OCTOBER 2016: In the lead up to her presentation on “Scaling Demand Response Through Interoperability” at European Utility Week 2016 November 16th, Jessica Stromback, Founder and Chairman of the Smart Energy Demand Coalition and Chairman of Joule Assets Europe, sat down with the editors at Engerati to discuss Energy Management and finance in Europe today.
Today the definition of energy efficient buildings is limited to the narrow boundaries of the building itself – unconnected to the ‘world around it’ and divorced from the energy sources feeding it. Energy Management of Intelligent Buildings enables building to connect and consume in a flexible, as well as efficient, manner – allowing them to be both efficient and also act as the key corner stone in a carbon neutral future. Through energy management, buildings become cooperative units within the wider energy context to create a functioning consumer centric energy eco-system.
Energy Management for Intelligent Buildings is important as it enables the seamless integration of demand response and energy efficiency measures allowing the consumer to capture the benefit and earnings from both. For example already in France today an 11% energy efficiency investment in a commercial building can increase to 17%, if the building management systems are also used for flexibility within a Demand Response program. Active energy efficiency, can be a significant source of savings, improving the comfort and consumption of buildings with low upfront investment and pay back times of only 2 to 5 years. From 20% to 50% energy savings have been achieved by implementing active energy efficiency solutions in existing buildings such as schools, hotels, office buildings, and residence (even on existing passive houses) according to the ‘Homes project’.
Buildings are also a key tool to balance renewable energy, through demand response, consumers have the capacity to consume more when the energy is plentiful and less when the renewable resources are not available. At the same time –exposure to intraday pricing, consumers can access low cost hours when renewables are plentiful and prices on the wholesale market are low. Therefore active efficiency creates a positive cycle of investment leading to lower carbon output, improved uptake of renewables, better comfort, better investment returns all spurring further investment.
What are the main requirements and/or challenges?
The technology and business model itself are now mature. However the sector suffers from the issue of split insentives between building owners and tenants and also from the fact that current legislation is far behind the sector’s technological capabilities. The European Commission intents to integrate the capabilities of Smart Buildings into important legislative packages, such as the European Performance and Buildings Directive (EPBD). Today regulation is ineffective and/or ignores Smart Buildings all-together. This has a measurable impact on growth.
For example, today the definition of energy efficient buildings is limited to the narrow boundaries of the building itself – unconnected to the ‘world around it’ and divorced from the energy sources feeding it – ignoring the capabilities of smart buildings. Some other areas which require review are:
Building automation systems and controls are not part of renovation requirements for fully energy efficient buildings –despite their important impact on efficiency and carbon reduction: Including these controls within requirement definitions would provide an important step forward for the industry and spur investment.
Smart building labels do not as yet include the critical grid interface – or reward the capability to interact with the local energy eco-system: The interface connects the building to the surrounding energy eco-system allowing it to react to dynamic prices, grid constraints, the availability of renewable energy etc. Including connectivity in a smart building label would allow the offering to be standardized and easily recognized by key players, such as construction firms and financial funds, again spurring investment.
Non-residential building retrofits should be incentivized with mandatory efficiency targets: As in the UK, mandatory audits and minimum energy efficiency standards for resale or rental strongly incentivize building owners to upgrade the quality of their properties. The mandatory requirements also overcome the issue of split incentives (where the owner must pay for the improvements while the occupier pays the energy bill and accrues the savings). If the building owner is required to audit his property and meet certain efficiency standards in order to continue renting this property – both the owner and the renter benefit strongly from improving the efficiency of the sites.
[custom_blockquote style=”eg. green, yellow, purple, blue, red, black, grey”]There are highly damaging, anti-efficiency accounting rules in place in Europe which should urgently be changed – particularly for municipalities. In Europe the municipality must take 100% of all debt onto their own books. As their legal limit for debt is 3% of their budget this makes energy efficiency investment literally illegal. This is deeply contradictory legislation and should be changed.[/custom_blockquote]
There are highly damaging, anti-efficiency accounting rules in place in Europe which should urgently be changed – particularly for municipalities: For example, today in the USA municipalities invest approximately €6 billion annually in energy efficiency upgrades for their cities and building stock. In Europe this number is only €150 million (and European cities are far older). The single most important reason for this vast discrepancy is that a US municipality does not have to take 100% of all risk or acquire massing debt on their own balance sheet – they can farm it out to others. In Europe the municipality must take 100% of all debt onto their own books. As their legal limit for debt is 3% of their budget this makes energy efficiency investment literally illegal. This is deeply contradictory legislation and should be changed.
Therefore, as we can see – the sector suffers from a lack of standardization, labeling, and targets. Other than the damaging accounting rules, which are errors on the Euro Stat who oversees them, the current problems are typical of a young sector and the situation should improve significantly as legislation catches up with technological developments.
When/how do you think the market will take better shape?
The European Commission has drafted new legislation within the EPBD and the Energy Efficiency Directive which addresses several of the issues raised above (other than accounting). These should come into effect as 2018, assuming all goes according to schedule.
Meanwhile, financial funds and banks continue to work to understand the industry better and provide capital. This too is making significant progress with over 1.5 billion Euros available for project investment.
Within Joule we are looking to support ESCOs, technology providers and building owners through the development of the Sustainable Energy Asset Framework – SEAF. SEAF is a platform dedicated to unlocking finance for smaller projects through providing support with customer acquisition, investment matchmaking and management, and due diligence, enabling a contractor to maximize the value of his project and access finance. Another key component includes investor matchmaking, and beyond that, support with investor management throughout the financing process. In such a way, SEAF offers a direct, A-Z response to this barrier to EE finance, and we are confident that it will play a major role in creating more deal flow in EE projects across Europe, enabling SMEs to solidify their role as major players in the energy sector.
Finally, off balance regulation in the EU must change where Energy Efficiency is concerned. Within Joule we are building a network dedicated to encouraging the European Commission to make required changes. We believe ESCOs deserve a regulatory environment which is at least as developed as they are.
 For a full definition of active energy efficiency: http://www.schneider-electric.si/documents/support/white-papers/998-2834_EE_WP.pdf