dSmSpotlight

The Newsletter of the International Energy Agency Demand-Side Management Programme March 2012

PARTICIPATING COUNTRIES Austria Belgium Canada Finland France India Italy South Korea Netherlands Norway Spain Sweden Switzerland United Kingdom United States SPONSORS RAP

RAP

Note From the ChairmaN

Where do We Go From Here?

Do we know what we have to do to reduce energy use in a really drastic way? Frankly, the answer is yes. Thats why its so disappointing when we dont get there as fast as we need to and when politicians give up on the topic all together. There are many reasons, but one of the more pressing reasons is that we dont get the technology and efficiency improving strategies across to the end-user. Well, those of us working in the field wont go down without a fight. Having said that, we have to realise that everybody develops blind spots in their work. The IEA Demand Side Management Programme has been in existence for about two decades and has produced an impressive amount of work. But time moves on and so every five years the members of the DSM Programme take a step back to recognize what has been accomplished over the past five years and a look forward to what needs to be accomplished over the next five years. Now this will be done in the usual thorough manner. The IEA DSM Executive Committee members will consult their governments, friends and allies to come with directions of where to head and what work should be undertaken. The result another challenging five year programme. During this process, it is necessary to look for all the input we can find. For instance, are there readers of this newsletter and
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Regulatory Assistance Project Joins IEA dSm Programme

In August 2011, the Regulatory Assistance Project officially joined the DSM Programme as a Sponsor. RAP, as it is more familiarly known, has been working with the Programme since April 2009, when it was invited to attend an Executive Committee meeting in Vienna. Thus began what we hope will be a continuing, productive collaboration. RAPs participation is led by Richard Cowart, Programme Director for RAP-Europe, and Rick Weston, RAPs Programme Director for China, who both agree Were honored and happy to be part of the Programme, and love learning from and with the Members and Operating Agents. RAP is a global, non-profit team of experts focused on the long-term economic and environmental sustainability of the power and natural gas sectors. Most of RAPs work is providing technical and policy assistance directly to policymakers and regulators, and as a grant-funded organization is often able to deliver that assistance at little or no cost. All of RAPs Principals and Senior Associates are former regulators or government officials, with expertise in regulatory and market policies that promote economic efficiency, environmental protection, system reliability, and consumer welfare. They are assisted by a team of internationally-recognized power system and DSM experts, including some, like David Crossley and Eoin Lees, who are well-known
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RAP

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Chairman from page 1

to the DSM Programme. RAP has worked extensively in the US since 1992 and in China since 1999. It began work in the European Union in 2009, and opened offices in Brussels the next year.It has just added an office in Berlin, and is currently establishing a programme in India. After getting its feet wet in Vienna, RAP jumped headfirst into the Programmes work by joining DSM Task XXII, Energy Efficiency Portfolio Standards, to provide in-kind research and analysis. The Task will survey a cross-section of jurisdictions that impose energy efficiency obligations on energy companies and summarize best practices in this field. The report will be completed this spring and presented during the ExCo meeting in Trondheim in April. The subject matter is particularly timely, as the European Union is advancing legislation for an Energy Supplier Obligation, and a number of countries, including Australia, Poland and China, have recently adopted or are considering adoption of such obligations. Beyond direct DSM policies such as supplier obligations, RAP has produced numerous research reports and has delivered analysis and policy assistance on a host of related issues across the power and gas sectors. RAPs extensive library of reports and training materials covers such topics as grid expansion and renewables integration, power market reform, tariff structures and rate design, regulatory procedures, carbon cap-andtrade and emissions reduction strategies, and policies to get the most out of smart grids. (All of these materials are available online for free at www.raponline.org).

participants in our social networks that have ideas that are fresh and new? Are there methods that could help us speed up processes were working on? Is there work that is hidden by our blind spots? I would like to challenge all our readers and followers to look at our material on the website www.ieadsm.org and in the 2011 Annual Report under Latest Reports and tell us what to add to our work. So please add to your To Do list for this week, go to: Facebook group IEA-DSM LinkedIn group IEADSM Demand Side Management Technologies and Programmes www.ieadsm.org And then drop a line to Anne Bengtson, Executive Secretary, anne.bengtson@telia.com.
Rob Kool

Were honored and happy to be part of the Programme, and love learning from and with the Members and Operating Agents.
RICHARD COWART, DIRECTOR EUROPEAN PROgRAMMES

RAP brings to the partnership with the IEA DSM Programme a worldwide network of expertise in energy efficiency and power sector regulation and increased access to policymakers in non-member countries, such as China. Meanwhile, the DSM Programme offers RAP and its partners its own treasury of know-how and lessons learned, culled from the research and experience of many years. Participation in the IDSM Programme is a valuable opportunity and natural link for RAPs growing international practice. This article was contributed by Richard Cowart rcowart@raponline.org and Rick Weston rweston@raponline.org.

Chair, IEA DSM Programme

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DSM Spotlight March 2012

XXI

Energy Savings Calculation: IEA dSm Programm & International Standards

The work within DSM Task XXI, Standardization of Energy Savings Calculations, dealing with the harmonization of energy savings calculations will culminate with several reports posted on the IEA DSM website and results being used by the International Standardisation Organisation (ISO) in recently start work on this topic. Over the past three years, Task participants conducted work on the following key elements in energy savings calculations: 1) the formula(s) used to calculate the annual energy savings, 2) specification of the parameters, 3) baseline, 4) normalisation, 5) energy savings corrections, and 6) lifetime savings. The report, Harmonised Energy Savings, presents these elements from the perspective of an evaluator Am I getting information on energy savings calculations that helps me understand the differences in energy savings? The European Committee for Standardisation (CEN) used this work for the CEN standard prEN16212 (now in the formal approval phase) and uses these key elements too, while giving them more precise definitions and terms. The information collected on case applications and presented in the Tasks country reports, not only makes the key elements more understandable, but also illustrates the impact of different choices on the same type of case application in energy savings programmes. Additionally, the information in the country reports provides a basis for future examples

of bottom-up energy savings calculations in the CEN standard. They also will help the experts involved in the ISO energy savings calculation work ISO/TC 257 to understand the application potentials of such a standard for comparable energy savings from projects and programmes. While the work on key elements and case applications fits well in the work of standardization organizations, a discussion has started on what tools could help to stimulate the use of harmonized energy savings. Is there a need for demonstrating the impact of choices in the key elements by comparing energy savings with a standardized one? Would it be helpful to have a calculation tool with the formulas and parameters? Should the next step be to develop a range of default values to make energy savings more cost-efficient? Discussion on these topics may result in new work within DSM Task XXI. The results of this Task work will be presented in June 2012 by the Task Operating Agent, Harry Vreuls, at the European International Energy Programs Evaluation Conference (IEPEC) in Rome. The results also will be posted on the DSM Task XXI webpage. This article was contributed by Harry Vreuls, Task XXI Operating Agent, harry.vreuls@agentschapnl.nl.

Reasons to evaluate energy efficiency programmes

Ex-ante analysis of energy efficiency policy options can help to ensure that the most appropriate policies are selected. Evaluation during policy implementation allows policy makers to address policy design problems along the way and for updates to the policy measure to be made as necessary. Ex-post analysis of energy efficiency policies allows for an assessment of whether a measure has achieved its intended objectives or not, how and why, and thus can enhance learning from the effectiveness or otherwise of past measures. Evaluation is essential for verifying tradable units of energy conservation, such as in White Certificate Trading programmes and government commitments to reduce greenhouse gas emissions.

DSM Spotlight March 2012

norway
Smart Grids The Norwegian Way
The power grid in Norway needs upgrading. It was designed to transfer electricity from large power stations to the customer, but new ways of generating and utilizing electric power is creating a need to upgrade the power grid and introduce new technology. The Norwegian Smartgrid Centre is leading the way. Across most of Europe considerable sums have been invested in smart grids over the last decade. And in Norway, the transmission net is smart, but the distribution net needs considerable investment starting with the installation of smart meters and control systems, abbreviated AMS, in all homes. This should be finished by the end of 2016. The founding, in 2010, of the Norwegian Smartgrid Centre (www.smartgrids.no) is meant to accelerate the introduction of smart grid in Norway. In Norway, there is a large production of renewable energy through hydropower, and during the growth of the power sector a strong supply side focus developed. This makes it challenging for both end users and politicians to realize that we must also invest in smart energy systems to take advantage of wind and smallscale power plants, and implement more efficient use of energy resources. The Norwegian Smartgrid Centre works on a broad front to ensure that society has access to the required expertise in the establishment of, and adaption to, a new and improved energy system. Our power grid was developed between 80-120 years ago, and is now outdated. The cost of this essential upgrade is estimated at between 10 and 20 billion NOK. The goal of the NSC is a safe and environmentally friendly system that utilizes the power grid more efficiently and an increase in the use of renewable energy sources. The Norwegian Smartgrid Centre is a collaboration between academia and industry and unites research and business. The research and development partners in NSC are: Norwegian University of Science and Technology (NTNU), SINTEF (the largest independent research organisation in Scandinavia), Narvik University College, NCE Halden, Norwegian University of Life Sciences and Trndelag R&D Institute. Major companies like Telenor, Statnett, Statkraft, IBM, Simens, Hydro, Powel, ABB, Hafslund, NTE, Istad, Lyse, and others are industry partners in the Centre.

A "National Team"
The goal of the Norwegian Smartgrid Centre is to act as a "national team" in the area of smart grids, and thus position Norwegian research groups in relation to the authorities as well as international activities through cooperation and joint projects. Since its founding, the Centre has succeeded in creating an arena for different industries, companies and technologies that would otherwise not have been able to benefit from each other. Activities include research, teaching, testing and demonstration projects, business development and commercialization. The Centre provides important expertise to energy

Nord Pool

Solceller
Havmlleparker Styresystem for elforbruk Kjl frys Varmepumpe

Husstandsmlle

Internett Kabelskap Kraftverk 0,4kV Toveis timeavlest elmler

132-150kV 60kV
ILLUSTRASJON: TEKNISK UKEBLAD

10kV

Nettstasjon Ladepunkt Elbil

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Norway

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suppliers and other operators, and in the long term, it hopefully will contribute to an increased international competitiveness of the Norwegian industry. To initiate and coordinate research in smart grid technology is one of the most important areas of activity. To achieve this the Centre is focusing on establishing laboratories and full-scale pilot projects. Facilities of this type are important and will contribute significantly to both research and teaching. It will also provide opportunities for the industry and suppliers to test their products in realistic situations.

Consumer Flexibility
The power grid in Norway is facing extensive modernisation, with the countrys 2.5 million electricity meters being replaced by smart meters. The authorities have required that 80% of households have AMS meters installed by January 2016. And by January 2017 every household in Norway should have a smart meter. The industry itself must clarify and resolve important issues concerning standards, technology and marketing solutions. This clarification is critical to get done in time so that it can be implemented in each AMS project. The pilot project Smart Energy Hvaler addresses this specific challenge, and AMS technology was introduced for the first time. The project focuses on consumer flexibility both in research and development activities. By the end of 2011, the project had fitted 6800 homes, holiday cottages and small commercial properties with AMS meters. The established AMS infrastructure and the collected empirical data form the basis for the programme's project areas. While the principal focus of the pilot project in Hvaler is on AMS meters, the purpose of the

Steinkjer Demo is to implement a wide range of smart grid initiatives. The Norwegian Smartgrid Centre and the regional power company Nord-Trndelag Elektrisitetsverk AS (NTE) are collaborating in this pilot project, which will act as a test arena for a variety of technologies. How to optimize efficiency of the power grid is one of the key issues being addressed. The project includes controlling pumps in the city of Steinkjers water supply system, coordinating various heating systems in schools, and remote controlling street lighting. In addition, 4500 AMS meters will be installed in homes and businesses. The project aims to reduce power peaks by altering the consumption pattern.

The Centre provides important expertise to energy suppliers and other operators, and in the long term, it hopefully will contribute to an increased international competitiveness of the Norwegian industry.

Planning a Research Centre

The Research Council of Norway has opened the way for establishing a research centre linked to smart grid technology. The Norwegian Smartgrid Centre, NTNU and SINTEF are working together to establish such a centre for environmentally friendly energy research, focusing on smart grid technology. There is no doubt that smart grids can be an important tool in the transition to more sustainable energy systems. The challenge is to get consumers and politicians to understand the importance of this. As the head of the Norwegian Smartgrid Centre, Jan Onarheim, puts it "We cannot revolutionize energy consumption alone, political will is essential." And, Norways collaboration in the IEA DSM Programmes new work on the role of demand side in delivering effective smart grids will support these national activities. This article was contributed by Even Bjrnstad, the Norwegian DSM Executive Committee member. To support Norways work,

DSM Spotlight March 2012

As promised in the December 2011 issue, another financing option from the IEA DSM Task XVI manual, Financing Options for Energy Contracting Projects Comparison and Evaluation, will be discussed. This issue focuses on credit financing while the December issue looked at leasing financing. Credit (or loan) financing means that a lender (FI) provides a borrower (customer) with capital for a defined purpose over a fixed period of time. Borrowers in our case can be real estate owners, enterprises or ESCOs and the credit is settled over a fixed period of time, with a number of fixed instalments (debt service). These instalments must cover the amount borrowed, plus interest rates, as well as other transaction costs such as administrative fees. Loans are disbursed against a proof of purchase in order to secure the earmarked use of the funds. A credit serves as an extension of the total amount of capital that an enterprise can use to do its business (i.e., deliver services or produce goods). Credits also are referred to as committed assets or loan capital. To obtain a credit a creditworthy borrower is needed. In other words, the borrower must be able to perform the debt service. It is assumed that this ability is linked to a certain level of equity capital, typically 20-30% of the loan. The creditworthiness of the borrower (together with the project chances and risks) will be reflected in the amount of securities needed to cover the lender's risks associated with handing out the credit. Where public entities are debtors or in cases where credits are backed by public entities, credit ratings are generally high. The following graphs illustrate the basic cash flow relationships for a typical credit financing. The cash flows depend on whether the ESCO (energy service company)

XVI

Credit Financing for Energy Contracting Projects

Credit line

or the building owner is the lender for the credit.

FIN

CusTOMeR

Some points to note in the ESCO financing model are: Investments The ESCO is responsible for the energy efficiency Securities measures and refinances the investments from a credit Asset line. The customer pays a contracting rate, which includes a Figure 1. A general scheme of finance share to the ESCO (subject to the performance credit financing. of the ESCOs savings guarantee). The ESCO uses the financing part of the contracting rate to perform the debt service. The ESCO can cede (the finance share of) the contracting rate to the FI, so the Credit line for Investment customer directly repays the ESCOs FIN esCo CusTOMeR debt. Contracting
Debt service

Debt service + Securities

Some points to note in the customer financing model are: The ESCO is responsible for the implementation of the energy efficiency measures and receives financing from the customer. The EE investment is paid out of the customers credit line and respectively (in part) from subsidies or from maintenance reserve funds. The customer payments for the investment can be either a building cost subsidy or the remuneration of an equipment supply contract (in the esCo latter case, VAT is due on the complete investment at once). This model can also be interpreted as an operation-management-EPC. The customer finance model is advisable, if the customer has better finance conditions than the ESCO.
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rate

Figure 2. Credit financing: Cash flow in EC projects with ESCO financing. This is the traditional ESCO-ThirdParty-Financing model, which is not always the optimal financing solution.

Contracting rate excl. finance Credit line

FIN CusTOMeR

Debt service Building cost subsidy or investment Figure 3. Credit financing: Cash flow in EC project with customer financing.

DSM Spotlight March 2012

Task XVI

from page 6

Case study esCO Credit Financing Water Supply and Lighting Efficiency with EPC Shared Saving with Municipal Corporation, India
In India, municipalities and water utilities are constantly challenged by escalating population growth, power shortages, rising energy costs, water scarcity and outdated infrastructure. On top of that, the inefficiencies in lighting and water supply systems incur huge losses for the municipal government. By implementing energy efficient measures in water systems alone, a municipality can achieve at a minimum 25% energy savings. Unfortunately, many municipalities lack the funds, technical capacity, and expertise to carry out such projects. And, ESCOs are often not familiar with how to adapt their work in industry to the municipal sector and financial institutions view projects that are not part of their usual portfolio as high risks. designed to: Adopt a Trust & Retention Account (TRA) with the electricity bill payment escrowed. Use International Performance Measurement and Verification Protocol (IPMVP). Provide project oversight and technical support to develop local capacity.

Case study esCO Credit Financing Biomass Energy Supply Contracting with InterestSubsidized Credit through ESCO, Spain
In an effort to generate green and efficient energy using biomass, Spains KaWarna, an Energy Service Company (ESCO) undertook a biomass project. The goals of this project were to reduce energy costs by changing the energy sources, reduce energy consumption by using more efficient equipment, control and minimize greenhouse gas emissions, and replace equipment at zero cost to the final client. management, storage, measurement, and invoicing.

The Business Model

The ESCO, KaWarna, audited the initial situation, designed and implemented the engineering project and subcontracted local implementation companies. KaWarna is also responsible for managing the operation and maintenance over a 10-year contract

The Business Model

To ensure the success of this project, the ESCO and the lenders to the ESCO jointly appointed a mutually acceptable Indian bank to act as the trustee and paying agent on behalf of the Lenders (The Trustee Bank). In turn, The Trustee Bank established a Trust and Retention Account (TRA) into which the Municipal Corporation will pay the energy saving To tackle these obstacles, the Alliance payments as required under the Energy to Save Energy assisted the Tamil Nadu Services Contract after the energy Urban Infrastructure Financial Services savings are verified as per the agreed Limited (TNUIFSL) to structure a project upon monitoring and verification protocol. As a result, the execution of this Loan EPC contract esCO agreement is between TNuIFsL Municipality the four key players the Trustee, the ESCO, EPC Contract the lenders, and the Financing Design TRA Municipal Corporation Constructing Operation Maintenance (see Figure 4). Electricity bill to Saving guarantee
Utility Statutory dues Debt services Excess flows to ESCO Operating expenses

To reach these goals for this turnkey continued on page 8 operation, the first step was a comprehensive energy audit followed by Public entity Financing IDAe several measures: Creation of an energy Information Spronsor management and Overall project 1. Audit initial situation information 2. Design of measures control system; 3. Project coordination 4. Coordination of ESC Contract subcontractors Generation of efficient Client kaWarna EPC Contract 5. Operation and maintemnance and thermal energy of monitoring 6. Savings guarantee and biomass; shared with clients Subcontractors: Implementation and maintenance by Establishment of installation firms Technical risks of good function new logistics and procurement activities; Figure 5. Illustration of the and contractual relationships used in the Implemenation of a turnkey Spanish case study. operation design, asset
IDAe
100% Amoritization Interest Eurber +1%

kaWarna
Implementation costs Subcontracting

Client
Client pays energy invoice always with a reduction of 10% compared with the initial situation

Figure 4. Illustration of the contractual relationships and cash flows for the Indian case study.

Figure 6. Illustration of the cash flows used in the Spanish case study.

DSM Spotlight March 2012

Task XVI

from page 7

period (with a 25-year life expectancy) after which the property rights of the installation go to the client. During this 10-year period, the client makes no investments and is guaranteed savings of at least a 10% reduction indexed to the initial energy source. This requirement is mandatory to access the finance. Figures 5 and 6 illustrate this business model.

best financing option cannot be determined by a simple look at the lowest interest rate or annuities offered, but also depends on the borrowers background and the specific project. This requires the integration of bookkeeping and tax consultancy into the financing decision. The customer demand profile introduced in the manual can be used as a checklist to make sure that all the important implications of the project financing are considered. For large projects, a comparison of the broad range of implications from all five categories could be accomplished using cost-benefit analyses and integrating monetary and other criteria into one evaluation system. This article was contributed by Jan W. Bleyl-Androschin, DSM Task XVI Operating Agent, Bleyl@grazer-ea.at and Daniel Schinnerl, DSM Task XVI expert, Schinnerl@grazer-ea.at, both from Graz Energy Agency, Austria. To download the manual, Financing Options for Energy Contracting Projects Comparison and Evaluation or to learn more visit the Task webpage.

Conclusions
In general, all financing options, such as operate and finance leasing, credit and forfeiting financing (means ESCO sells the future contracting rates to a financing institution), are suitable for financing energy supply and conservation investments. Therefore, it is not possible to recommend any particular financing option or product that is best suited for energy service financing as each option has its advantages and disadvantages. Finding the best available financing requires a comprehensive look at all implications of any financing option, including securities required, transaction cost, taxation and balance sheet effects. The

Visit the DSM Programme's website for easy access to reports, news and contact information.

www.ieadsm.org

No. 44, March 2012 Editor: Pamela Murphy KMgroup, USA

The DSM Spotlight is published several times a year to keep readers abreast of recent results of the IEA Demand-Side Management Programme and of related DSM issues. IEA DSM, also known as the IEA Implementing Agreement on Demand Side Management, functions within a framework created by the International Energy Agency (IEA). Views, findings and publications produced by IEA DSM do not necessarily represent the views or policies of the IEA Secretariat or of the IEA's individual member countries. For information on the Programme, its work and contact addresses, visit our website at www.ieadsm.org

DSM Spotlight March 2012