CombinES: Maximising public finance impact in energy efficiency projects

The challenge:

The Energy Efficiency Directive (2012/27/EU) requires that the implementation of energy efficiency measures in buildings should be as comprehensive as possible. This should include measures to improve both the thermal envelope (insulation, doors and windows) and the technological equipment (ventilation, heating and cooling) of the building.

However, these two types of measure were found to have different financing mechanisms, meaning that they were often implemented separately, or in isolation. Therefore in order to stimulate more comprehensive renovations, co-ordinating the implementation of both thermal envelope and technology measures, a new, integrated financing mechanism was needed.

The measure:

The CombinES project - Combining energy services with subsidy schemes to finance energy efficiency in Central Europe - brought together partners from seven Central European countries (Italy, Czech Republic, Slovenia, Slovakia, Poland and Germany), who together devised a new financing mechanism for comprehensive energy efficiency initiatives. The project was implemented through the INTERREG IVB Central Europe Programme and co-financed by the European Regional Development Fund.

The project first evaluated the prevailing conditions in each country, identifying that providing investment subsidies and energy performance contracting (EPC) are the most common financing mechanisms.

In EPC the energy service company (ESCO) pays the upfront cost of energy efficiency measures, while also guaranteeing the future energy savings. This represents a risk-free loan for the consumer, who is able to repay the ESCO through the annual cost savings. However, CombinES found that EPCs generally only finance technology measures and not thermal envelope renovation. Thermal envelope measures, which tend to require larger investment and have a longer pay-back time, were more often financed by public subsidies, usually through grant funding, that contribute between 15%-100% of the total cost.

The project devised the ‘CombinES Comprehensive Renovation’ model, utilising both the private funding from an EPC and the public subsidies available for thermal envelope measures. By merging the thermal envelope and technology parts, this comprehensive model creates the possibility to inter-optimise the choice and timing of the two measures within one renovation work. As well as maximising energy savings, this coordinated planning can reduce the disruption felt by building users.

The integrated strategy was trialled on a number of public buildings in the seven participating countries with positive outcomes.

As the uptake of the model is heavily dependent on a supportive legal framework, a further key aspect of the project was the production of policy recommendations for regulation and standards. This provided guidance to Member States on how two EU Directives on public procurement ought to be transposed, in order to encourage use of the model.

Lessons learnt: 

By harnessing both public subsidies and private financing, as well as increasing the impact of building renovations, the CombinES model is a good example of how to maximise the utility of public funds. The EPC model represents a safe bet for public bodies, with the performance based-specifications guaranteeing energy savings and reducing risk.

However, the model faces some practical challenges. Ideally the comprehensive renovation would be implemented via a single procurement, i.e. one service provider, who can oversee both types of measure, and have responsibility for overall energy savings. However, it is unclear to what extent ESCOs have the capacity, or will, to engage in such large projects. If not, two different suppliers and processes are required, making coordination and monitoring more difficult, as well as increasing the administrative costs for the client.

Specific policy conditions and support programmes are required to encourage the comprehensive renovation model. By developing policy recommendations during the project, the CombinES partners have increased the chance of long-term uptake.

Further deployment: 

Though the model faces some practical and political hurdles, its implementation in the Czech Republic demonstrates the potential for transfer. Here many of the policy recommendations have been implemented, and as a result the model has been more widely invoked, with promising results. The policy is an estimated 8 on the GML scale.