Energy service contracting
GETEC heat & power AG is a secure and cost-efficient supplier of heating, cooling, steam and power for its clients. Our services related to your energy supply range from the planning to the construction and financing of the energy production system to its operation, maintenance and repair and are available as a complete package or in modular form, depending on your needs.
GETEC energy service contracting noticeably reduces the energy costs with innovative, cutting edge technology and optimised utilisation of energy sources.
Thinking beyond energy.
Energy supply contracting
Energy savings performance contracting
Operational management contracting
Energy service contracting – remodelling of energy systems
Energy supply contracting is a form of cooperation on a contractual basis. Various energy service contracting models exist, which differ mainly with regard to the focus and the scope of the offered performances. In so doing, the contractee assigns select tasks related to the energy management of its objects to the contractor. The purpose of this cooperation is the long-term improvement of the efficiency and the optimal integration of peripheral systems for the supply of compressed air, lighting or industrial gas, where applicable.
The optimisation of the energy supply at the contractee’s company helps to uncover energy savings potentials and achieve an efficient cost reduction. The energy service contracting form of cooperation has already established strong roots on the German energy market in recent years.
- Energy service contracting as a tool for boosting energy efficiency
- Positive economic consequences of energy service contracting
- Energy service contracting – growth market with a future
- James Watt and the steam turbine
- Financing & establishment of energy conversion systems
- Contractor & Contractee
- Decreasing costs & rising profitability
- Positive effects on economic key figures
- Outsourcing of economic risks
- Reduction of CO2 emissions
- System-related contracting
- Energy supply contracting
- Financial contracting
- Technical system management
- Energy savings performance contracting
The significance of the term Energy Contracting continues to rise. This is due to both environment-related as well as economic aspects.
Energy service contracting as a tool for boosting energy efficiency
From an environmental point of view, energy contracting can be deemed a vital tool for improving energy efficiency and hence for achieving the so-called "20-20-20 targets" set by the EU leaders. The energy demand continues to rise, while the supply of natural resources, such as fossil fuels, continues to dwindle.
These circumstances as well as the effects of climate change are posing major challenges to the energy policy. To address these requirements, the European Union adopted the so-called "20-20-20 targets" in 2008. Thus, the primary energy consumption is set to be reduced by 20% by 2020. This is to be achieved with a 20% share of renewable energy in the total energy consumption and an increase in energy efficiency of 20%. The goal is to reduce the greenhouse gas emissions by 20% based on the 1990 levels.
Measures to boost energy efficiency and hence reduce CO2 emissions are also stipulated in Art. 6, section 3 of the Energy End-use Efficiency and Energy Service Directive of the European Union, which was incorporated into the laws of Germany in 2010 by way of the Act on Energy Services.
Positive economic consequences of energy service contracting
The implications of the legal framework conditions include for example rising energy prices, higher user fees for power supply networks as well as rising contributions for the purchase of electricity (e.g. CHP levy, EEG levy / Renewable Energy Sources Act levy). For many companies, these factors represent a significant cost driver.
Energy service contracting helps identify and realise substantial savings potentials. The contractor will assess both the contractee's energy flux as well as the energy management-related situation and provide assistance to optimise them. As a result, efficiency measures can be realised as well as cost optimisations implemented, such as e.g. the load management, i.e., the targeted shift and prevention of load peaks. In particular, the energy-intensive industry can thus realise competitive advantages in the constantly advancing process of globalisation.
Energy service contracting – growth market with a future
Based on the explained aspects, the thesis can be established that energy service contracting represents an untapped growth market. For over twenty years, the European Commission has considered the use of energy service contracting as likely being the most promising method for activating energy efficiency investments. It has been encouraging member states for some time, to accelerate all energy service contracting activities and to remove any obstacles that interfere with the use of this tool. The implementation of this EU stipulation is reflected in the NAPE (National Energy Efficiency Action Plan) of the Federal Government and thus initiates other growth impulses.
2. Definition of terms
Information about the origin of the method, the meaning of the term "Energy service contracting" and about the parties involved is provided below.
James Watt and the steam turbine
The basic idea of energy service contracting can be attributed to James Watt, inventor and mechanical engineer (born on 19/01/1736, deceased on 25/08/1819). To market his steam engine, his strategy was not to sell it, but to make it available exclusively for use. In return, he only received one third of savings generated by the use of the steam turbine. This basic idea is the principle of so-called energy savings performance contracting.
Financing & establishment of energy conversion systems
Possible responsibilities assigned from the contractee to the contractor within the scope of energy service contracting today include among other things:
of energy conversion systems or individual components as well as their:
Both individual tasks as well as the entire range of tasks can be assigned.
The objects whose energy management is assigned can include for example industrial systems, complex properties or individual buildings as well as individual systems or entire industrial parks.
Contractor & Contractee
Energy supply companies or specialised service providers regularly act as contractors. Typical contractees include companies from different industrial sectors, but also municipal facilities and real estate management institutions.
The contractor’s financial compensation is determined by the selected energy service contracting model. In addition to traditional supply contracting, the compensation can also depend completely or partly on the achieved cost savings, also known as energy savings performance contracting.
3. Goals or advantages of energy service contracting
From the point of view of the parties involved, energy service contracting has various advantages for both the user, i.e. the contractee, as well as the contractor. The primary advantage of energy service contracting relates to the outsourcing of questions in relation to energy services to the contractor, who possesses extensive expertise on how to boost the energy efficiency and thus achieve a cost reduction.
Decreasing costs & rising profitability
For the customer, energy service contracting regularly results in decreasing energy supply costs, and hence in lower manufacturing costs and rising profitability. In so doing, aspects such as cost optimisation, cost safety and cost transparency are of vital significance. Moreover, projects can be realised within a shorter timeframe and with higher quality compared to the own realisation and the customer is relieved with regard to energy management-related questions, enabling him to focus squarely on his core business.
Positive effects on economic key figures
If the agreed measures are financed by the contractor, it additionally affords the contractee the freedom to use the attained liquidity for other purposes. Financial bottlenecks, a lack of willingness to borrow and other investment priorities lose their inhibitory effect if all tasks associated with the financing are assigned to a contractor. What’s more, the contractee's balance sheet is not encumbered, thus having a positive effect on relevant economic key figures and hence the rating as well as the financing conditions for investments associated with the core competency.
Outsourcing of economic risks
The assignment of the management and energy supply tasks to the contractor generates a considerable added value for the contractee as a result of the outsourcing of technical and economic management risks as well as the assumption of function, performance and price guarantees by the contractor. This increases the system reliability and availability and minimises the likelihood of downtimes and stoppages. Finally, the safe-guarding of professional service and emergency assistance with fast reaction times represents a key element of every contractor’s quality philosophy.
Reduction of CO2 emissions
Aside from the mentioned added value for the contractee, energy service contracting helps lower the CO2 emissions thanks to the use of environmentally compatible technologies. The technologies, which are part of the standard repertoire of efficient contractors, contribute significantly to the environmentally sound management of natural resources. Thanks to the use of environmentally compatible technologies, such as e.g. the combined heat and power generation or the use of biomass, energy service contracting is also an option for developing significant potentials, which should be used promptly for climate protection reasons.
4. Cost efficiency and technical efficiency as pillars of energy service contracting
Since in particular the cost efficiency of an alternative is relevant with regard to the decision, energy service contracting can only be successful if the corresponding benefits are commensurate.
Benefits for purchasing fuel
In this regard, the energy service contracting-related value driver is associated in particular with the benefits for purchasing fuel, as it represents a significant cost item of the contractor. This is likewise the reason why energy service contracting is a phenomenon of the energy supply and the energy industry. Virtually nowhere else does an investment trigger the same extent of consequential costs, and this is the reason why a comprehensive examination is so important here. Furthermore, this knowledge results in a certain "uniformity of energy service contracting": Considering all of the lifecycle costs, high investment costs for energy supply solutions through the use of cost-efficient fuels are justifiable.
Technical efficiency – remodelling of the energy systems
In addition to achieving cost efficiency in the customer’s opinion, technical efficiency is gaining enormous significance in the contractor’s point of view, because it in turn determines the contractor’s earnings situation. Insofar, energy service contracting has an inherent natural "compulsory efficiency" for the contractor. Since he bears the economic risk of a less effective operation, the contractor is compelled to supply the energy in an efficient as possible manner. The lower the losses associated with the useful energy generation are, the better is the result. Due to the innate tendency toward higher energy efficiency, energy service contracting results in a decreasing emission of harmful substances and greenhouse gases associated with the generation of energy. Enabling investments into efficient technologies, especially through reduction of inefficient energy conversion, a remodelling of the energy systems as well as the replacement of older technologies, is precisely what is at the heart of energy service contracting. The tool Energy Service Contracting delivers the financial means and know-how required for this purpose and provides them in the context of an all-inclusive, comprehensive service. Energy service contracting saves resources and replaces them with system intelligence and efficiency, thus freeing up the capital required for restructuring and technology substitutions. As a result, energy service contracting can help replace obsolete with sustainable technologies.
5. Energy service contracting agreement
The energy service contracting agreement is concluded directly between the client and the contractor. The term is usually 5 to 20 years to justify investments into ultra-efficient systems on the basis of a longer-term partnership and to achieve significant energy savings.
The assigned tasks with respect to space and time must be clearly stated in the agreement. In addition, it must be emphasised that the contractor is acting in his own name and on his own account.
When drafting energy service contracting agreements, it should be taken into consideration that they normally cannot be spelled out in their entirety, thus offering a certain degree of leeway for opportunistic behaviour of the contractual parties.
6. Energy service contracting models
Numerous services are available on today’s energy market, which coincide with the definition of energy service contracting. For this reason, it is necessary to differentiate between the various energy service contracting models. This differentiation can either be geared to the contents of the cooperation or the legal design of the form of cooperation between the contractee and the contractor.
As illustrated in the diagram below, energy contracting can be divided into system-related, combined as well as into energy savings performance contracting.
System-related contracting includes services to optimise systems that are used to convert secondary energy into the useful energy required by the customer.
A further distinction of the system-related energy service contracting can be made for instance with respect to the performance of the system to be operated (energy service contracting for large-sized/small-sized systems), the produced useful energy (energy service contracting for heating/cooling/lighting/compressed air) or the used primary energy (fossil, renewable fuels).
In accordance with DIN 8930, four established forms of energy service contracting can be distinguished, which are discussed in more detail below. In so doing, energy supply contracting, financial contracting and technical systems management can be allocated to the group of system-related contracting. In contrast, the energy savings performance contracting should be considered a separate form of energy service contracting.
Energy supply contracting
The goal of energy supply contracting, also known as system-related contracting or useful energy supply, consists in the supply of customers with the useful energy they need. Useful energy can include for example heat, refrigeration, compressed air and/or electricity or electric power.
To realise or implement this supply of useful energy, the contractor normally takes on the following task packages:
- Investment including planning, financing, construction, start-up and optionally decommissioning of an energy conversion system
- Management including system operation and upkeep
- Energy management and supply including purchase of the secondary energy and sale of the useful energy
The energy conversion system is set up on the customer’s property and normally remains in the contractor’s possession for the entire duration of the contract term. The contractor is required to pay a fee to the customer for the provision of the property. At the end of the contract term, the system is either sold to the customer or dismantled by the contractor.
The contractor is compensated by way of the useful energy purchase price, which generally consists of a base price and an energy rate.
Financial contracting can be considered equivalent to process equipment leasing, where the contractor only takes on the tasks related to the planning, financing as well as set up of the energy conversion system, while the management and energy supply tasks remain the customer’s responsibility. As a result, the latter will also bear the technical and economic risk.
The contractor will be the owner of the system for the entire duration of the contract term. At the end of the contract term, the customer again has the option of acquiring the system. In this case, the contractor will receive a specified compensation fee.
Technical system management
The contractor’s tasks associated with technical system management or also with operational management contracting are limited to the technical or commercial management of the system. The technical management of a system includes tasks such as the monitoring, upkeep and service. In contrast, the commercial management includes tasks such as billing and insurance, the input of operating data or the negotiation of energy supply agreements.
The system is set up and put into operation by the customer and remains in his possession for the entire duration of the contract term. The customer is likewise responsible for coordinating the tasks related to the energy supply.
The contractor’s remuneration is normally dependent on the actual work done.
Energy savings performance contracting
Unlike with all of the previously outlined forms of energy service contracting, the supply of customers with energy is not the focus of energy savings performance contracting, also known as performance contracting, savings performance contracting or energy savings contracting. In fact, it is about measures aimed at reducing the customer’s energy demands and hence boosting the energy efficiency.
As a rule of thumb, the contractor’s task initially is to plan and install measures or components at his own expenses, the purpose of which is to improve energy efficiency. Consequently, the focus here is not on the supply of useful energy, but on the conduct of optimisation measures.
As an essential characteristic of this form of energy service contracting, the contractor’s compensation is entirely or partly dependent on the savings generated with the achieved energy efficiency improvements. Energy savings performance contracting is generally entirely risk-free for the contractor. Hidden efficiency measures are achieved by the contractor’s extensive know-how, which can in part result in substantial savings. Not only does the contractor’s know how enable the harvest of the low hanging fruits, but also the realisation of more profound measures, which in part engage with the customer’s process management. Common measures include the replacement of inefficient mechanical drives (pumps, fans), the load management to prevent load peaks as well as the implementation of heat recovery measures.
The field of application of energy savings performance contracting is versatile and creates a bridge between energy consulting services and investments in systems technology. Substantial savings can in part be generated by the optimised process control alone, which can be realised by investing in control engineering and smart control systems.
7. GETEC - Taking on supply and energy services
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