

ESCOs in the residential sector is anyway very low in the current market,

which is constituted for the moment by just some pilot projects (mainly in the

field of energetic-class qualifications of residential complexes), while it is

more frequent to find collaborations between building companies and

ESCOs for what concerns the construction of big residential complexes

23

respecting new requirements in terms of energy consumptions, to obtain the

higher possible classification.

Fig.5-The target markets.

Energy Efficiency Report

Industrial ESCOs use to offer both custom and standard interventions, in

particular they use to carry out the design phases like the ones concerning

energy recovery and cogeneration systems. To do that, with the right level of

personalization and to accomplish all the different parameters of such a

system, they need to have very specific technical competences. Building

ESCos are focused on the tertiary and residential sector while full scope

ESCos act on both the target markets. Industrial ESCos are larger in terms

of revenues and generally offer specialized and technically advanced

solutions which need high personalization degrees and high durability. The

other two categories have a slightly different approach towards the final

market: they often try to enter partnerships with OEMs (Original Equipment

Manufacturers), they try to perceive standardization, ease of installation and

sometimes cost leadership.

As a conclusion of this chapter, it is important to give a unique view of all

these categories (both horizontal and vertical), by providing a general idea of

the nature of an ESCO. The first observation regards the huge variety in

terms of carried out activities and levels of integration (vertical perspective)

in the Energy Efficiency Supply Chain (see previous definition). The second

one instead, highlights the presence of different strategies in terms of

24

Full Scope ESCOs

Industrial ESCOs Building ESCOs

approaching the final customer and, as a consequence, the need of

developing different marketing skills and strategies (aimed at fixing quality or

cost leaderships) depending on the target market (horizontal perspective).

The combination of the two categorizations gives the big picture of the

market, which results to be very heterogeneous. This big variety perfectly

reflects into the real market, in which an ESCo division controlled by a big

energy player, an Original Equipment Manufacturer and a Consulting ESCO

are acting together and, maybe, offering similar services to the same target

market. Furthermore consider that also non-certified operators can compete

in the market too, for what concerns portfolios of services which do not

mandatory need a UNI-certified operator). At this point, the different degrees

of operational structure, technical knowledge and competences have been

highlighted, but there are other two very big elements of heterogeneity: the

typology of the offered contracts and the financing modes, which

consequently affect the financial structure of each company; these two

aspects are going to be analyzed in the following chapter.

7.3 The contracts.7.3.1 Contracts typologies and financing modes.

Different contracts typologies are used in the nowadays market for energy

efficiency; their parameters usually differentiate depending on customer

needs and on the characteristics of the intervention so that, as

consequence, the ESCo must be able to find out the best-fitting contractual

form for the specific situation. In the following chapter the most spread

contractual forms will be analyzed, pointing out pros and cons of each

typology.

The first type of contracts is called “Standard contracts”; they are usually

referred to the pure outsourcing of energy management and have been used

since the ‘80s, for turnkey services mainly related to plants dedicated to heat

production. The guaranteed performance in terms of volumetric units and

25

day degrees are both explicitly expressed parameters. The nature of the

contract is firstly related to the outsourcing of energy management issues

and, as a consequence, it is not mandatory that the specific project has to

provide the construction of a plant. In some cases indeed, some of these

contracts directly act on already existing plants, dealing with operational and

maintenance activities. During the whole duration of the contract the ESCo

results in being the effective owner of the plant and the customer lose every

right to take operational decisions over the plant. This type of contract does

not usually provide a direct dependence between the ESCo’s profits and the

effective savings for the customer, but some clauses can put upper and

lower limits to ESCO revenues on the basis of the procured savings. Another

option of the standard contracts is the possibility to protect the customer, by

guaranteeing a fixed price for fuels or electric energy supply, so that the

variability of performances decreases and the degree of guarantee over final

results increases (This fact can be an advantage not only for the customer

but for the ESCo too, which can better control and forecast the performance

trends of the plant). In Italy the evolution of these contracts over time went

through two subsequent stages: from the “contratto calore”, which provided

the management and maintenance of a boiler, trying to improve its overall

utilization-efficiency, to the “servizio energia”, which provided the insertion

into the contract of new parameters, the most important one is the explicit

forecast of the customer’s saving during the years. This element was

someway “preparing the ground” for the issuing of the Energy Performance

Contracts, which appeared on the market some years later.

The second macro-type of contracts is called “Energy Performance

Contracts”. This typology has been changing during years, and is

continuously evolving, innovating and adapting to different needs of the

customers and to the increasing different nature of projects and

technologies. The very essential characteristic is in this case the direct

dependence of the ESCo’s revenues on the effective savings for the

customer, this fact highlights a distinctive feature of the ESCo compared with

a normal energy consultancy company: in the first case the customer buys

(through its savings) certain results, while in the second one he pays for

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knowledge (and not for a final result). While standard contracts are

particularly focused on management, operative control and maintenance, the

EPCs are mainly aimed at the renewal of buildings and plants and at the

installation of new technological solutions for energy efficiency, pursuing

innovation and, as a result, the maximum possible Negawatts (the unit of

measurement representing the saved Megawatts); by respecting at the

same time all the constraints of the specific case, from the financial ones, to

the technical ones. The ESCo’s attempt to obtain the maximum possible

savings is just due to the fact that maximum savings translates into

maximum revenues when using the EPCs: this is a fundamental driver for

the development of new technologies (in particular when they guarantee

higher savings with respect to older ones but their market is still developing

and their prices are still higher), for the stimulation of their demand and for

their effective spread into the market. Energy Performance Contracts are to

all intents the perfect contractual means for the diffusion of new energy

efficiency solutions, they are able to valorize economic feasibility and

technological goodness of the solution at the same time, making the first one

strictly depending on the second one. The most common EPC forms show

at least three general variants which differ for the risks allocation among the

involved actors, debt-capital remuneration and ESCO-capital remuneration.

The “Shared Saving” is the most classical form: the ESCO provides the

capital with its own equity or with third parties financing, then the parties

agree on the subdivision of the final savings. These contracts usually last

longer than the case in which the savings are completely assumed by the

ESCO, because only one part of the savings is contributing to the recovery

of the investment. They can last from 5 to 10 years, even if the real payback

time of the investment (by considering the total returns/savings as the sum

of the returns for the customers and the returns for the Energy Service

Company), would be much lower. Also in this typology of contract the

property of the plant stays in the hand of the ESCOs and only at the end of

the contract it comes back to the customer. The operation & management is

usually made by the ESCO, with predefined comfort, operative and

functioning parameters.

27

Another well-known typology is represented by the “first out” contracts, in

which the savings are used to repay the interests and the depreciation of the

contracted loans, for this reason they last less than the “shared savings” and

the return of the investment results to be faster (usually 3-5 years). At the

conclusion of the competence period of the contract, the savings completely

pass to the customer.

The “Guaranteed saving” instead, is the wording used to describe a sort of

leasing provided with a guaranteed energy saving for the customer. In the

US this form is typically accompanied with a third party financing: the

customer underwrites the loan with the third party, while the ESCo have to

guarantee a certain level of returns (the ESCo in this case is the guarantor of

the technical feasibility and provides the third party with technical

parameters useful to set the financial ones with the final customer). The

financial risk is in the end in charge of the client and of the third party, so the

Energy Service Company is only bearing one of the two typical risks which

were mentioned in the definition’s chapter: the financial risk. For this type of

contracts the duration is usually 4-8 years. Sometimes in the contracts there

are some clauses which can guarantee fixed energy savings, fixed energy

prices or again the use of the most convenient source of energy.

In short, the financing modes can be structured so that the entire invested

capital is provided by the customer or by the Energy Service Company. The

second alternative is represented by the intervention of the aforementioned

“third party” which was previously mentioned during the description of the

“guaranteed savings” contract: the third party is usually a bank institute

(sometimes it can also be represented by a big energy distributors) which

can participate to the investment by providing the whole amount of the

investment or just a part of it (in this case the other part can be provided by

the ESCo or by the customer itself). In the latter situation the definition of the

contract becomes more difficult, given that different actors have to

remunerate different portion of the capital invested. Besides the amount of

capital with which the bank institute is going to participate to the investment,

there is another important variable, which is the definition of the entity the

third party is interacting with. The bank instead, can find a financing

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agreement both with the customer and with the ESCo, this passage basically

defines who is the final responsible for the financial risk. In Italy the very

common situation is that the bank interacts with the ESCo, which can

assume the function of “technical guarantor” which was previously described

while defining the “guaranteed savings” concept. Nowadays bank institutes

are “adapting” to this financing scheme, by providing dedicated offices and

services with specific skills and competences which can better interact with

the ESCo. This could be a key-issue for pushing investments in the Italian

energy efficiency market: if bank institutes succeed in defining standardized

parameters and conditions which can be met by ESCo competences and

guarantees, it could be much easier to finance energy efficiency

investments.

To better clarify the two “third party financing modes” described before, two

schemes showing fluxes of money and services between the entity are

provided:

Fig.6-Third parties financing with ESCo borrowing.

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Fig.7-Third parties financing with energy user/customer borrowing.

7.3.2 The contracts related risks.

When different actors participate to an Energy Service Contract they all incur

in different sources of risk; they can perceive risks in different ways and

each risk typology can have different effective impacts on the specific entity,

depending on the Energy Service which is going to be contracted.

First of all the operative risk refers to the responsibility on the design and

installation of the technologic solutions concerning its good functioning at the

starting of the plant. This risk can be undertaken both by an Energy Service

Company or by an installers’ company: whoever takes this risk anyway,

should guarantee that the solution is going to effectively work and that it is

compatible and well-integrated with the other parts of the plant. When the

Energy Efficiency Service Provider which is facing the operating risk is a

specialized operator in the installation, design or operation of a particular

technology or plant, the operating risk can be lower. This happens because

specific experience in the fields of installation and plants’ “running-skills” is

fundamental when dealing with strictly practical and operational issues: the

cumulated knowledge can be decisive when installers have to face particular

physical constraints or problems of any type in the conduction of the plant.

30

The energetic performance risk refers to the responsibility upon energetic

consumptions of the customer which follows the energy efficiency

intervention. The entity bearing this kind of risk is linking its remunerations to

the cash flow coming from the energy savings obtained in a certain time.

This fact results in the need of good legal competences given that the

energy performance needs to be guaranteed. Legal competences play a

central role in this field: a good energetic performance could depend on the

activities of two different agents (let’s consider a customer and an ESCo in

this case) and, if the initially fixed performance is not going to be reached, it

would be difficult to determine the specific responsibilities. The solution to

completely leave to the ESCo the operations of a given plant can be found,

in part, right in this fact: the goal is to centralize the responsibilities in the

hand of the ESCos, so that the customer can be better legally guarded in the

case that fixed results are not attained at all.

A further source of risk is related to energy supply; it is basically caused by

the dependence of the Energy Service Provider’s profits upon the energy

supply competitiveness, reliability and the stability of prices. When

incentives, electricity prices, fuel prices are particularly variable it is indeed

more difficult to precisely determine contractual parameters and to

guarantee the initially fixed results. Two practices anyway can help to reduce

this source of risk: the energy trading and the risk management on energy

prices (making forecasts about the trend and the volatility of the future

energy prices). Buying electricity through futures can be a good instrument

to get constant electricity prices and, in general, all the so called

“administrative energy efficiency” practices can play an important role too.

The financial risk, by considering the most general definition possible, refers

to the uncertainty linked to the future value of any investment and its

volatility. The entity that bears this risk finances the investment through

equity capital, if the risk is considered too high, it will be necessary to try to

resort to third party financing. This risk is reduced thanks to the capability of

evaluating investments and to make affordable costs/benefit analysis.

Furthermore, as a definition, the financial risk is “linked” to the balance of

incoming and outcoming flows (given that it is the risk impacts on the

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company liquidity), and when the volatility of these flows in linked to weather

conditions, energy prices and a lot of other variables, it becomes a

fundamental source of risk to be considered.

In the end the functioning risk is a sort of “all-in-one” risk which relieves the

customer from every kind of responsibility: in this case the entity bearing the

risk is not just carrying out an energy efficiency intervention but it is

completely guaranteeing and managing the entire service offered by the

plant, ensuring a continuous and efficient delivery of the service. A good

perception and capability of analysis of the company processes is a driver

for the reduction of this source of risk.

When an energy efficiency project has to be carried out, it is very important

to have a clear view of the risks set before the realization; that is a key point,

the complete evaluation of the risks must be clear before starting every kind

of activity because it represents an important threshold for outsourcing/in-

house decisions. An energy efficiency project is indeed composed of phases

completely different the one from the other, and one of these differences is

right the impact upon different risks categories: each phase of the project

can be more, or less adaptable to the ESCo’s structure and business plan in

terms of the set of risks (and related intensities) which it bears with itself. As

a conclusion (particularly for big players working on big energy efficiency

projects) the risks’ effects evaluation and combination is crucial in this

sector.

Thanks to the basic considerations coming from the previous chapters, a

specific framework categorizing the contracts typologies can be issued, with

reference to the Energy Efficiency Report 2016. This framework will be used

afterwards to qualitatively describe the results of the surveys which has been

applied to the ESCOs. The framework reports the contract typologies and,

for each one, the associated risks, so that different typologies of operators

(which identifies in operators issuing a specific contractual form) are

distinguished with the criteria of evaluating their exposure to one or more

risks’ typologies. Obviously a single operator can decide to offer different

types of contracts (bearing different risks), depending on the customer it is

dealing with and, in particular, depending on what are the specific market

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and technologies involved. There are indeed some cases in which the same

operators cannot bear the energy performance risk relative to a given

technology and customer, but it can bear the same risk when installing

another kind of technology for another type of customer (in terms of

dimensions or needed guarantees in terms of results).

CONTRACT TYPOLOGY ASSOCIATED RISKTurnkey Contract Operative risk

Energy Performance Contract Operative risk

Energy performance risk

Finance Contract Operative risk

Energy performance risk

Financing risk

All risk Contract Operative risk

Energy performance risk

Financing risk

Energy supply risk

Functioning risk

Tab.5-The contracts’ typologies.

At this point a clear general overview of the most used contractual forms has

been provided and it will be discussed again during the analysis phase.

7.3.3 SPINs and EPC+ contracts

There is anyway another innovative contract form which is further and further

being developed: the EPC+ contract. This particular contract allows different

Energy Efficiency Service Providers to issue a single EPC collaborative

contract regulating a unique intervention indeed, as it was previously shown,

EESPs are very different one from the other, especially for what concerns

competences and core activities. This practice has been experimented in

some contexts as a collaboration between partners acting at different levels

of the Energy Efficiency Projects (Specialized installers, auditors, designers

and so on) or partners focused on different technologies; the collaboration

33

among these small partners has taken the acronym of SPIN (Small-Medium-

Enterprise Partnership for Innovative Energy services). Let’s consider, for

instance, that an ESCo has very good performances for what concerns the

installation of HVACs systems, this ESCo has technical competences and

the right experts and contacts for this kind of intervention. An optimized

HVAC system anyway often requires a good combination with building

envelope measures (i.e. roof insulation, windows replacement, etc.) to obtain

the best performances. The aforementioned ESCo cannot be able to provide

technical skills for this kind of installations and, furthermore, the two specific

financial analysis could be completely different: while the HVACs

investments are typically judged from a pay-off point of view, the building

envelope measures are evaluated by a depreciation point of view. These

very different perspectives, together with the need for of the customer to be

served in a dedicated way (which allows an integrated installation of the two

solution) is the source of the need for the SPINs’ contract. A SPIN between

the two actors indeed, could be fundamental in a case like this one, and

could afford to offer a very highly specialized and integrated intervention,

increasing the quality and the satisfaction of the customer. It is easy to

understand that a contract which aims to regulate such a kind of

collaborative intervention and to involve in it the customer too, could be very

complex. It must basically consider a very wide range of variables from the

technical point of view (parameters) and also from the financial point one. If

furthermore we conjecture that the contract provides a remuneration through

the sharing of the savings, the complexity from the legal point of view will be

consistent too, being the savings shared between two entities (or three

considering the customer). It will not be easy to quantify the exact

“competence-quotes” of the shares for each actor involved (from an

economical point of view) and defining different responsibilities upon final

results will be difficult too.

The EPC+ contracts have been progressively standardized in the last years

and some business model canvas have been redacted, a lot of pilot projects

have been started through Europe, creating clusters of SMEs offering

integrated energy efficiency services. The potential of this solution is

34

enormous, the knowledge can be shared between the ESCo, which can

enter new markets through partnerships. Another factor that must be

considered is the need of integration which would perfectly fit some

interventions. Let’ s think about the “home” environment: the PV, the heat

pumps together with automation and HVACs system: just a few big and very

integrated players can offer the entire package of interventions.

The “EPC platform” is today active for the European states, allowing to

exchange not only information and know-how relative to the standard EPC

but also to better develop the SPIN perspective; in Italy a list of ESCOs

participating to a SPIN is present and specified into the Federesco site. It is

for this moment anyway, a field in continuous evolution which has been

deepened more by pilot projects than by the natural market demand. To

conclude, a brief SWOT analysis of SPINs is reported below.

STRENGHTS WEAKNESSESServices can be offered in higher

quality compared to services

offered by a single ESCO

Insufficient definition of an

appropriate SPIN-management

structure

Services can be provided at lower

cost to the customer

Different approaches from experts

lead to higher development costs

Allow a quick and efficient response

upon consumer needs and marked

demand

Absence of a spin-framework leads

to:

-Less transfer of sales opportunities

-Limited know-how sharingAllows transfer of know-how among

SPINs to persist in fast changing

environment

35

Tab.6-SPIN’s strengths and weaknesses.

Tab.7-SPINs’ opportunities and threats.

8. PRACTICAL EXAMPLE OF AN ENERGY EFFICIENCY PROJECT.

In this chapter a simulation of an installation of a LED lighting systems will

be proposed, from the acquisition of the data to the measurement and

36

OPPORTUNITIES THREATSThere is growing demand for

specialized, innovative and high

quality energy efficiency solutions

Retention of know how of SPIN

experts due to mistrust

Small scale services providers seem

to be less anonymous

Interest of the own company is

seen as more important than the

success of the SPIN

Local SMEs are likely to be

preferred by some clients

Know-how sharing may leads to a

growing number of competitors

SPINs can be also capable to cover

bigger areas

Unfavourable market conditions

may hinder the supply of services

of SPINsVarious backgrounds of SPIN

members help to be more resilient

monitoring final phase, passing from the definition of the contractual terms.

The illustration below reports the passages through which the project will be

described.

Fig.8-The phases of an energy efficiency project.

Fig.9-The phases of an energy efficiency project.

As it was explained in the introduction, the Energy Service Companies do

not always follow all the phases of the project and can be, instead,

specialized only on the upstream or downstream phases. In this simulation,

anyway, the ESCO is going to be supposed to act on all the phases of the

energy efficiency project and to be the only Energy Efficiency Provider

involved in the project. Another hypothesis is given by the fact that the

ESCO is going to finance the whole amount of the investment without

borrowing capital from any bank institute, and that the customer is going to

get the intervention implemented completely cash-free. The parameters

used for this simulation come from a university project-internship carried out

during the current year, anyway for confidentiality reasons, even if no

interventions have been effectively realized, the name of the company will

not be shown and indicators, numbers and parameters have to be intended

as “proportional” to real values, and not as “equal in absolute terms”.

In the energy audit phase the ESCO analyzes general consumptions of the

site to understand what are the main sources of consumption, this operation

consisted in on-site measuring, by using technical instruments and by letting

37

the personnel compile some surveys about machines utilization. The results

of this analysis underline an incidence of 53% on total consumptions of the

lighting system which will be the subject of the energy efficiency project from

this point. At this point the ESCO has gathered all the possible data about

the lighting system to understand what is the AS-IS situation, what are the

currently used technologies and determine what are the energy efficiency

opportunities to get lower consumption values. The lighting system

consumes more than 1 GWh per year: this value is computed by multiplying

the number of lamps of each sector of the site by the nominal power of the

lamps (taking into account the transitory effect in the start-lighting phase) by

the number of hours in which the lighting system is working in the given

sector. Other considerations were necessary for a precise evaluation of the

intervention, but they have been considered out-of-scope for the intents of

this analysis. The next step is the individuation of all the possible energy

efficiency measures for the site, they are a lot and with very different natures

the one from the others: changing in the layout disposition, painting the walls

white, using partitioning of the systems, installing sensors and finally

changing the old lamps with new generation LED lamps (much more energy

efficiency measures are possible, just some were reported here). All the

energy efficiency measures are then grouped in different “offer-packages”

which differentiate themselves in terms of investments, savings opportunities

and payback-time. The selection of the packages and the right combination

of the energy efficiency measures is the most important part in order to be

as effective as possible with the customer: the packages must be the best

combination of energy efficiency measures and give at the same time a wide

set of alternatives to the customer. In our case anyway, the ESCO entirely

finance the project, and so we can suppose that the purpose of the ESCO

can get an higher weight in the final decision which is supposed to be the

one of installing the best configuration possible: the chosen configuration is

an innovative smart-lighting system in which all the selected energy

efficiency measures are integrated to work all together in an optimized way.

It is basically a smart lighting system in which each lighting fixture is

equipped with different sensors such as motion, temperature and daylight

detectors. Each luminaire is then connected to a central server through a Wi-

38

Fi network, which serves as a controller for the performance of the fixtures.

The site’s personnel could control, wirelessly from the software, the light

utilization based on set parameters. Moreover, they could automatically set

up the system’s luminous output for the day, as well as checking the status

of each luminaire in all circumstances.

The definition of the financial parameters has been carried out by

interviewing some suppliers and so it refers to absolutely valid and real

numbers. The following step is the determination of the forecasted savings,

which will be the base for the definition of the contract parameters with the

customer. The smart-lighting solutions offers incredibly good results in terms

of savings, so that, despite of the very high initial investment needed, the

offered paybacks is inferior to 3 years, which is usually the limit imposed by

the majority of the Italian companies for what concerns investments in

energy efficiency measures. The estimated savings in terms of

consumptions are indeed the 90%, this value must obviously be referred to

the actual installed technology of the site (in other cases the same

intervention could lead to higher or lower savings in terms of consumptions)

and to the very high degree of innovativeness of the new one. Considering

the price of the energy at 0,158 €/kwh the savings per year have been

estimated in 170.000 € as regards the sole avoided energy consumption. In

a second moment also TEE certificates incomes and incentives have been

evaluated and included in the returns. Instead, as for the cost of the

investment all the possible variables have been taken into consideration:

system layout modification costs, cost of the lamps, costs of installation,

insurance costs, disruption costs and VAT at 10% has been considered too.

At this point it is possible to define the investment with the usual parameters

NPV, IRR, ROI and payback-time, as it is reported in the following tab.

39

Tab.8-Economic evaluation of an energy efficiency project.

The two columns indicate the different impacts on the investment’s

parameters given by the fact of considering or not the TEE incentives.

As it has been confirmed by interviews carried out in the ESCO market

analysis chapter, there is the confirmation of the fact that the TEE are a

positive driver for energy efficiency investments, acting in a sensible way on

the investment’ s parameters. We have anyway also the confirmation of the

fact that the TEE are not affecting the feasibility of the investment but just

being a “facilitator”, so that they cannot be considered as “decisive”.

Basing on these issues the ESCO, together with the customer, can define

the parameters of the EPC contract. During the telephonic interviews, some

ESCO stated to require percentages between 20% and 40% on the total

savings, depending on the amount of the yearly savings and on the total

initial investment. Another issue that should be considered is the

management of the TEE certificates which can be done by the customer in

the case of presence of a ISO certified actor but that must be undertaken by

the ESCO in the case of absence of such an actor. Sometimes anyway,

even if there is an energy manager in the customer-company, the ESCo can

require to manage the TEE to repay the investment faster. This issue has

been recently regularized by law, obliging the ESo to publicly declare the

intention to manage the TEE and to insert it in the contract (this is because

some ESCos had been managing TEEs without the customers’ awareness

of the existence of these incentives). In this simulation, given the huge

capital needed and the consistency of the yearly savings, we can suppose

the ESCo to appropriate (together with the aforementioned TEE-component)

of the 50% of the total savings. This fact would lead the ESCO to repay the

investment in 5 years. In the years following the fifth, the percentage of

40

  With TEE Without TEE

NPV [€] 967.304 852.392

IRR [%] 54,9 46,8

Payback time (Y) 2,470 2,680

Roi 30,48% 27,31%

savings in favour of the ESCO could progressively decrease, letting to the

customer the possibility of highest savings. In the case of this installation, it

could be reasonable for the ESCO to progressively decrease savings almost

for another three or four years in order to get the right profits by the project

realization (the shared savings could be scaled as following: 50%, 40%,

30%, 20%).

These parameters cannot be described in a standardized way, they indeed

strictly depend on the risk level of the intervention and on the yield of the

investment. The installation phase instead is surely the most complex from

the point of view of the operations; even if it is under the responsibility of the

ESCO, it can be carried out by a specialized installer, because of the use of

particular structures or machines and because of specific know-how

reasons. The height of the site is indeed considerable (14 meters) and

normally also the most integrated ESCo do not own the right equipment for

such an installation. Considering the current case of LED-installation a

possible criticality might be the mounting of the new lamps without

interrupting the activities of the site; issues like that must be carefully

analysed with the site’s management because they can decisively affect the

profitability of the whole investment, even if indirectly. Let’s suppose for

example that lights must be changed above a warehouse aisle, in this case

the installation should be made during weekends not to stop freights’

handling, furthermore the platforms to perform the installation could be

twelve meters high or even more, needing specialized personnel with

particular patents and certified machines.

These are only some of the main reasons why ESCos often interact with

specialized installers which have the capability to make non-invasive

interventions and which dispose of the right equipment (sometimes ESCOs

have internal installers but some interventions could have health & safety

requirements which the ESCo’ s installers do not have).

Another issue of the installation phase is the possibility to make it “retrofit”,

so that the previous system can be adapted to the new one, in case of a

LED installation for example, it could be possible to install new lamps into

the old ceilings to reduce the initial cost of the investment. Once the system

41

is finally working the monitoring phase must guarantee that the terms of the

contract are respected, and the results of the monitoring reports must be

available in the same form both for the ESCO and for the Customer.

The main point of the monitoring phase is the determination of the nature of

the increases and the decreases in the final energy bills: to have a good

control of the system performances indeed, it is necessary to understand if

these changings are due to internal or external factors (cost of electricity,

increase or decrease in heating electrical consumptions due to the

temperatures ongoing, higher activities of the site in a certain period and so

on). This “causes’ differentiation” is fundamental from a contractual point of

view, because the responsibility and the guarantees which competes to the

ESCo usually regards the efficient performance of the installed plant and the

effects of the internal factors. In order to do that correctly, it is important that

the monitoring is not made with a “final-balance” modality but that it is

carried out in real time and separated from the other sources of

consumptions of the site. Nowadays, ICT technologies coupled with on-site

sensors can play a fundamental role, by mapping the consumptions of the

system and communicating them to both the parties of the EPC contract. In

this way it is possible to give a real-time and coherent picture of the

performances which allow to differentiate external and internal effects upon

performances. The monitoring phase has not only a “guarantee” function but

an improving function too: indeed it is possible to set the system in a better

way thanks to the data included in the monitoring reports, making it more

efficient for the future (a LED system is not really the better example to show

the exploiting of this function because the only parameter that can be varied

is the time during which the system is switched-on; for heating plants

instead, monitoring reports can be fundamental to set the system with the

optimal parameters). The last function of the monitoring phase is the

maintenance one: if the system is continuously monitored in real-time

indeed, it basically allows to carry out a more specific maintenance and

make prompt interventions.

42

9. THE STATE-OF-THE-ART OF THE ITALIAN ENERGY EFFICIENCY MARKET.

The first variable which must be analyzed when trying to describe a national

energy efficiency market is represented by consumptions because of their

direct impact on this market. Italian industrial consumptions are here

reported per each sector, by using the data of the energy efficiency report

2016 (tertiary sector is excluded). These data are expressed in absolute

terms so that they have to be compared with the effective dimensions of the

single sectors for a better understanding of the degree of energy intensity of

the industry.

INDUSTRIAL SECTOR TOTAL ENERGY CONSUMPTION [mld €]Metallurgy 17,1

Mechanical 11

Food 10,2

Chemical 8,75

Paper 6,5

Products for building 6,45

Glass and Ceramic 5,4

Tab.9-Total energy consumptions per industry.

Energy Efficiency Report

It is possible to observe, by consulting the scientific literature, that the

industries with the highest energy intensities are the cement production

industry, the cold storage industry, the pulp and paper and the glass

industry. The first consideration that can be done is that energy intensity of a

company is not mandatorily linear with total consumptions: if we consider

energy intensity as the energy consumed for the unit of profit it depends on

the value of the products, and it is the same thing if we take the weight unit

as a reference to refer the energy consumed. It is almost clear that the real

inclination to energy efficiency of a company won’t be directly addressed to

its consumptions, but instead, to the incidence of these lasts on turnovers or

costs. Other considerations about energy efficiency inclination can be done

43

by considering the state of the technology used by the different industries:

some players use technologies which are very near to the threshold of the

best available ones, thanks to this approach, they try to take advantage by

cost competition, ease of installation or better returns allowed by the specific

technology. For these players indeed, energy efficiency is an effective driver

to compete with other companies of the same sector. As it was told before,

the sector of controlled temperature warehousing is particularly energy

intensive compared with the value of the offered service: for a refrigerated

warehouse the energy costs is particularly high and using the BATs in the

energy efficiency field is a primary source to keep tariffs and variable costs

consistently lower than the other warehouses using traditional technologies.

In this specific case, the use of refrigeration compressors using magnetic

levitation, the use of geothermal refrigeration and auto-consumptions

solutions (e.g. rooftop PV plants) can really play a decisive role in terms of

final variable costs and tariffs offered by the warehouse (also automation

could be someway included into the previous list of technologies enabling

energy efficiency, even if it is not its real objective). Besides the degree of

energy intensity and the need to compete on energy costs other issues are

linked to the history of the different industries: some of them did not invest

for a long time because of the good overall market condition of the industry,

other industries instead invested a lot for very different historical reasons.

Before discussing the differentiation of the energy efficiency investments for

each industry and technology, a representation of the general trend,

regarding the whole energy efficiency Italian market (not only the industrial

one) will be analyzed. The Italian market has grown a lot in the last 4 years,

during which the total amount of investments has increased of almost half of

the value of 2012. It is possible to observe that, despite of the continuous

changings in regulations and incentives, the decrease in solution prices and

the energy efficiency culture diffusion, resulted in a general and almost

constant growth till nowadays.

44

Fig.10-The growth of the Italian market for energy efficiency.

Energy Efficiency Report

Industrial Other Tertiary & Offices

Residential Total

Investments

(Million euros)

1.300 550 780 3.000 5.630

Tab.10-The partitioning of the Italian market for energy efficiency.

Energy Efficiency Report

Starting from this point, the analysis will be focused on the industrial sectors

and some of the categories of the tertiary sector; the residential sector will

be considered as “out-of-scope” for this particular level of analysis.

45

2011.5 2012 2012.5 2013 2013.5 2014 2014.5 2015 2015.50

1

2

3

4

5

6

Mld €

The next step will be the analysis of the investments referred to each

technology and industry, aiming to the categorization and composition of the

market from the customer side. The next graph is going to show the amount

of investments divided per sector, showing the shares of the different

technology installation for each sector. This view is sector specific, it helps to

understand what are the industries investing more in absolute value and to

identify the technologies which have a major impact in terms of investments

undertaken by the different industrial sectors.

Fig.11-The partitioning of the investments per sector.

Energy Efficiency Report

This second graph is instead going to show the amount of investments for

each energy efficient technology. The total amount of investments

considered is the same of the previous graph, which corresponds to the

1.300 million euros of the sole industrial sector.

46

Food & Beverage

Pulp & Paper

Chemicals

Mecanics

Metallurgy

Buildings

Glass & Ceramics

0 50 100 150 200 250 300 350 400

The investments per sector

Fig.12-The partitioning of the investments per technology.

Energy Efficiency Report

The industrial sector investing more in energy efficiency is metallurgy, with

350 million euros, of these 200 million are referred to efficient combustion

plants installations, while the other 150 million euros concerns lighting,

electric motors, inverters, compressed air, energy management systems and

cogeneration in order of incidence. The very high energy intensity and

temperature of the processes are the main reasons why these companies

invest a lot in heat recovery systems and efficient combustion systems;

furthermore (as it will be specified in the next chapters) the investments in

47

Compressed air

Cogeneration

Lighting

Inverters

Electric motors

Refrigeration

Energy management systems

Efficienct combustion systems

0 50 100 150 200 250 300 350 400

Investments per technology

these fields are self-made for a consistent percentage. Buildings and

ceramic sectors invest with very similar proportions to metallurgy industry,

but with lower values, given the high energy intensity and high temperatures

values of their processes too. The other four industrial sectors invest a lot in

cogeneration plants, because the proportion between electric energy and

heat production needs is almost balanced (while for the previous three

sectors it was consistently in favor of the heat production). In the end, for

what concern the sector perspective of the investments-analysis, it’s

possible to conclude that, with the exception of metallurgy industry, the

average of the investments is around the 150 million euros per sector. For

what concerns the technology-view instead, the most implemented

measures are efficient combustion systems and cogeneration, in absolute

value; anyway, as it was told before, the cogeneration systems can count on

a higher variety in terms of sectors while the efficient combustion systems

are more sector-specific. The investments in these two categories account

for slightly more than the half of the entire energy efficiency market with

more than 750 million euros. The lighting efficient systems installations are

present, in almost equal percentages, in all the industrial sectors given that

they are the most standardized solution among all the others. Among the

remaining technology, the less implemented one is refrigeration (in terms of

absolute amount of investments), which can be used only in the food &

beverage sectors, in the controlled-temperature

warehouse, and in chemical industries only in some cases.

The previous data perfectly describe the situation of the market in absolute

terms, but to better understand the dynamics of this last, also an index

relating the amount of investments per sector with the energy bills, has been

calculated. This index describes the inclination of the actors of each sector

towards the energy efficiency topics, and has been defined as “Inclination

index to energy efficiency”. This index does not imply any consideration

about the propensity of the actors to interact with an Energy Service

Company; it is just the representation of the attention given to energy

efficiency by each sector, depending on its consumptions. This point of view

is very important because it allows to get a view of the market which is

48

“cleaned” by the distortion given by the effective dimensions of the different

sectors. The fact that the metallurgy industry is investing more than the

others indeed, does not mean that it is more oriented to energy efficiency. It

is a sector in which systems must be updated yearly, interventions are very

costly and the total energy bill is slightly higher than other ones.

INDUSTRIAL SECTOR INCLINATION INDEXPaper 2,8

Glass 2,67

Products for building 2,47

Metallurgy 2,07

Chemical 1,60

Mechanical 1,59

Food 1,36

The results need to be carefully analyzed: the sectors with a high incidence

of energy costs are the most inclined to energy efficiency, anyway they are

also sectors belonging to the “Process industry”, in which physical and

chemical transformations together with manufacturing procedures are very

well consolidated. This means that the energy efficiency issues have been

an

Tab.11-The inclination index towards energy efficiency.

Energy Efficiency Report

“everyday challenge” for these sectors and today the companies themselves

are the major experts in that field. Paper, Glass and Metallurgy companies

perceive energy efficiency as a necessity and as a source of cost

competitiveness. Sometimes the level of attention to these topics is related

to historical events or to the conditions of the market in which the company

operates. The propensity to energy efficiency anyway, has neither to be

related only to energy consumptions’ absolute values nor to green-image,

eco-labelling or policy reasons. A wide set of external conditions influences

indeed the ongoing and trends of the energy efficiency market in a given

sector and these conditions can slightly change overtime. Difficult general

49

conditions of a market, or lacks of liquidity could distract the management

from these topics or could have the opposite effect. To give an example,

after the crisis of the textile sector, some Italian companies were found to be

very inclined to energy efficiency, because of the necessity to reduce costs

as much as possible: this could appear to be a very strange trend for a

sector which is in low liquidity conditions but it revealed to be a driver to

compete on costs with Chinese companies, which also had to deal with

expedition costs and lower quality. Other fundamental factors affecting the

inclination towards this kind of investments are the size of the company, the

availability of capital, the relations with third party financers, the

management behavioral characteristics and the availability of time (this topic

will be fully deepened in the dedicated section “ESCOs & SMEs” in which

barriers and drivers of small and medium Italian enterprises towards energy

efficiency will be carefully analyzed).

This analysis of the level of attention and inclination towards energy

efficiency topics is fundamental to understand the potential market which

can be exploited by the ESCOs, while the effective market is determined by

the nature of the investments and the degree of specialization owned by a

given sector upon the aforementioned installations. As regards very energy-

intensive industries, which work on predefined processes since a long time,

specific knowledges and capability to intervene on the process are more

moved to the customer size rather than to the ESCO’ s one.

The same kind of analysis has been carried out also for the tertiary sector,

considering the two categories of GDO and Hotels. The most visible

differences, compared with the previous results, are given by the high

presence of efficient refrigeration systems installations and by the much

higher incidence of the lighting than the total investments. These two sectors

anyway invest generally much less than the industrial ones, given the slightly

lower energy consumptions that they must cope with. In the GDO sector

indeed, the incidence of the lighting on the total bill can reach 50% while the

refrigeration can reach 30%, in the Hotel sector instead similar values (or

lower) for the lighting can be assumed. As it is possible to understand from

these initial data anyway, these two sectors have much more different

50

characteristics than the previously analyzed industrial sectors, both by the

energy usage and the total investments point of view.

GDO

Hotel

0 10 20 30 40 50 60 70 80

The investments per sector

Fig.13-The investments in GDO and Hotels.

Energy Efficiency Report

The value of the inclination index is lower than the industrial sectors and, as

it is reported in the tab below, it is a bit higher for the GDO.

Tab.12-The inclination index for GDO and Hotels.

Energy Efficiency Report

The next step for better understanding the Italian energy efficiency market is

to deepen what is the portion of each sector-specific market competing to

the ESCOs, to finally obtain the total amount of carried out investments.

These values will be very interesting in terms of comparison with the ones

obtained by the interviews of the next chapter, which concerns the revenues

streams for the single ESCOs; the proportions among the investments and

then among revenues streams coming from each sector indeed, should be

generally confirmed.

51

TERTIARY SECTOR INCLINATION INDEXGDO 1,57

Hotel 1,44

TEE

ESCo

Self made

[Mln

€]

0 10 20 30 40 50 60 70 80

19.9

64.5

73.9

FOOD

Fig.14-Detailed investments of Food industry.

Energy Efficiency Report

TEE

ESCo

Self made

[Mln

€]

0 20 40 60 80 100 120 140 160 180

33.5

11.5

170.8

PAPER

Fig.15-Detailed investments of Paper industry.

Energy Efficiency Report

52

TEE

ESCo

Self made[M

ln €

]

0 20 40 60 80 100 120

22.4

42

97.9

CHEMICAL

Fig.16-Detailed investments of Chemical industry.

Energy Efficiency Report

TEE

ESCo

Self made

[Mln

€]

0 20 40 60 80 100 120

25.1

66

108.7

MECHANICAL

Fig.17-Detailed Investments of Mechanical industry.

Energy Efficiency Report

53

TEE

ESCo

Self made

[Mln

€]

0 50 100 150 200 250 300 350

67.9

36.7

316.9

METALLURGY

Fig.18-Detailed Investments of Metallurgy industry.

Energy Efficiency Report

TEE

ESCo

Self made

[Mln

€]

0 20 40 60 80 100 120 140 160

28

16.2

143

PRODUCTS FOR BUILDING

Fig.19-Detailed Investments of Products for Building industry.

Energy Efficiency Report

54

TEE

ESCo

Self made

[Mln

€]

0 20 40 60 80 100 120 140

25.4

14.2

130

GLASS

Fig.20-Detailed investments of Glass industry.

Energy Efficiency Report

TEE

ESCo

Self made

[Mln

€]

0 5 10 15 20 25 30 35 40 45 50

11.2

32.6

45

GDO

Fig.21-Detailed investments of the GDO industry.

Energy Efficiency Report

55

TEE

ESCo

Self made

[Mln

€]

0 5 10 15 20 25 30 35 40

7.8

19.8

34.2

HOTEL

Fig.22-Detailed investments of the Hotel industry.

Energy Efficiency Report

It is possible to observe that the three sectors with the majority of ESCOs’

investments are the Food & Beverage, the Building and the Chemical

sectors, while Metallurgy and Paper are the one where ESCOs invest less.

The metallurgy and paper industries are the two industries showing the

highest self-made investments (in particular metallurtgy with 353,8 mln €).

At this point a synthesis is needed, the ESCOs investments in the Italian

market are a consistent share, and for some industries they are a

fundamental one. The total amount of ESCOs’ investments is fixed at 303

million € which correspond to 21,2% of the total. The self-made investments

are preponderant when concerning energy efficiency interventions on core

processes with an amount of 922 million €. The ESCOs, on the other side,

execute 40% of the total non-core projects. As it is shown in the two next

graphs ESCOs invest less in absolute value and are concentrated for more

than 60% on non-core activities.

56

S e l f - m a d e

E S C O

922.6

95.2

213.8

155.9

Core activities Non-core activities

Fig.23-The ESCos’ incidence on core and non-core activities.

Energy Efficiency Report

The total amount of investments finalized to core activities is much higher

than the one dedicated to non-core ones: what it is possible to get from this

“big picture” is the fact that non-core activities constitute a more “fitting”

market for the ESCOs’ s structures, competences and financing capabilities.

By the way, the biggest possibilities to expand the ESCOs’ market come

from the core activities.

Another important issue to get a final and complete picture of the market is

the definition of the market share competing to TEEs. A brief analysis of this

point is going to follow, by referring to the GME website. Energy Efficiency

Certificates were established by the Decrees adopted by the Ministry of

Productive Activities in consultation with the Ministry of Environment and

Land Protection on 20 July 2004. Gestore dei Mercati Energetici (GME)

issues TEE to: electricity and gas distributors and their controlled

companies, companies operating in the sector of energy services (Energy

Service Companies – ESCOs), parties who/which have actually appointed a

person in charge of conservation and rational use of energy (as defined in

the same art. 19) and companies operating in the industrial, residential,

service, agricultural, transport and public-service sectors, provided that they

have appointed a person in charge of conservation and rational use of

energy under the provisions of art. 19, par. 1 of Law n. 10 of 9 th January

1991, or that they have put in place an energy management system certified

under the ISO 50001. TEE are issued on the basis of the achieved energy

57

savings that Gestore dei Servizi Energetici (GSE S.p.A) reports to GME.

Each TEE corresponds to 1 TOE (tons of oil equivalent) and are

distinguished into four main types:

Type I, certifying the achievement of primary energy savings through

projects reducing final electricity consumption;

Type II, certifying the achievement of primary energy savings through

projects reducing natural-gas consumption;

Type III, certifying the achievement of savings of forms of primary

energy other than electricity and natural gas and not used for

transport;

Type IV, certifying the achievement of savings of forms of primary

energy other than electricity and gas in the transport sector;

(*Other 3 “minor” types of TEE exist.)

Electricity and natural-gas distributors may achieve their energy efficiency

improvement targets both by implementing energy efficiency projects (and

gaining TEE) and by purchasing TEE from other parties. The management

of the TEE by the Energy Service Companies is a consistent source of

revenues, particularly for small or “consulting” ESCOs. Some of the

interviewed ESCOs indeed (see the analysis of chapter two) declared that

almost the whole amount of their turnovers was due to this practice. The way

TEE are included into contracts is various, ESCOs indeed, basing on the

interviews, use to adopt very different forms: sometimes they keep all the

incomes from TEEs selling, sometimes they share them with customers and

sometimes they leave them to the customer (if it disposed of an Energy

Manager or a certified entity). The very important aspect is the presence of a

clear allowance given by the customer to the ESCo for the TEE

appropriation: the law has been updated in the last months as fot to this

topic, by specifying that the consensus must be registered in the contract

regarding the Energy Efficiency Project which caused the issuing of the

certificates. As regards the self-made managing of the TEEs, the trend is

opposite to the one describing the investments: companies manage by

themselves only 50 million € of TEEs corresponding to the 5% of the volume

58

of business. For the ESCOs instead, the weight of the TEE is significant and

equal to 241 million €, which must be added to the 303 million € coming from

the investments.

The graph below reports the incidence of the volume of business deriving

from the TEE management and from the investments.

S e l f - m a d e

E S C O

50

241

1120

303

TEE Investments

Fig.24-The incidence of the TEE on the investments.

Energy Efficiency Report

The low portion of the TEE in the self-made investments market is mainly

due to the lack of certified Energy Managers that can manage these

certificates (In Italy the qualification finalized to handle the TEE’s

management is indicated by the wording “Esperto in Gestione dell’Energia”

or “EGE”. ESCOs usually have much more available channels to sell

certificates and this is a fundamental driver to reduce the time needed to

transform the TEEs into cash and to sell them at the right moment

considering the prices on the market. These are the main reasons why the

TEE market is almost completely controlled by ESCOs accounting, in some

cases, for more than the half of their revenues. The low portion of the TEE

gives an idea of their role into the market: they are very good form of

incentive but usually do not affect the investments’ feasibility; furthermore,

their concept is fundamental to link the industrial players to the energy

efficiency targets. In other words, they are a sort of global guarantee of

consumptions reductions and they are globally recognized too: that is a

fundamental fact to homogenize the European market country by country.

59

To conclude this chapter, a brief summarize of the market will be provided:

the final total investments market dimension is 5,63 mld € of which 654 mln

come from ESCOs and 4.970 are self-made. For what concerns revenues

ESCOs account for a total of 1,54 mld € of which 454 mln € come from the

TEEs management, 330 mln from the provision of additional services (like

the “servizio calore”) and the remaining 654 mln from the investments.

60

10. METHODOLOGY OF THE ANALYSIS

The analysis of the ESCo-market will be carried out by using two different

types of approaches (which will be explained later in this chapter) which both

bases on the results of 20 telephonic interviews. The total number of

telephonic interviews has actually been greater than 20, but the whole

sample included some data which would have distorted the analysis from a

numerical point of view. Furthermore, only certified ESCos have been

included in the final results to guarantee a major overall conformity of the

analysis. The interviews which have not been included in the final twenty

ones, have been anyway very useful to understand the global nature and

state of art of a market in which still a big part of the Energy Service

Providers are not certified entities.

The interviews were structured with standardized questions; when it was

possible, (when the ESCo considered as “not confidential” the required data)

the interviewed were asked to answer by providing absolute values, while in

other cases, they answered in percentage terms (in this case the answers

have been compared with total revenues from AIDA, to get a reliable order

of magnitude of the provided data).

The questions regarded both the market-positioning of the ESCos and their

contractual-portfolio, these two areas of analysis allowed the redaction of 4

big sets of results:

1)The ESCo market analysis by technology.

2)The ESCo market analysis by sector.

3)The ESCo market cross-sectional analysis (coupling technologies and

markets).

4)The ESCo market analysis by contract.

In the next pages an anonymous example of telephonic survey is presented.

61

“Esco n.15”

1) Indicate the amount of revenues per sector competent to energy efficiency interventions. If it is possible, indicate the percentage describing the public or private nature of the customer.

(If the data is considered confidential please give a percentage of this value).

INDUSTRY RELATIVE CONTRIBUTIONFood & Beverage 60%

Textile 20%Hospitals 30% (85% private and 15%public)

2) What are the most implemented technological solutions for each sector? If it is possible, indicate the weight of each technology per sector in terms of revenues.

INDUSTRY TECHNOLOGICAL SOLUTION

RELATIVE WEIGHT IN

THE SECTOR

Food & Beverage

Cogeneration 80%Trigeneration 20%Led and smart

meteringWork in progress

Textile

Cogeneration 80%Trigeneration 20%Led and smart

meteringWork in progress

Hospitals (Private and

PA)

Cogeneration 80%Trigeneration 20%Led and smart

meteringWork in progress

62

3) Indicate what are the contractual forms of your contracts-portfolio and, per each technological solution, show the most “fitting” ones. If it possible, indicate the weight on the total revenues.

4)

Other information:

-Guaranteed savings.

-10 years average duration for EPCs.

-Data related to the quote of savings reserved to the customers: 20% (fixed for the whole duration of the contract) from the first year.

-There is the possibility to vary it depending on the energy prices’ ongoing.

After the compilation of these forms, a more “general” conversation about

qualitative aspects usually followed the standard survey, this operation was

63

CONTRACTUAL FORM

RELATIVE CONTRIBUTION

Turnkey contract Almost zeroEPC contract with

financial risk borne by the customer

40%

EPC contract with financial risk borne

by the ESCo60%

EPC contract with energy trading

Almost zero

INDUSTRY TECHNOLOGICAL SOLUTION CONTRACTUAL FORM

Food & Beverage

Cogeneration EPC – ESCo’s RISKTrigeneration EPC – ESCo’s RISKLed and smart metering

Work in progress

Textile

Cogeneration EPC – ESCo’s RISKTrigeneration EPC – ESCo’s RISKLed and smart metering

Work in progress

Hospitals

Cogeneration EPC – ESCo’s RISKTrigeneration EPC – ESCo’s RISKLed and smart metering

Work in progress

fundamental to get the a good idea of the effective perception which the

service providers have about their market.

The results have been analyzed with two different approaches: the first one

consisted in a proportional comparison of the specific revenues of the

sample and the total revenues of the ESCO industry (From the Energy

Efficiency Report 2016). The second approach instead, has been developed

to avoid distortions in the results, caused by the possible wrong

representativeness that so little a sample could give: for this reason, the

analysis was made on percentages and not on absolute values.

The first approach is supposed to be more quantitative and specific for what

concerns the description of the sample, while the second one is supposed to

give a better general description of the ESCO market. The two approaches

will be replicated for every chapter (Analysis by sector, analysis by

technology and cross-sectional analysis) so that a precise and specific

picture of the sample and a general description of the industry will be

contextually given.

The first step consists in showing the revenues of the sample coming from

each customer-industry and related technology. The revenues must be

considered as cleaned of their amount coming from the TEE management

which has been supposed in the order of 40%, based on the data of the

energy efficiency report 2016. The analyzed industries are: paper, chemical,

glass-ceramic-bricks (g.c.b from this point on), metallurgy, mechanics, food

and beverage (f&b from this point on), textile, pharma, building, publishing

and printing (p&p from this point on), plastics, hospital, public

administrations, private offices, hotels and sport centers (hotels from this

point on) and GDO & logistics (GDO from this point on). The analyzed

technologies instead are: co/trigeneration (gogeneration from this point on),

leds and oleds (LED from this point on), organic rankine cycles and heat

recoveries (ORC from this point on), heat pumps, inverters, buildings

upgrading, electric motors, renewables, compressed air, metering and

refrigeration.

64

The revenues for each ESCO has been obtained by consulting the AIDA

database, in the case of ESCOs which are spin-offs of a corporate,

considerations on the corporate revenues have been carried out to come up

to the final value. In the next tab a first sight of the data of the sample is

provided, the goal of the analysis will be the discussion of these data from

the three perspectives of industries, technologies and cross-sectional

analysis, by using the two approaches explained before to provide final

considerations about macro-trends and future possibilities.

Another observation regards the choice of shifting the investments in

logistics from the single sectors to the GDO category, this was due to the

high incidence of the investments in logistics, to their different nature with

respect to the industry-specific ones and to their similar nature among

different industries. To give an example the led substitution in the

warehouses of a mechanic or textile company are almost similar

interventions even if they are carried out in two companies which have

completely different priorities for what concerns the energy efficiency issues.

In other words separating the interventions in the input/output logistics

activities allows to allocate to the different industries only the industry-

specific more typical interventions, with the result to get a more

representative analysis (cleaned of the “logistics component”). Another

factor which lead to this choice has been the increasing market of the

logistics contractors, which is contributing to the composition of a stand-

alone industry of logistics, with different needs from the others in terms of

energy efficiency issues.

65

Cogeneration LED ORCHeat Pumps Inverters

Buildings Upgr.

Paper 300 60 60 0 60 0Chemicals 1140 960 240 360 780 0GCB 900 1200 90 0 810 0Metallurgy 900 1380 900 0 840 90Mechanics 540 420 120 360 480 0F&B 2040 780 240 0 360 0Textile 360 480 90 0 120 0Pharma 60 540 0 0 0 0Building 660 660 30 0 720 0P&P 60 210 0 60 120 0Plastics 60 180 60 0 0 360Hospitals 420 360 0 180 30 90PA 270 3000 0 0 0 0Private Offices 0 480 0 0 0 0Hotels 0 420 0 90 0 180GDO 960 4200 0 720 0 420Tot. Technologies 8670 15330 1830 1770 4320 1140

Tab.13-The revenues of the sample.

Motors RenewablesCompressed Air Metering Refrigeration

Tot. Industries

Paper 60 60 0 0 0 600Chemicals 180 180 420 0 0 4260GCB 300 60 120 0 120 3600Metallurgy 300 60 120 0 120 4710Mechanics 300 60 420 0 120 2820F&B 0 0 0 90 0 3510Textile 0 30 120 0 120 1320Pharma 240 0 120 0 120 1080Building 120 0 0 0 0 2190P&P 0 0 0 210 0 660Plastics 0 0 0 0 0 660Hospitals 0 30 0 120 90 1320PA 0 270 0 0 0 3540Private Offices 30 0 0 30 0 540Hotels 0 0 0 90 90 870GDO 0 480 600 480 180 8040Tot. Technologies 1530 1230 1920 1020 960 39720

Tab.14-The revenues of the sample.

Revenues are reported in thousands € and, when under 100.000 €, have been excluded

from the analysis, the cells with higher chromatic intensity give a first-impact idea of the

most implemented solutions paired with each industry.

66

(Revenues refer to the sample only).

11. THE ESCO MARKET ANALYSIS BY INDUSTRY AND TECHNOLOGY.

11.1 Results and comments by industry.

11.1.1 The “revenues-proportional” approach.

Fig.25-The revenues of sample per industry.

67

By using this approach the dimension of the single ESCOs is taken into

account, given that the percentage of the volume of business declared

during the interviews has been multiplied by the revenues provided by AIDA

database. This gives a very quantitatively and precise idea of the sample,

but can create distortions when reported to the total revenues of the entire

ESCO industry (because of the presence of big players or conversely, of

smaller ones). The dimension of the analyzed sample corresponds to 20

ESCOs which are about one tenth of the total Italian ESCOs, and the

revenues referred to it are about 40 million. Considering that the revenues of

the whole market are 624 million euros (without TEEs and residential

sector), it is possible to conclude that the average dimension of the

companies in the sample in terms of revenues is smaller than the average of

the whole market. In the next figure the revenues streams are divided into

sub-streams for each customer-industry served by the energy efficiency

services market.

The interviews revealed a very low diffusion of residential projects, indeed

just one ESCO declared to get almost the 30% of its revenues from this

market, by installing building envelopes in new residential buildings

(technology on which the player was particularly specialized) and heat

pumps. Although a specific section for the residential sector was not

included in the survey, every company was asked to describe the reasons

why they did not enter the market and the reasons why they did not succeed

in doing it in case they tried. The first underlined barrier to the entrance to

this market has been found to be the inconsistency of the savings in

absolute terms, not for the customer but for the ESCO itself, which has

described the residential customer as “too small” in the majority of the cases.

Another barrier which has been highlighted in some interviews was the

difficulty in communicating with this market for the majority of the ESCOs

because of their “unfitting” structures. These ESCOs stated that they believe

in the possibility to make profitable investments also in the residential sector

but that they don’t have the right structure and trade channels to do this. The

global impression, on the current residential energy efficiency market, which

emerged from the analysis is not completely static: ESCOs just take the 1%

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of this market but some players (in particular the spin-offs of some big

distributors) are starting implementing new products for domestic sector,

with particular attention to big residential complexes. A big driver for the

future spreading through this sector could be the development of

collaborations and partnerships with the construction companies, particularly

when the energy efficiency service players are also distributors (or spin-offs

of a distributor; this could make it easier to reach the market), conversely for

the moment, the interventions in this sector result to be almost all “ex-post

installations” of solar plants, heat pumps, refrigeration plants and so on.

Public Administrations sector has revealed to be a difficult sector to be

analyzed: just three ESCOs of the sample resulted in investing in this field,

but when they do it, this represents a big part of their revenues. This is

mainly due to “big-fish projects” which are not always easy to win, but that

can result in very big revenues streams in case of success. The first of the

three ESCos declared to derive 60% of its revenues from the energetic

upgrading of Public Administration offices, the second one 40% from the

LED installation for municipal lighting, and the last one (a very big player) the

90% of total revenues from PAs (10% comes from LED installations and the

90% comes from “heat management” of the hospitals). A representative

issue highlighted by these actors is the high residual availability of

interventions for LED installations in the municipal-lighting (very big areas of

important municipalities are still lighted with classic lamps), which have been

described as low-risk investment for the ESCOs with very constant

returns/savings. Another fact emerging from the interviews of these three

actors have been the necessity to divide the hospital category from the PA

category: today almost half of the Italian hospitals are private and projects in

this field can move big amounts of investments; so the hospitals have been

considered a per se category from that moment on. The most spread

installations for hospitals resulted in LED installations and cogeneration for

a total amount of 1.3 million euros (the same amount of the textile industry

from the sample), confirming the big importance of these structures (both

private and public) for the ESCo market. Almost the same amount of

investments come from the hotels and private offices.

69

GDO industry (remember that this category collects GDO operators, third

parties logistics providers and internal interventions for energy efficiency in

inbound and outbound logistics) gave particularly important results, reflecting

the green logistics trend, which is pushing big players to put more attention

on the entire life cycle of the product and not only of its production. Big

logistics contractors try to get important labels and certifications and the

interest for reducing consumptions and emissions is higher and higher as

demonstrated by the Global Logistics Emissions Council (GLEC), led by the

Smart Freight Centre. In the current analysis, the GDO category includes

also logistics activities because, in addition to the growing importance of the

“per se sector of logistics providers”, the nature and the weight of the

interventions are very different from the process’ one of the others industrial

sectors. To sum up, the data regarding the GDO category refer to every kind

of intervention regarding logistics activities: activities in the nodes

(warehouses, transit points), point of sales of the GDO, and transportation

activities of both logistics providers and the industrial sectors.

The total amount of investments resulted in 8 million euros which can be

compared to almost one third of the total of the industrial sector revenues.

The big concentration in LED installation well reflects the nature of this

category, in which technologies like the cogeneration, the ORC assume a

lower importance, while they have a very high incidence on the industrial

sectors.

Among the industrial sectors (accounting for 25.4 million euros together)

the one which resulted to be the best “customer-sector” for the ESCo market

has been the metallurgy one, with 4.7 million euros, followed by the chemical

sector with 4.3 million euros. The other industrial sectors are all included in

the range between 2 and 4 million euros, except from paper, textile, pharma,

plastics and print and publishing which resulted to be sharply under the

average. The results of this category have been particularly affected by

some big players investing specifically in a few sectors (or sometimes just

one of them), so that, given the small dimension of the sample, it resulted in

a distortion of the single categories (this fact will become clearer with the

70

analysis in the next graph and with the second approach of the next

chapter).

The final data have been then reported to the total amount of ESCOs’

revenues, which comes from the investments in energy efficiency: the total

revenues of 1.4 billion € have been cleaned of the TEE component and of

the additional services component (like the “servizio calore”), giving a total

final amount of 654 million €. Furthermore, this amount has been decreased

of other 30 million euros, which represents the share of the residential

energy efficiency market taken by the ESCOs (1% of the total market

dimensions, which is 3 milliard), indeed the residential sector has been

considered as “out of scope” for this analysis because of its very different

identifying characteristics. At this point it is possible to get a first sectorial

sight of the market:

71

Fig.26-The revenues of the market per industry (1st approach).

A comparison with the Energy Efficiency Report is now possible, particularly

for what concerns the categories of the industrial sectors (in the other macro

categories there are some differences in the boundaries definition, like it was

previously explained for the GDO). The comparison will not be set on the

absolute revenues values but on a ranking, the reason of this choice is that

the data in the Energy Efficiency Report 2016 are referred to the

investments made by ESCOs and not to the revenues coming from each

sector: these are

surely two comparable sets of data but not in absolute terms.

72

The first four sectors coming respectively from the Energy Efficiency Report

ranking and from the current analysis ranking are provided:

Tab.15-16-Investments and revenues rankings.

This comparison confirms the fact

that the industrial sectors appear

particularly distorted when reported to

the total amount of the market’ s

revenues streams using this

approach. It’ s possible to conclude

that this method gives a very precise

description of the sample but it gives heavy distortions too, when trying to

give a global perspective of the market. For these reason the second

methodology has been used for this purpose and it will be faced in the next

chapter.

11.1.2 The “absolute percentage” approach.

This approach uses a slightly different logic based on the average

percentage of revenues that an ESCO gets from each sector, without

considering its dimensions, so that it tries to figure out the expected

revenues per sector of an average ESCO.

73

Revenues Ranking1) Metallurgy

2) Chemicals

3) Ceramic & Glass

4) Food & Beverage

Investments Ranking from E.E.R.1) Mechanics

2) Food & Beverage

3) Chemicals

4) Metallurgy

Tab.17-The revenues ranking.

Now the ranking of the four major industrial sectors includes the same

elements of the energy efficiency report and reflects the same hierarchies

with the exception of the mechanic industry which is in the real context the

most important customer for an ESCO (The different result can probably be

due to the small dimension of the analyzed sample). Anyway, the global

perspective of the industrial sector given by the Energy Efficiency Report,

from the point of view of the investments, seems to confirm the global

perspective of the current analysis, from the point of view of the revenues.

At this point, by using the average percentage data of this approach, a

description of the dimensions and major sectors of activity of an Italian

ESCO will be provided. Taking as a reference only the revenues coming

from the investments in energy efficiency interventions, and so excluding

“other services” and TEE as before, the revenues of an average ESCO are

about 3 million euros (considering 200 Certified ESCOs for a total market of

624 million euros). In the tab below the average percentage and the

expected revenues coming from each sector for an average ESCO are

provided:

Sector Share RevenuesPaper 0,04 107Chemicals 0,11 336GCB 0,04 131Metallurgy 0,08 236Mechanics 0,09 270F&B 0,17 498

74

Revenues Ranking1)Food & beverage

2)Chemicals

3)Metallurgy

4)Mechanics

Textile 0,04 125Pharma 0,04 131Building 0,03 86P&P 0,02 47Plastics 0,04 125Hospitals 0,03 84PA 0,05 159Private Offices 0,03 99Hotels 0,02 47GDO 0,17 512

Tab.18-The shares of revenues per sector.

This representation highlights the great importance of the GDO and of the

Food & Beverage sectors in terms of revenues, the first one is mainly pulled

by the LED installations and the second one by interventions in

cogeneration. Also the chemical sector is mainly pulled by these two

technologies, with an important contribution of inverters installations. In the

end, considering the results of the Energy Efficiency Report 2016 also the

mechanic industry would have been included into the group of sectors which

are expected to bring more revenues to an average ESCO, but as it was told

before, according to the interviews, it resulted to account just for an average

9 % (in line with metallurgy).By taking into account all the previous

considerations and the comparisons with the Energy Efficiency Report 2016,

it is now possible to conclude that the second approach better reflects the

global picture of the market, in particular when considering the dimensional

relations between the different categories. For what concerns instead the

absolute values, it was not possible to check them with affordable studies or

abstracts from the literature, and so there is no guarantee over the accuracy

of the analysis. Anyway, the revenues streams in absolute terms revealed by

the analysis are reported below, taking into consideration the total value of

624 million euros of the market, as it was done for the previous chapter.

75

Fig.27-The revenues of the market per industry (2nd approach).

11.2 Results and comments per technology.

76

11.2.1 The “revenues-proportional” approach.

Fig.28-The revenues of the sample per technology.

As for the sectorial analysis, the first approach will be useful to fully

understand the distribution of the revenues coming from the different

technologies for the ESCOs interviewed within the sample. In the tab below

a ranking of the most profitable interventions categories is provided

considering, like in the previous chapter, a total amount of revenues of about

40 billion for the entire sample.

The analysis reveals a high propensity of the ESCOs to invest in LED technologies. By considering the Energy Efficiency Report, the most

installed technology in the energy efficiency market is the cogeneration,

however this datum is referred to the whole set of energy efficiency services

providers and to self-made investments too; this fact reveals that

77

cogeneration is an absolutely highly incident sector for the ESCOs revenues

but that there is also a big part of self-made investments as regards this

technology. Conversely the LED market appears to be globally smaller than

the market for cogeneration technologies, anyway it appears to be the bigger

revenues stream for ESCO companies. Some of the ESCOs of the sample

were asked to explain why they got such good results in this field and to

specify if it was due to the continuous growth of this market, to the

availability of new installations for by the public administrations or to the

characteristics of this type of investment in terms of payback-time and

savings. The ESCO revealed that the growth of the global market allowed a

reduction in the prices by the suppliers and easier and smarter installation

modalities, but they described the current situation of the municipal lighting

and the typical characteristics of the investments, as the two main variables

driving to this very high incidence of LEDs on their revenues. The LED’s

installations indeed, are typically costly interventions, but given the very high

savings, they allow low paybacks too: this is the condition which, in the

ESCO’s opinion, usually convince the customer to look forward a LED

solution (this is particularly true for small and medium enterprises). The high

cost of the investment anyway lead the customer to contact the ESCOs and

the high opportunities for savings give almost in all the cases the possibility

to find the right parameters for setting an EPC contract which allows the

ESCo to recover the investment in a brief time and to let to the customer the

benefits of the whole savings after a quite short period. Furthermore, the

LEDs installation are not influenced by changings in temperatures, weather

conditions and use-time of the machines: these factors allow to define in an

easier way the EPC contract with respect to other technologies which need

more guarantees by the ESCOs towards the customers. To sum up, the

LEDs investments can give a very good level of risk for all the risk

categories: the operative risk is low because it is not difficult to guarantee

the compatibility and the integration of these systems (design and

installation procedures are quite standardized). The energy performance risk

results low too, given the high constancy of the savings. The financial risk

assumes good levels, given that the future perspectives for this technology

are good and the market is expected to grow again in the next years.

78

As regards the cogeneration market it is possible to state that this

technology almost equally distributes among all the industrial sectors,

accounting for 8.7 millions of revenues over the analyzed sample. A major

fact which emerged during the interviews is that a lower number of ESCos

has this technology within their portfolio, because an higher level of

specialization is needed: the knowledge of the specific process or location in

which the intervention must happen and the more complex design and

installation procedures, concur to create an higher degree of complexity than

LEDs installations. A demonstration of this fact is the presence of an actor of

medium dimensions (revenues around 3 millions) which only installs

cogeneration plants and is completely specialized in this technology: the

specific knowhow in this field can be a very important differentiation factor, in

particular for projects presenting high design and realization complexity.

Even if the industrial sector is the major cluster of customers for

cogeneration plants, also GDO is an important one, with almost 1 million of

revenues considering the analyzed sample. The different risk typologies are

surely higher than they are for the LEDs, because the savings can be less

constant and depending on the activities carried out in the work floor

(basically the reasons are the opposite ones compared with LEDs).

The inverters represent another growing market, given the very wide range

of application (machines speed control, energy and material consumption

optimization and coordination of different machines) the installations

distribute almost equally among all the sectors, furthermore the market is

pulled by the photovoltaic growth. As it was explained in the introduction

cross cutting technologies always represent good opportunities for the

ESCOs and inverters can be considered into this category in some ways:

they can be applied to very different activities from centrifugal pumps to

compressed air systems. The very wide field of application anyway does not

affect too much the complexity of the interventions, inverters are today

standard components (even if the market is still moving in terms of

quality/price) and big players like Huawei and ABB supply them on the

market. These are just some of the reasons why inverters represent another

good field for the ESCOs which, even if showing a major degree of

79

complexity in the installation (mostly in the case of retrofit interventions of

already existent plants) with respect to LEDs, grant consistent and constant

savings combined with low operative and financial risks.

All the other technologies stood between one and two million euros in

terms of revenues streams and can be considered as minor fields for the

ESCO market, anyway all together they represent more than 25% of the

total revenues of the sample: this fact remarks the importance for an ESCO

of being a polyvalent entity, capable to follow the new trends of the energy

efficiency market and to insert or to exclude from its portfolio of services the

one or the other technology. More than one ESCO stated to make almost

equally distributed installations of different technologies in different sectors,

differentiating all the risk typologies and amortizing the big variability of a

market like the energy efficiency one, which is continuously influenced by a

huge set of factors (energy prices, incentives, politics and so on).

In the following graph, the data relative to the sample have been

proportioned to the total value of the ESCO revenues of 624 million euros,

with the same procedure that has been previously used for the sectorial

analysis.

80

Fig.29-The revenues of the market per technology (1st approach).

11.2.2 Absolute percentage approach.

To get a better perspective of the market, the second approach (which uses

the average percentage shares per technologies) will be carried out to

understand if there are big changes if compared with the previous one and

to finally give some overall considerations of the market from the point of

view of the technologies. The following tab shows the expected revenues for

an average ESCO (3 million revenues) based on the average percentages

declared during the interviews for each single technology.

81

Technology Share Revenues StreamsLED 0,26 780Cogeneration 0,24 720Inverters 0,15 450Compressed air 0,03 90ORC 0,09 270Heat pumps 0,03 90Motors 0,05 150Renewables 0,06 180Building Upgr. 0,03 95Metering 0,03 90Refrigeration 0,03 89

Tab.19-The shares or revenues per technology

Again, this second approach allow to clean some distortions: the biggest

interviewed player (with total revenues equal to the double of the ones of the

second biggest player) indeed stated to derive a consistent part of its

revenues from the lighting installation and not to install cogeneration

solutions at all; this fact was particularly affecting the analysis in terms of

absolute revenues. To conclude, a last representation of the market derived

from the second approach is provided in the figure below.

82

Fig.30-The revenues of the market per technology (2nd approach).

The overall picture of the market slightly changes as regards LED

installations, ORC, renewables and Motors. This hierarchy seems to be

more realistic then the previous one in particular as for the ORC which

resulted to be installed in all the industrial sectors. The energy efficiency

report 2016 confirms (with exception for renewable sources which are not

included in the analysis) that the 5 major installed technologies in the total

energy efficiency market ( comprising the self-installations too) are LED,

cogeneration, inverters, ORC and electric motors. An interesting comparison

can be made regarding the ORC & efficient systems of combustion: in the

Efficiency Report they result to be almost at the same level of investments

as the cogeneration systems. This kind of installations anyway (particularly

in the heavy industrial sectors) are sometimes self-made, given the big

83

degree of integration needed with the existing machines and complex

processes. Some ESCOs figured out that big companies using heavy

combustion plants already implemented these systems investing by

themselves: this can be a reason why the results describe this technology as

a minor revenues stream for an ESCO, compared with others.

Another important issue regards the administrative efficiency as a

consultancy support to energy management in terms of operations and

decisions: this category has not been included in the analysis because it

cannot be considered as a technology, but it is an important service that an

ESCo can deliver to customers and it is sometimes referred to specific

technologies and plants. An example of this issue is represented by the

interview of an ESCo which stated to carry out almost exclusively

consultancy activities (without any installation or design practices) mainly

deriving its revenues from administrative efficiency consultancies and TEE

management. To make an example, a possible consultancy

recommendation which does not involve any installation but that is at the

same time referred to a specific technology is the following one: some

warehouses with controlled temperature stocks can be advised to low the

temperature under the needed value when electric energy costs less and to

switch off the refrigeration plan when it costs more (letting the temperature

come back to the standard value, and starting again the system in a second

moment). Other possible recommendations can regard the maintenance of

some cross-cutting technologies, the elimination of compressed air systems

losses, the substitution and cleaning of the lamps or again the organization

of the on/offs of some lighting sectors depending on the work shifts. All these

measures are not matched by any big investment but can result in good

source of revenues for the ESCOs; this fact highlights again the very high

importance to have a diversified knowhow in all the different technologies

and sectors.

84

11.3 Results and comments per specific sectors and technologies.

Tab.20-The revenues of the market.

Tab.21-The revenues of the market.

The highest incidence of a technology over a particular sector is represented

by the lighting over the GDO: in this industry, the lighting assumes huge

shares on the total consumptions than to other sectors, which have to face

with other bigger energy vectors. The incidence over the total revenues

85

coming from the GDO sector is 27% while it is 20% over the total revenues

coming from the Public Administrations, these two sectors indeed are the

one in which the LED market is developing more. Another technology which

has a high incidence on a particular sector is the Cogeneration on the Food

& Beverage industry, which accounts for 23%. The companies of this sector

indeed typical have high heat intensive processes which account for the

majority of their total energy consumptions: pasteurization and cooking for

example use a lot of electric energy and need a lot of heat too, so that the

best conditions for a cogeneration investment are created. Also other

industrial sectors have plants requiring and dissipating big quantity of heat

like Chemicals, Bricks production, Metallurgy and Mechanics, anyway there

are some differences compared with the food and beverage that makes

them less desirable for an ESCO: bricks and metallurgy in particular are

process industries which have the best knowledge possible on their

processes and so they are usually well performing on the process energy

efficiency.

The investments in the cogeneration technology coming from the Chemical,

GCB, Metallurgy and Mechanics are very high and account all together for a

40% of the total investments in cogeneration technology. Another interesting

datum is represented by the investments in ORC which comes from the

metallurgy industry for 50% of the total amount, in fact this is one of the most

classical and suitable sectors for heats recoveries. Compressed air and

inverters seem to have good incidence homogeneously on all the industrial

sectors while they have lower incidences on Hospitals, PAs, Private offices

and hotels.

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12. THE ESCO MARKET ANALYSIS BY CONTRACT

12.1 Results and comments.

As it was reported in the introduction chapter about contracts, the forms

provided by the ESCOs are very different the one from the others in terms of

formulation of the contract, shares of the savings, financing modalities,

undertook risks, duration and clauses.

The initial aim of the interviews was to allocate the different typologies of

contracts to particular sectors or technologies but it revealed to be a hard

task, because almost half of the ESCos stated that they did not make any

difference about the typology of contract with respect to the particular

sectors. Some ESCOs indeed declared to provide all the possible

contractual forms to try to deal as best as they could with the customer, and

that sometimes some “hybrid” solutions are adopted to find a point of

agreement. Other ESCOs instead, defined some sectors or technologies as

more suitable for some contracts typologies, but it was not enough to build a

definitive framework pairing sectors/technologies and contracts. It was

possible anyway to define what are the most used contractual forms given

that the ESCO were asked to define the percentage of their revenues

coming from each contractual form. The contractual forms have been

categorized as follows:

1)Turnkey

2)EPC with financial risk taken by the ESCO

3)EPC with financial risk taken by the customer

4)EPC plus energy trading

Besides these categories the interviewed ESCOs were asked to declare if

they used equity or borrowed capital, but in the majority of the cases the

answer has been that there is not a unique policy. None of the ESCOs

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stated to use only borrowed capital, some of them stated to use only equity

capital and others to use borrowed capital only in periods of low liquidity or

just for a part of the investment. So, taking these considerations into

account, the categories can be definitely redefined like:

1)Turnkey with borrowed or equity capital.

2)EPC with financial risk taken by the ESCO using equity capital or

borrowed capital from the bank to the ESCO.

3)EPC with financial risk taken by the customer using equity capital or

borrowed capital from the bank to the customer.

4)EPC plus energy trading

At this point a representation of how the different contractual forms are

distributed is possible, the figure reported below shows the average

percentage for each typology. The second step has been to report these

percentages to the total revenues of the ESCO sector to understand what is

the total volume of business for each contract typology.

Fig.31-The partitioning of the contracts typologies.

88

21%

59%

20%

1%

TurnkeyEPC ESCOEPC CustomerEPC + trading

Fig.32-The revenues of the market per contract typology.

The EPC contracts financed by the ESCOs or by third parties through the

ESCOs seem to be the most diffused contractual form. An important witness

about this fact has been released by an expert of this sector who stated that

initially the most diffused form was the turnkey (standard contracts) but than

ESCOs tried to switch to EPC, firstly trying to imitate markets of other

countries and then because the increase in affordability of installed

technologies started to translate into lower financial risks. A more stable

technology, giving more constant savings, allows to get more constant

returns and so the ESCO becomes more minded to sign EPCs contracts

instead of typical contracts not depending on the energetic performance.

Before going deeper into the EPCs details which came out as results of the

interviews, we need to specify that some other contractual forms, which are

not included in the analysis, have been found out: an example of this fact is

a sort of “leasing” which resulted to be recurrent for the LED lighting

installation in the municipalities. It is indeed neither a turnkey contract,

because the owner of the lamps is the ESCO and neither an EPC contract

because the amount paid by the municipality is not depending on the

energetic performance of the lamps neither on the final savings. More than

89

Turnkey EPC ESCO EPC customer EPC + trading Market

128267

365733

123067

6933

624000

Revenues

one actor operating with the public administrations anyway admitted to use

this form of agreement.

The most used EPC formula is the “shared savings” one, which split savings

between the ESCo and the customer during the operating years of the plant.

In the majority of the cases these percentages are not constant but change

over years with higher values for the ESCOs in the first years and lower

ones in the last years. This especially happens when the ESCos invest

directly, so that it easier to repay the investment in a shorter time and leave

before 100% of the savings to the customer, once it is completely recovered.

As regards a generic EPC saving contract the duration resulted to be around

the 7,5 years, with percentages favoring the customer with the passing of

the years; sometimes after some years (normally 2/3) the customer can

decide to redeem the plant (paying an amount of money) and continue to

operate it instead of the ESCO: it happens when the customer takes the

necessary competences to do so during these years and wants to run the

plant itself to take all the savings. The value of the savings dedicated to the

ESCO differs depending on the investment and on the needs of the

customer too, usually the share dedicated to the ESCO can be between 15

and 20 % and can decrease during years in different ways (depending on

the duration of the contract). A clear example was given by a very big player

specialized in cogeneration, ORC and efficient heat plants who defined a

particularly standardized contractual form specifically for the “heat

interventions”: contracts are quite short in time (considering the type of

investment) with a range of 5 to 9 years, they are based on euros per cubic

meter saved and they include a sort of guarantee for the customer (a part of

the returns is fixed independently from the savings). A last consideration on

the EPC with ESCO-financing derives from an interview with an expert of the

sector who externalized the difficulty for little ESCOs to issue them: these

companies often offer these solutions but sometimes, especially when the

projects require big investments they try to switch to the turnkey before

signing the contract and sometimes this attempt causes the end of the

negotiations.

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To conclude, the EPC with associated energy trading is not diffused at all,

and it is mainly devoted to large ESCOs or spin-offs of energy distribution

players, which can make some interesting variations to the original form of

the EPC contract, like discounts on the energy prices or dedicated services

for the energy buying, by using the futures.

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13. INSIGHTS AND TRENDS

In this chapter two main issues will be deepened. The first one is the role of

the SMEs as ESCos’ customers, analyzing how Energy Service Companies

can interact with other stakeholders, in order to pursue the most typical

drivers for the overcoming of the barriers to energy efficiency. The other

issue is a detailed analysis of the GDO & logistics category because of its

high incidence resulting from the analysis.

13.1 Energy Service Companies and Small-Medium enterprises.

The aim of this chapter will be the one to evaluate all the possible

touchpoints between the needs of the Small and Medium enterprises and

the services provided by the Energy Service Companies, to do that two

abstracts by Trianni and Cagno about “Barriers” and “Drivers” of the SMEs

compared with energy efficiency will be taken as a base.

In Italy and in the other European Countries too, the customers of the

Energy Service Companies are mainly Small and Medium enterprises; to

better understand the role of the SMEs it is important to understand what is

their incidence on the total industrial consumption, what are their barriers to

energy efficiency and how the ESCOs could be a driver to overcome some

of these barriers. According to the European Commission Observatory of

SMEs research of 2012 only 4% of European SMEs have put in place a

comprehensive system to monitor and control energy consumption,

furthermore 90% of SMDs have not yet or have only recently adopted a few

measures to control their energy consumption. In addition to this, according

to a 2011 investigation led by the European Commission, SMEs are also

strategic for the European domestic economy, responsible for approximately

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60% of the Gross Domestic Product produced and about 85% of new job

opportunities.

From the two aforementioned abstracts it is possible to define some principal

categories of barriers for small and medium enterprises like:

1)Technology related

2)Information related

3)Economic

4)Behavioural

5)Organizational

6)Competences-related

7)Awareness

In particular, some of the most incident barriers resulted to be the lack of

time, the lack of liquidity and the lack of competences and awareness of a

great part of the interviewed SMEs. As it was told before an ESCO is often

an entity with multidisciplinary competences and which can offer very

different types of services, from installations to financing, passing by

consultancy activities, energy trading and TEE management. That is

basically why it is interesting to go deeper into the relations existing between

the ESCO services and the barriers of SME; this could be an interesting field

to furtherly expand the scientific literature too: getting a quantitatively valid

framework about the most impacting drivers exercised by the ESCO upon

the SMEs could be an instrument for both the actors acting in the market.

Among all the drivers provided by the abstracts a part of them has been

chosen, considering the drivers that can be enforced by an Energy Service

Companies:

1) Informative drivers: management support, external energy audit,

external cooperation, awareness, knowledge of non-energy benefits,

availability and clarity of information

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2) Economic drivers: cost reduction from lower energy use, private

financing

3) Regulatory: green image and release of certifications

4) Vocational training: technical support and programs of education

and training

The first category is mainly related to the issues coming from the Energy

Audits that can signal inefficiencies and show possible non-energy benefits

(benefits which are not directly related with energy efficiency but that can be

pursued by developing energy efficiency measures) deriving from different

interventions. The support of an ESCo to a company can also be devoted to

the management, aiming at the design of an environmental management

system. Some of the interviewed ESCos stated to provide support for the

creation of Energy Management Systems too, both by providing direct

consultancies and by providing software and hardware. Furthermore, the

ESCos have available and clear information about all their past interventions

and this is fundamental to provide companies with real cases of applications

(to demonstrate them that effective economical and performance benefits

are possible regarding a specific technology/installation). Also the regulatory

drivers can be pushed by some of the ESCo services: some interviewed

ESCos declared to release the ISO 50001 for the implementation of an

Energy Management System. This is another important service given the

very dynamic environment of regulations and policies of this market, and

given the difficulties of the customers in staying tuned with new standards

and objectives. The economic drivers instead are mainly related to the

financing capacity of an ESCo or to the guarantees that can exercise (in

terms of technical affordability of a project and in terms of returns) in the

case of a third party financing with a bank institute. The different contractual

forms offered by an ESCo can be considered an economic driver too: the

possibility for the customer to find different financial solutions, with different

paybacks and returns can be a great advantage when trying to pursue

expensive energy efficiency installations. In the end the last category,

vocational training, has not been reflected in any interview but can be

considered as a service that an ESCo could decide to include in its portfolio,

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and that could have considerable impacts on the awareness of a company’ s

personnel.

In the following graph, (from the Trianni and Cagno study “Exploring drivers

for energy efficiency within small- and medium-sized enterprises: First

evidences from Italian manufacturing enterprises”) a framework on how

different stakeholders like technology suppliers, firms and government can

act on drivers is provided; the scheme divides the positive actions of drivers

on different barriers for each phase of the decision making process

(Awareness, needs and opportunities identification, technology identification,

planning, financial analysis and financing). The original study anyway is not

specifically contextualized neither for the Small and Medium Enterprises nor

for the ESCO market but, given the right conditions and limitations, can be

very useful to get a big picture of the interactions occurring among the

Energy Service Companies, SMEs, Banks institutes, Technology Suppliers

and the Government. The barriers listed before are allocated in each

decision-making phase: awareness, needs and opportunities identification,

technology identification, planning, financial analysis and financing,

installation, startup and financing. The arrows show the relations and

positive actions of the drivers on the barriers, these effects can combine

(normally positively) acting on the same barrier to energy efficiency or again

a single driver can act on more than one barrier. In the top part of the figure

there are the stakeholders that are a sort of “enablers” of this model, they

are in other words the suppliers of resources that allow to the drivers to

become effective.

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Fig.33-Relations between barriers and drivers for energy efficiency.

By adding the entity “ESCO” to the initial situation, the previous scheme

slightly changes because of the ESCOs’ capability to interact with the other

stakeholders compared with the SMEs’ one. ESCOs can easily interact with

technology suppliers (finding out the best technologies available and

assuming a sort of “market monitoring” function which is not usually

undertaken by small & medium enterprises), with the government

(undertaking a similar function than the previous one but concerning

certifications, standards development, new incentives introduction and future

legislations forecasting), with banks institutes (offering a much more

affordable profile in terms of competences and guaranteeing the goodness

of the interventions on behalf of the customer) and with other companies (an

example can be given by energy distributors: ESCOs usually have a

complete vision of the energy supply offers in the market and can find the

right solutions for the customers acting on drivers for energy efficiency like

the cost of electricity per kwh). Summing up, the ESCO assumes the

function of “unique interface”, which basically puts the customer in better

conditions for understanding and perceiving the market with respect to the

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classical situation in which the Small-Medium enterprise must interface with

a lot of different actors.

At this point a little modification to the previous framework is purposed by

considering the presence of an ESCo with the role of “market-facilitator”.

Fig.34-Relations between ESCos and drivers for energy efficiency.

This can be an important point of view of the market for an ESCO, when

defining its portfolio of services, depending on its dimensions and local

conditions of the market. The ESCO could try to define what are the most

impacting drivers on the most common barriers of its target market, so that it

can set priorities and better define services-portfolio and internal structure.

The ESCO should basically understand which are the major barriers of the

target customers, understand what of the aforementioned drivers could act

on them and, in the end, chose the better ways to interact with other

stakeholders, to enforce these drivers in order of priority (impacting as much

as possible on the barriers demonstrating more need of improvement).

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This analysis, coupled with the telephonic interviews, helped to understand

what is the current situation of the ESCos in terms of fitting in the right way

the needs of the customers; some ESCos resulted to move forward the right

direction, being flexible with the small customers and providing them

software and tools for the energy management, together with quick

methodologies for energy audits giving brief and precise results. Some

ESCO also stated to provide to SMEs simplified and more flexible contracts

that enable the possibility to change quotes and shares of the savings

overtime (another source of flexibility in that sense can be referred to the

EPC+ contracts, sending back to the specific chapter in the introduction).

Other players instead did not move in this direction, they are very

specialized and big players (usually providing big plants design and

installation), and they do not need to offer such flexible and specific

solutions, given the very different nature of their customers which are bigger

than the average (In this case the personalization provided by the ESCO is

more on the “design” than on the “contract”). In the end another category of

ESCO can be defined and it is a part of the small providers, which were

simple installers or technology suppliers before getting the ISO certification,

these providers do not offer all these solutions and services and are neither

multi-disciplinary nor flexible: these actors basically work with small

customers (which have the aforementioned specific needs typical of these

companies) without fitting their needs in the best way, limiting themselves to

sell products, installing them and managing them for the period fixed by the

contract (usually a turnkey contract).

To conclude, it is now clearer how complex a business model of an ESCO

can be, and how difficult it is for an ESCO to move through such a

heterogeneous market, defining the right portfolio of services and at the

same time adapting to its original structure. For an average Italian ESCO

anyway, except for some specific cases, the attention towards the small

medium companies seems to be essential and it is surely a key-point and

success factor for the near future.

13.2 Energy Service Companies and Logistics.

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The GDO and logistics field resulted to be one of the most important market

for the Energy Service Companies, accounting for more revenues than all

the single industrial sectors. It is important to repeat that this fact is mainly

due to the inclusion in this category of all the interventions related to inbound

or outbound logistics activities, comprising also the ones entertained by

companies operating in the industrial sectors. The effect of this classification

is a very heterogeneous category, which has not to be intended as a real

conventional market sector but as a group of different kind of customers all

looking for logistics efficient solutions. The two main reasons why this

classification was chosen are the following: the growing importance of green

logistics and the type on installations needed in this field. The green logistics

is becoming more crucial, new standards are developed every year, in

particular for what concerns emissions and transportation protocols,

furthermore the logistic sector itself is continuously growing and expanding

the market with new customers. This growth is accompanied by the stronger

growth of the e-commerce, creating ulterior and multiple implications with

consumption reductions and energy efficient solutions related to the sales or

buying of products through the internet. Collaboration forms among

upstream and downstream companies are a growing trend in logistics, and it

has further implications on the optimization of the energy consumption from

a supply-chain point of view. In the end, the most “classical” point for an

ESCO, is the nature of interventions on inbound & outbound logistics

themselves, which are usually cross-cutting technologies highly impacting on

the total energy consumption of these activities; furthermore, these are quite

standardized solutions (in comparison with other solutions for process-

industry which require an higher degree of complexity in the design and the

installation of the solution) which ESCOs regularly install. To sumup, this

sector is growing, presenting both disruptive (e-commerce and collaboration)

and “cash cow” opportunities (cross-cutting technologies) for energy

efficiency and represents a key point for the energy service companies. If

the “what” of this sector is clear, let’ s now consider the “who”, because here

is probably the major element of difficulty in the relations between the

ESCOs and the customers of this sector: large road carriers, small road

carriers, express couriers, intermodal terminal operators, warehouse

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operators, railway carriers and intermodal rail-road transport operators, third

party logistics providers and freight forwarders. These operators basically

refer to the logistics outsourcing, a fast-growing sector, with growing

competition in which the decrease of the energy costs results in an important

success factor. But what are the actors with which an ESCO should try to

interface more? Road carriers, express couriers and freight forwarders give

great attention to consumptions due to competition reasons and ESCO are

not the right support entities for complex transportation problems (or better,

they are not for now, considering the current average dimension of an ESCO

in the Italian market), furthermore given the dimension of the analyzed

ESCos it seems difficult to imagine them to have as customers logistics

player which are bigger than them. Furthermore, also big multinational third

part logistics providers are difficult operators to interact with: given their

dimensions and their attention to consumptions. Companies like DHL,

Kuhene&Nagel or CEVA have milliard euros of revenues and can easily

invest locally through the corporate’s founds. But what about the intermodal

terminal operators and the warehouse operators? They are usually Italian

companies and they were born in a completely different market with respect

to the current one, they don’t always care of energy efficiency issues but

they should start doing it to compete with the bigger aforementioned players.

These providers offer storage, inter-ports, material handling activities and

are sometimes grouped in porters cooperatives (typical Italian entities).

These operators do not always have big financial resources and improving in

technologies like electric motors and LEDs can bring to big impacts on

liquidity. Besides all these actors, which can be grouped into the outsourced-

logistics there are all the companies operating in industrial sector which

internally manage inbound or outbound logistics operations, these activities

are not typically core for those companies which sometimes make the

mistake to look at energy efficiency issues only for what concerns their core

activities. Reading some abstracts about this topic it appeared to be clearer

that some big multinational are more likely to invest in green policies

regarding their core activities (in particular production) for eco-labelling

purposes, referred to single products or processes. This digression was

aimed to explain that the attention towards the whole supply chain is not

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always high and in these cases market opportunities for ESCOs can be

generated. In the end, there are GDO companies which are more

congealed and classical ESCOs’ customers, in particular as regards the

sales points. To sum up a lot of different actors have been highlighted in this

chapter, with completely different dimensions and needs but all requiring the

same technologies in very similar application-environments with very similar

incidences on consumptions. To conclude a brief classification of the

logistics actors is provided, relating each actor with some general features of

interest for an ESCO.

Investment capabilities

Awareness Incidence of crosscutting technologies

Total energy costs

INTERNAL LOGISTICSLEs Medium Medium Medium Medium

SMEs Low Low Medium Medium

OUTSOURCED LOGISTICSRoad carriers (LEs)

Medium High Low High

Road carriers (SEs)

Low High Low High

Expr. Couriers High Medium Low High

Terminal operators

Low Low High Medium-High

Warehouse operators

Low Low High Medium-High

Tab.22-Logistics operators categories.

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The two last categories of operators have been highlighted because they are

the most “national” entities operating in the logistics outsourcing, and the two

categories which could be more likely to interact with an ESCo for the

reasons which were explained before. To give an example, a standard

energy efficiency intervention (like a LED installation) of an ESCo on a small

warehouse operator’s site could be decisive in terms of diminishing its fee

per pallet-place and help it do provide more competitive fees; by, at the

same time, not weighting on its liquidity.

To conclude, the revenues coming from this macro sector for what concerns

EPCs and turnkey contracts (excluding TEE and “other services”

component) revealed to account for 126 billion euros. As a possible future

development (to furtherly analyze the ESCos’ market) it would be very

interesting to understand what part of these revenues comes from internally

managed logistics, what part compete to outsourced logistics and what is

instead the component relative to the points of sales.

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14. CONCLUSIONS AND FUTURE PERSPECTIVES.

This final chapter wants to summarize some relevant factors of the current

state of the energy service companies’ market, omitting the economical and

numerical perspective in favor of a more practical and “real world” oriented

analysis. The first conclusion is that the ESCO market is heterogeneous, the

European certifications and the existence of some actors and associations

like “FIRE” and “Federesco” are making it more coherent; today anyway

there are still a lot of companies working in this market without respecting

the parameters of guarantee and sharing of the energy savings. This is how

FIRE itself expresses about the heterogeneity and lack of standardization of

the market: “This risks to create confusion in the current market and, in the

next future, a possible loss of image, creating a consistent disadvantage for

all the actors operating in the “mechanism”. These impressions have been

confirmed by the interviews carried out in this thesis, in particular an ex-

operator of the sector pointed out the fact that some ESCOs (in particular

the smallest one) offer among their services the contractual form of the

EPCs but in the end they do not practically issue them. This is surely a key-

point: the conformity with the European certifications should be reflected into

the real business, otherwise the certification becomes a sort of “label”, losing

its fundamental function, which is ensuring that the everyday activities of an

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ESCo are going in the same direction of the final goals determined by

European Union itself, together with the single nations. To conclude, the

heterogeneity of the sector is generally an advantage, because energy

efficiency must be offered at every level and at every price to every kind of

company (which have different contractual and financial needs); anyway the

sector must conserve its credibility and its mission, which is not only to

“make the business” but it is to stimulate the “non-existing-demand” too, and

to do to this, it needs particular integrity. A key-point for the demand creation

is the switch from a “provider” perspective to the “customer perspective”, by

interpreting all the non-energy efficiency benefits and the non-energy

efficiency losses. When proposing an intervention to the customer indeed, it

is important to highlight all the possible benefits in the final evaluation and

also to quantify the possible indirect losses so that the customer can be

more comfortable in the perception of the installation. From the literature it is

possible to understand that non-energy efficiency benefits can account from

the 40 to the 120% more compared with the standard returns on the initial

investments. It’s fundamental for the ESCos to adopt this point of view of

“general efficiency” while making energy efficiency in a “lean” optic,

providing better productivity, health and safety parameters, waste and

emissions reductions and so on. For this moment anyway a lot of providers

still have a strictly “provider point of view” and need a changing in the

relationships with the customer.

The other key-issue for the near future in addition to the conformity to

certifications and to the community objectives is the growing attention of the

financial institutes to the energy-efficiency topics, indeed the third parties

financing are going to be easier in near future: all the Italian banks in last

years have developed, or are developing, more and more specific and

dedicated “offices” which are charged of evaluating energy efficiency

projects. By referring again to the FIRE report, there is an important issue

coming from the banks’ feedbacks: a high percentage of financings are

refused by banks, because of the poor contents and the superficiality of the

projects presented by the ESCOs. This is another key-issue, which is

somehow linked to the first point of this chapter: the conformity with

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standards and norms is fundamental because it can help to overcome

liquidity problems and “unlock” more financial capital. From that point of

view, standards and norms should be furtherly developed, in order to get

standardized forms and parameters, that can make it easier for financial

institutes to assess and compare different projects. Regarding the topic of

“superficiality”, there is another fact which should be underlined and this is

the mandatory energy audit which is provided by law from 2015: the majority

of the ESCos release it as it was a mere certification, but it is instead an

opportunity to create awareness and to stimulate demand. These

observations come from the examination of some reports and from the

guidelines which are described by the Italian decree about mandatory

energy audits; the form is not specific enough and is not oriented to effective

future solutions. In the end these audits should be completed by possible

recommendations about practical interventions at different levels,

accompanied by examples of previous installations showing that savings can

be real and payback-times are short, providing the names of suppliers and

giving physical contacts, in particular to Small and Medium Enterprises.

These last points have not been underlined to point out a pessimistic perspective of the market but instead they should be intended as good practices that ESCos must follow to keep the head of a sector which is growing faster and changing over years. There are indeed new incentives which are going to be issued in next months and new technologies which will be soon commercialized, creating new markets in which ESCOs will play a fundamental role. For what concerns the incentives, the eco-bonus should be extended since 2019 and incentives for building restructuring could be coupled with the ones for anti-seismic criteria. Furthermore, the value of the Green Certificates (referred to already-built plants which obtained the permission to receive these certificates some years ago) is going to be lowered almost to the value of the White Certificates (basically pushing the market towards the use of a single type of certificates). The sector of biogas and biomethane is expected to change too, from the regulatory point of view; given the forecasts about the growth of the sector indeed, the regulatory scheme (which provides for the moment the “Certificati di immissione in consumo”) could be furtherly modified. New

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technologies are then going to spread over the market, given the decrease in prices, the growing standardization and the good results obtained in other countries. In order of importance (although with completely different characteristics and level of progress) the infrastructures of the charging-points for e-mobility and of the LNG distributors will be the two biggest short-medium term challenges. If the first topic is anyway well-known and has been “in the spotlight” for some years, the development of the LNG infrastructures is surely less discussed but equally important and ready to be carried out: the European Union wants to build a distributor every 400 kilometers, new liquid-methane vehicles (also for heavy transportation) are now available and in Italy the construction of 20 new distributors is forecasted, so that, these premises given, the attention towards biogas and liquefaction plants is going to grow faster and faster in our country. In the end, new technologies for energy storage, from new generation lithium batteries to graphene and sugar devices, will be another huge market which is going to develop more and more during the next years, in particular for what concerns e-mobility and electric-transportation. For all these reasons the structure and the capability of interventions of the ESCO will be required to adapt to these new challenges (in particular as for the world of transportation in which the ESCO are not moving big businesses at the moment). Another key-role will be played (for what concerns the approach to new businesses and the technologies) by collaborations with the specialized companies of the specific sectors, a good example for this issue is the “internet-of-things” market. As it was revealed by the CESEF (Centro studi per l’ efficienza energetica) indeed, the potential market for our country in this sector is enormous and has not been exploited by regulators, ESCOs and a big portion of the Italian companies which could get big advantages by the use of these technologies: “The IoT can better the performances of the traditional technologies: it is estimated that the installation of a “smart” management-tool for operations in an industrial plant, could lead to energy savings for 30-40%”. Furthermore the CESED underlined the barriers to the diffusions of the IoT, declaring that the demand has to be stimulated and that the role of the regulators and the utilities is fundamental: these factors are absolutely positive for the intervention in the market by the ESCOs, both from the point of view of

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the stimulation of the demand and from the point of view of being the “mean of application” of new regulations and incentives. Again ESCOs are a good environment where competences of IoT specialized actors, energy efficiency goals and regulations can get in touch for better integrations and application on the final market (which is forecasted to account for 25 milliard euros in 2025, at European level).These aforementioned trends are very big and general market forces which will represent new fields and challenges for the ESCOs, because they get away from the traditional “design-install-manage” way to operate, which is basically focused on the traditional plant, by pushing the ESCO towards a multidisciplinary and more dynamic environment. There are some news anyway, also for the traditional way to operate of the ESCOs, which are represented by the diffusion of new technologies in the field of the “classical” installations: the natural lighting through “solar-tubes” is starting to spread over Europe and the use of new efficient electric domestic-heating devices (typical of Scandinavian countries) is becoming familiar in Italy too. The new solar-tubes can bring in the inside environments almost 95% of the sun-light and can be integrated with sensor and LEDs to keep a constant level of lighting; actually, they seem to have the possibilities to play an important role in the retailers and shops markets. As a latest conclusion, it is important to point-out some of the more recent FIRE’s declarations about the short term: as regards the sectorial subdivision, the Energy Services Companies are going to get stronger on the Tertiary sector and on Public Administrations, while an increase in the core-interventions is forecasted for large companies. From a very general point of view instead, the market seems to be in a sort of stall condition, beneficing of the consolidated technologies and, at the same time, suffering from the uncertainties linked with the new developing markets and with the new forms of incentives. There is a unique fact which is a sort of evidence, and it is that the global energy efficiency market is growing and evolving fast. The directions are maybe not clear at all, and ESCos will need to be dynamic in order to chose the right ones (being as effective as they can compared with EU directives), but the energy revolution has not come yet, and Energy

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Service Companies are the only certified entities which can operatively speed it up in the “everyday-business”.

15. BIBLIOGRAPHY

http://www.assoesco.org/

http://www.federesco.org/it/

http://www.enea.it/it

http://italy.epcplus.org/spin-partnership-tra-pmi/

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15. BIBLIOGRAPHY

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