82372 China: Improving Energy Efficiency in Public Institutions 2012 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: (202) 473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved Energy Sector Management Assistance Program (ESMAP) reports are published to communicate the results of ESMAP’s work to the development community with the least possible delay. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations and conclusions expressed in this report are entirely those of the author(s) and should not be attributed in any manner to the World Bank, or its affiliated organizations, or to members of its Board of Executive Directors for the countries they represent or to ESMAP. 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Table of Contents Table of Contents………………………………………………………………………… i Acknowledgments……………………………………………………………………… vii Abbreviations…………………………………………………………………………… viii Executive Summary…………………………………………………………………… xi Completing Program Frameworks and Making Further Inroads in Data Collection and Diagnostic Work……………………………………………………………………… xii Improving Incentives……………………………………………………………………… xiii Expanding Energy Performance Contracting………………………………………… xiv Next Steps and Priority Actions………………………………………………………… xvi Chapter 1: Introduction to Improving Energy Efficiency in China’s Public Institutions…………………………………………………………………1 About this Report……………………………………………………………………………… 1 What is Included Under Public Institutions?…………………………………………… 2 Why is Improving Energy Efficiency in Public Facilities Important?………………… 3 The Special Challenges of Promoting Energy Conservation in Public Institutions……………………………………………………………………………………… 4 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions…………………………………………………………………6 Energy Use in China’s Public Institutions………………………………………………… 6 Overview of the Institutional Framework for Public Organizations in China……… 9 Introduction to the Organization of the Chinese Government………………………………………………… 9 Overview of the Government Budgeting Process…………………………………………………………… 11 Main Jurisdictions of Government Agencies for Energy Savings in Public Institutions…………………………………………………………………………………… 14 Overview of China’s Recent Policy Development for Energy Conservation in Public Institutions………………………………………………………………………… 15 A Timeline of Recent Key Policies…………………………………………………………………………… 15 i Key Efforts Launched during the 11th Five-Year Plan Period……………………… 18 Organizing Groups and Agencies involved in Energy Efficiency in Public Institutions…………………… 20 Developing Energy Use Measurement and Systems for Statistical Reporting and Analysis…………… 22 Developing and Scaling-up Project Implementation Mechanisms………………………………………… 24 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results…………………… 28 Plans for the Mid-term: Energy Conservation Efforts in Public Institutions under China’s 12th Five-Year Plan……………………………………………………………… 28 Relevant International Experience……………………………………………………… 31 Public Institution Energy Efficiency Targets in the United States…………………………………………… 31 Public Institution Energy Efficiency Targets in the European Union……………………………………… 33 Three Major Barriers to Promoting Energy Efficiency in Public Institutions……………………………… 36 Improving Energy Saving Incentives for Building Managers and Occupants…… 36 Use of Targeting Systems……………………………………………………………………………………… 36 Reputational Incentives………………………………………………………………………………………… 38 Cost-Savings Incentives in Public Institutions………………………………………………………………… 41 Gaining Facility Upgrades and Improved Service Quality through Energy Conservation Projects…… 44 Building Human Infrastructure and Information and Diagnostic Systems……… 46 Assigning Energy Managers…………………………………………………………………………………… 47 Strengthening Metering and Energy-use Data Collection…………………………………………………… 50 Energy Audits and Preparation of Site-Specific Energy-savings Plans…………………………………… 55 Benchmarking and Labeling of Energy Use in Different Buildings………………………………………… 57 Financing Public Institution Energy Efficiency Investments……………………… 62 Monitoring and Supervision Systems: Evaluation of Progress…………………… 69 Chapter 4: Energy Performance Contracting—Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions……… 72 Benefits of Energy Performance Contracting in the Public Sector……………… 72 Opening Doors for EPC in Public Institutions………………………………………… 73 Resolving Disbursement and Accounting Issues…………………………………………………………… 74 Motivating Public Agencies to Engage in Energy Performance Contracting……………………………… 79 Providing Assistance to Public Entities to Engage in Energy Performance Contracting………………… 80 Key Issues for Scaling Up the Use of EPC in the Public Sector…………………… 83 Quality of ESCOs………………………………………………………………………………………………… 84 Procurement of ESCOs: Scale and Transaction Efficiency vs. Benefits of Competition………………… 90 Project Bundling………………………………………………………………………………………………… 94 ii Moving toward Integrated and Comprehensive Energy Efficiency Projects……………………………… 97 Measurement and Verification (M&V) of Savings…………………………………………………………… 101 Chapter 5: Next Steps and Priority Actions for Different Jurisdictions…… 105 Key Efforts on Policies, Guidance, and Government Support……………………… 105 Recommended Priority Actions by Sectors and Key Jurisdictions……………… 106 Actions for All Key Jurisdictions………………………………………………………………………………… 109 Actions for Central Government Facilities (GOA)…………………………………………………………… 110 Provincial/Local Government Facilities (Provincial/Local GOAs or Equivalent)………………………… 111 Universities (Ministry of Education, Provincial Education Departments, University Representatives)… 112 Schools (Provincial and Local Education Departments, Ministry of Education Guidance, School District Representatives)………………………………………………………………………………………………… 113 Hospitals (Ministry of Health, Provincial Health Departments, Hospital Representatives and Associations)…………………………………………………………………………………………………… 114 References………………………………………………………………………………115 Appendix A: Recommended Top Resources…………………………………… 127 Appendix B: Additional Information Related to Chapter 3…………………… 128 Appendix C: Energy Efficiency Initiatives in the Hospital Sector in Germany……………………………………………………………………………… 136 BOXES Box 2.1: Summary of the State Council’s August 2008 Regulation on Energy Conservation in Public Institutions (State Council Order 531)…………… 17 Box 3.1: Energy Efficiency in Germany’s Public Facilities…………………………… 34 Box 3.2: Energy Savings in Schools through Shared Benefits and Education Programs .................................................................................................................. 42 Box 3.3: Improved Heating and Energy Efficiency in Schools and Hospitals in Serbia and Armenia……………………………………………………………………… 45 Box 3.4: Energy Sub-metering at University Campuses in the United States……… 54 Box 3.5: Informational Benchmarking as a Tool for Energy Efficiency Improvements in Public Buildings………………………………………………………………… 58 Box 3.6: Special Financing Programs for Energy Efficiency Improvements in Public Buildings………………………………………………………………………… 67 iii Box 3.7: The Texas LoanSTAR Program—A Revolving Fund with Extensive Quality Control…………………………………………………………………………… 69 Box 3.8: The Value of Monitoring and Supervision Systems in Nurturing Cost-Effective Government Incentives for Energy Efficiency……………………………… 71 Box 4.1: Energy Performance Contracting in the U.S. Federal Sector—FEMP…… 76 Box 4.2: Energy Efficiency Services—Standard EN 15900: Requirements………… 86 Box 4.3: Using a Public ESCO when the ESCO Industry is Weak: Example of the Belgian Fedesco………………………………………………………………… 88 Box 4.4: Bundling Individual Energy Efficiency Projects into Energy Performance Contracts—Example of the Berlin Energy Saving Partnership…………… 95 Box 4.5: Example of an Integrated EPC Project in a German Hospital……………… 99 Box B.1: A Comprehensive Framework for Sustainable Energy Use in U.S. Federal Government Facilities………………………………………………………… 128 Box B.2: Examples of State-wide Targets for Public Buildings in Germany………… 131 FIGURES Figure 2.1: Development of Final and Relative Energy Consumption by Public Entities in China……………………………………………………………………… 6 Figure 2.2: Number of Public Entities in China by Sector, 2010 (in thousands)…… 7 Figure 2.3: Percentage of Energy Consumption by Public Entities in China by Fuel, 2010…………………………………………………………………………… 8 Figure 2.4: China’s Multilevel Government Structure………………………………… 10 Figure 2.5: Basic Approval Process for Funding Energy Conservation Retrofit Projects ................................................................................................................. 12 Figure 2.6: Timeline of Key Public Sector Energy Efficiency Policies (2006-2010)… 16 Figure 3.1: U.S. Federal Government Progress toward Facility Energy Efficiency Goals (2003 – 2015)………………………………………………………………… 31 Figure 3.2: Example of U.S. Federal Government Scorecard………………………… 39 Figure 3.3: Comparison of U.S. Federal Agencies’ Scorecards, FY 2010…………… 40 Figure 3.4: Investments in Energy Efficiency and Renewable Energy Projects in the U.S. Federal Sector using Direct Appropriations, UESC, and ESPC………… 65 iv TABLES Table 1: The Three No’s: Issues in the Public Sector for Improving Energy Efficiency and Solutions…………………………………………………………………… xi Table 2: Recommended Priority Actions by Jurisdiction……………………………… xvii Table 1.1: Energy-using Facilities and Activities in the Public Sector……………… 2 Table 2.1: Ownership of and Responsibilities for Buildings of Different Public Institutions ................................................................................................................ 12 Table 2.2: Key Agenda Items Developed during the 11th FYP for Energy Conservation in Public Institutions…………………………………………………………… 19 Table 3.1: 12th FYP Key Public Institution Projects and Targets……………………… 30 Table B4.1.1: ESCO Selection Options (post 2010)…………………………………… 78 Table 4.1: Steps in Processing and Implementing Energy Performance Contracts… 91 Table 4.2: Description of Four M&V Options…………………………………………… 103 Table 4.3: Rules of Thumb for Selection of M&V Options…………………………… 103 Table 5.1: Recommended Priority Actions by Jurisdiction…………………………… 107 Table B.1: Examples for U.S. State* and Local** Government Energy Efficiency Targets ............................................................................................................... 129 Table B.2: Information Tools and Networking Resources for the Municipal, University, School and Hospital Sectors………………………………………………… 132 Table B.3: Examples of Guidance Materials on Operation of Key Energy-using Equipment……………………………………………………………………… 135 Table C.1: Benchmarking Hospitals in Germany (VDI 3807)………………………… 136 v Acknowledgments This report was prepared under the World Bank’s Government Facilities Energy Efficiency Project (P123066), a technical assistance activity. The financial and technical support by the Energy Sector Management Assistance Program (ESMAP) is gratefully acknowledged. ESMAP—a global knowledge and technical assistance trust fund program administered by the World Bank and assists low-and middle-income countries to increase know-how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is governed and funded by a Consultative Group (CG) comprised of official bilateral donors and multilateral institutions, representing Australia, Austria, Denmark, France, Finland, Germany, Iceland, Lithuania, the Netherlands, Norway, Sweden, the United Kingdom, and the World Bank Group. The report was prepared by a World Bank task team led by Gailius J. Draugelis (Lead Energy Specialist, Energy Sector Coordinator for China and Mongolia) and Alberto U. Ang Co (Senior Energy Specialist), and composed of Anke S. Meyer (Principal Consultant and lead author), Robert P. Taylor (Senior Energy Adviser), Liu Caifeng (Building efficiency expert), and Tao Xue (Research Analyst). The task team was also supported by Shen Longhai and other local Chinese consultants, as well as by various organizations including the International Energy Conservation Environmental Protection Association and energy service companies, and also by William Nesmith (NASEO). Administrative expertise and client support services were provided by Cristina Hernandez and Kun Cao. The team is especially grateful for the guidance and comments provided by World Bank peer reviewers Feng Liu (Senior Energy Specialist), Jas Singh (Senior Energy Specialist), Xiaoping Wang (Senior Energy Specialist), and, for the concept review, Franz Gerner (Country Sector Coordinator–Vietnam Energy), as well as Bank management including Ede Ijjasz-Vasquez (Sector Director, Latin America and Caribbean Region’s Sustainable Development Department), and Paul Kriss (Acting Sector Manager, China and Mongolia Sustainable Development Unit, Beijing). The report also benefitted from inputs by and discussions with Juergen Breuer (Krankenhaus Reinkenheide), Pat Clark (McKinstry), Phil Coleman (Lawrence Berkeley National Laboratory), Martin Dasek (IFC), Annegret Dickhoff (BUND), Shirley Hansen, Jennifer Layke (Johnson Controls), Toivo Miller and Udo Schlopsnies (Berlin Energy Agency), Curt Nichols (Bonneville Power Administration), Skye Schell (Federal Energy Management Program), Lieven Vanstraelen (FEDESCO), Kevin Mo and Wu Ping (Energy Foundation China). Editing services were provided by Anna van der Heijden. Technical chinese translation of the report was done by Caifeng Liu. Finally, the World Bank team members would like to express their deep gratitude to the Department of Energy Conservation for Public Institutions, Government Offices Administration of the State Council, People’s Republic of China, for all of the strategic guidance and support throughout the study. vii Abbreviations Currency Unit (as of August 1, 2011) Currency Unit = Renminbi Yuan (RMB) RMB6.407 = US$1.0000 RMB1.000 = US$0.1549 RMB9.220 = € 1.0000 RMB1.000 = € 0.1075 ACEEE American Council for an Energy-Efficient Economy ACUPCC American Colleges and Universities Presidents’ Climate Commitment ADEME Agence de l'Environnement et de la Maîtrise de l'Energie AEE Association of Energy Engineers ARRA American Recovery and Reinvestment Act APPA Association of Higher Education Facilities Officers ASHRAE American Society of Heating, Refrigerating and Air-conditioning Engineers BPIE The Buildings Performance Institute Europe Btu British thermal unit CC Construction Commission CDD Cooling Degree Days CEM Certified Energy Manager CEN European Committee for Standardization CENELEC European Committee for Electrotechnical Standardization CFR Code of Federal Regulations CMVP Certified Measurement and Verification Professional CO2 Carbon Dioxide D&F Determination and Finding DCAM Division of Capital Asset Management DGS Department of General Services DOD Department of Defense DOE Department of Energy DPA Department of Personnel & Administration viii DRC Development and Reform Commission EE Energy Efficiency EISA Energy Independence and Security Act EMCA ESCO Committee of the China Energy Conservation Association (also known as Energy Management Company Association) EO Executive Order EPA Environmental Protection Agency EPAct Energy Policy Act EPC Energy Performance Contracting ESCO Energy Service Company ESD Energy Services Directive ESPC Energy Savings Performance Contract EU European Union EVO Efficiency Valuation Organization FAR Federal Acquisition Regulations FB Finance Bureau FEMP Federal Energy Management Program FY Fiscal Year FYP Five-Year Plan GAO United States Government Accountability Office GDP Gross Domestic Product GHG Greenhouse Gas GOA General Offices Administration GSA General Services Administration GWh Gigawatt Hour HDD Heating Degree Days HVAC Heating, Ventilation and Air Conditioning IDIQ Indefinite-Delivery, Indefinite-Quantity IEA International Energy Agency IFC International Finance Corporation IGA Investment Grade Audit IPMVP International Performance Measurement and Verification Protocol ix K-12 Kindergarten through 12th Grade KfW Kreditanstalt für Wiederaufbau (Germany) KLIMP Climate Investment Programme (Sweden) kWh Kilowatt Hour LCC Life-Cycle Costing LEED Leadership in Energy and Environmental Design M&V Measurement and Verification MOE Ministry of Education MOF Ministry of Finance MOH Ministry of Health MOHURD Ministry of Housing and Urban-Rural Development MUSH Municipalities, Universities, Schools and Hospitals NDAA National Defense Authorization Act NDRC National Development and Reform Commission NECPA National Energy Conservation Policy Act NEEAP National Energy Efficiency Action Plan NPV Net Present Value O&M Operation and Maintenance OMB Office of Management and Budget PAs Preliminary Assessments PDCA Plan-Do-Check-Act QEM Qualified Energy Managers RfP Request for Proposal RMB Chinese Renminbi Yuan SAR Special Administrative Region SEK Swedish krona Super ESPC Super Energy Savings Performance Contract tce Tons of coal equivalent tCO2 Tons of Carbon Dioxide UESC Utility Energy Services Contracts US$ United States Dollar USGBC U.S. Green Building Council x Executive Summary 1. The next several years are critical for achieving lasting results in China’s relatively new energy efficiency program for public institutions. Public institutions in China are defined as those government agencies, public service units, and organizations that either fully or partially receive government budget funds. 2. Even though the public sector is a fairly small consumer of energy compared to other sectors of the economy, for several reasons it is an important sector to focus on with efforts to achieve energy efficiency: (i) The government can and should lead by example to affect and inspire all private sector entities and citizens to pursue similar actions; (ii) energy conservation projects in public buildings worldwide have been known to have a multiplier effect and influence the behavior and life-style choices of public building users; and (iii) energy savings avoid waste and lead to a better use of public resources, thus freeing up budgets for other purposes. 3. Achievement of energy efficiency results in the public institutional sector is particularly daunting, with unique organizational, incentive, and financial challenges compared to more commercialized sectors such as industry. These issues have been termed “The Three No’s” by the study team. They are explained in more detail in Table 1, together with possible solutions to these issues. Table 1: The Three No’s: Issues in the Public Sector for Improving Energy Efficiency and Solutions Issue Solutions • Set target/goals/quotas • Provide rewards and issue penalties Incentives are missing and risks are present • Rate energy saving performance of public agencies and make it public • Allow public agencies to retain a share of their energy cost savings Responsibilities, • Assign staff, e.g., require accredited energy managers accountability, and staff • Collect energy consumption, metering, and benchmarking data; technical competence monitor progress are lacking • Train staff and provide tools and information • Provide special earmarked funds Financing is insufficient • Develop Energy Performance Contracting (EPC) and complete and unreliable accounting and budgeting procedures authorizing payment for energy savings investments 4. Despite these challenges, China has made impressive progress in its program so far, especially during the last four years and especially related to institutional organization and target setting. Absolute energy use is still increasing, but energy intensity in public buildings (the use of energy per employee or per square meter) is declining. To make further progress, China also can benefit xi from the experience of other countries, some of which have decades of experience working to overcome the special challenges of energy conservation in public institutions. This note summarizes the main recommendations from a World Bank review of both China’s recent efforts and relevant international experience, presented in this World Bank report. 5. In the study team’s opinion, key challenges for China’s public institution energy conservation program for the medium-term might best be summarized to include the following four: (i) Completing program institutional infrastructure, (ii) making further inroads in the huge task of completing energy use data collection and diagnostic analysis in China’s many public entities, (iii) further improving incentives and generating greater enthusiasm among public entities for action, and (iv) expanding financing options for public entities, especially using energy performance contracting (EPC). Plans already exist to address the first two challenges and emphasis should be placed on quality of implementation. Efforts dealing with the third and fourth challenges--- improving incentives and expanding use of energy performance contracting—also are parts of China’s current agenda. Meeting these two challenges in particular will require creativity and development of new approaches. Consultation of international experience in these two areas may be particularly helpful, and this receives special focus in this report. Completing Program Frameworks and Making Further Inroads in Data Collection and Diagnostic Work 6. China has made rapid progress since the middle of the Eleventh Five-Year Plan (FYP) period (2006-10) in developing a specific framework for promoting energy conservation in public institutions, issuing key regulations, assigning institutional responsibilities, and launching a series of pilot programs and demonstration efforts. Although the statistics are not publicly available, China also has put in place new requirements for energy use reporting by public entities. However, much work remains to be done to complete the organizational framework. Different jurisdictions are involved, all managed by different government units (for example by units for managing government facilities, units managing educational facilities, and units managing medical facilities, all at different government levels). Successful establishment of effective frameworks will serve China well far into the future. 7. Many subtasks need to be implemented to ensure the institutional framework can operate effectively. Many of these are central elements in the work program for the current 12th FYP period. Because of China’s size, each represents a major, multi-year, step-by-step undertaking: • Putting energy managers in place. Public institutions are now required to assign energy managers to look after energy use trends and promote energy efficiency. Placement of competent energy managers in all sizable public entities is a massive task, requiring a step- by-step approach. Focus might best be placed on establishing qualified energy managers in large agencies and their most important facilities first. It would be useful to first pilot comprehensive and integrated energy manager placement, training, and certification programs in several relatively advanced jurisdictions. National-level guidance and manuals need to be developed to help energy managers. It also would be useful to review possibilities for xii introducing broader “resource sustainability management” units and staff in some entities, perhaps beginning with universities. • Training. Large-scale and targeted training programs, with materials and trainers, are required for government supervisory, entity management, and service provider staff at all levels. • Metering. Massive efforts are still required to complete the installation of appropriate energy use metering equipment in public entities across the country. Within this program, it may be useful to launch special, relatively comprehensive meter improvement projects for selected subsectors in selected localities. Entities with both substantial savings potential and concrete plans for energy savings implementation, which will use the metering investment straight away, should be targeted first. Heat metering is critical over the medium term. Although public institutions can usefully be among the first to volunteer for heat metering and heat system control pilots, to lead by example, they must follow the pace of broader heat pricing and billing reforms set by municipal governments. • Energy auditing. Huge needs also exist to complete facility energy use assessments. However, these assessments should not be undertaken just to meet a regulation requirement. Strong focus must be on identifying practical and meaningful investment and management improvement projects in these assessments and ensuring follow up. • Benchmarking. Further development of benchmarking systems (energy use indices to compare energy use across similar facilities) is needed where data is available, to help inform users of how they compare with their peers. Incentivizing benchmark systems also can be usefully developed where comparative rankings have reputational or financial consequences, but greater methodological rigor is required to ensure that these are fair. Improving Incentives 8. Probably the biggest challenge in promoting energy conservation in public institutions is providing incentives for the various public entities to enthusiastically pursue energy savings. This is true worldwide. Why should public facility managers and staff care about saving energy? In commercial companies, energy savings can increase profits. In public institutions, energy savings result in budget savings, which often bring no real benefit to facility managers or staff themselves. Indeed, visible budget savings may be perceived as a bad thing if they result in budget reductions in following years. 9. Virtually all countries with success in public institutional energy savings develop specific time-bound energy savings targets as frameworks for rallying attention and organizing specific programs. China also is developing a series of energy savings targets for public institutions, at different levels and, increasingly, for specific subsectors. This has certainly proved very useful for attracting management attention and providing concrete frameworks for organizing programs. The targets and their supervision help to improve incentives, and should definitely be further developed and strengthened. But by themselves they are not enough. It is very difficult, if not impossible, to allocate targets for specific entities that truly match their facility-specific energy xiii efficiency potential. Perhaps even more important, additional measures are needed to truly instill enthusiasm among facility operators and staff to pursue the types of creative site-specific programs and behavioral changes that often make a real difference in energy efficiency work. The study team therefore believes that China needs to pursue additional incentives measures, over and above the target systems, to achieve the best results. 10. One option employed by many countries is to increase the use of reputational incentives. Many public institutions, by their nature, are very conscious of their image. For example, a highly visible “model energy efficiency unit” award program can be offered for one or more specific categories of public institutions (such as universities or secondary schools). A more aggressive option that can also be considered is the issuance of scorecards for subsets of public institutions, which rate both good and bad performers. Where possible, such systems are especially effective if the scorecards are made public. 11. A key option used in other countries to increase facility management and staff interest in energy savings is to allow some of the saved energy cost budget funds to be used for purposes particularly welcomed by facility management and staff. Regulations can be put in place to allow entities to use at least a portion of saved energy budgets for purposes they determine. If staff are informed, and a benefit popular with staff is targeted to be financed with the savings, great enthusiasm can be generated. In a similar fashion, energy performance contracting projects with public entities in North America and parts of Europe typically include tangible benefits for entities beyond energy savings alone. In effect, the client entity’s share of energy savings benefits is often provided to the client in the form of equipment or facility improvements desired by facility managers and staff, rather than in cash. Examples might be window replacement or space conditioning comfort upgrades that might not be highly cost effective on their own, but which are popular for the comfort or convenience provided. Practitioners have found that this greatly increases public entity interest in pursuing energy performance contracting. Expanding Energy Performance Contracting 12. Developing financing options for public energy conservation projects additional to budget allocation systems (including special funds) is essential for China, as it is for other countries. A variety of options are worth exploring, including development of special revolving loan funds and leasing projects. It is important to emphasize that three areas in particular need government budget support: (i) financing for demonstration projects; (ii) targeted subsidies to reduce the upfront costs of certain energy-efficient equipment or to support entities that generally have difficulty raising funds, such as rural schools; and (iii) budget allocation to cover the costs of various critically needed “soft” investments, including setting up statistical reporting systems, installing meters, training energy managers, energy auditing and preparation of site-specific energy savings plans, and monitoring and supervision. These areas are very important to advance energy efficiency in the public sector, but won’t happen without special funding or special budget allocations. 13. In addition to more traditional financing options, China is wise to have placed strong emphasis on energy performance contracting as a key alternative financing method for public entities. In xiv North America and Europe, energy performance contracting has worked well in the public sector. Indeed, in the United States, where energy performance contracting was first developed on a large scale, over 80% of the total energy performance contracting business volume is with the federal, state, and local governments, universities, schools and hospitals. The business model is attractive to public institutions because it provides a financing means outside of regular budget appropriations, technical and project management is handled by a specialized contractor, and the ESCO contractor assumes all performance risks and is paid only if the project performs as promised. But efficient development of energy performance contracting for public institutions is not easy and will require much effort. Suggestions by the study team, considering international experience and China’s current circumstances, include: • Clarifying energy performance contracting accounting issues. Although opinions issued by the State Council in 2010 make it clear that public institutions may disburse energy performance contracts using energy cost budget lines, work needs to be completed to apply this principle. Authorities for different jurisdictions need to issue specific regulations on how disbursements should be made. Contract processing and disbursement systems then need to be tested in practice, after which additional clarification may be required. It is important regulations also specify if client entities can retain a share of energy budget savings achieved through energy performance contracting projects, and how such funds can be used. • Assigning government units to provide technical assistance. Experience elsewhere has shown that governments need to organize active, hands-on assistance to public entities in all aspects of development and implementation of energy performance contracting. The study team recommends that Chinese government jurisdictions interested in aggressively promoting use of the new mechanism in public institutions, assign and staff a specific unit to help public entities in that jurisdiction with education, training, assessment of priorities for project work, guidance on ESCO selection, preparation of model contracts, contract procurement, project monitoring and verification, and other tasks. • Identifying competent ESCOs. Over 2000 ESCOs are currently registered with the national government and it is difficult for public entities to determine which are the most qualified and competent. National independent or self-governing ESCO accreditation systems are being considered, but in the meantime, governments at different jurisdictions can prepare lists of recommended basic qualifications and experience criteria for entities to check, and perhaps also help screen company profiles to make sure that companies meet these criteria. • Aligning energy performance contract procurement with government procurement rules. Most countries have found formal procurement of energy performance contracts by public entities to be a special challenge. Because the contracts combine services, equipment, and financing elements for a long period of time, much discussion and modification of standard government procedures is often required to procure such contracts efficiently. Contract phasing is another issue that needs consideration. Other countries have struggled to balance an interest in competition, which can reduce costs, with an interest in keeping transaction costs under control. The study team recommends Chinese authorities begin to specifically study how xv energy performance contract procurement may best be developed within China’s current public entity procurement systems. • Bundling small projects into larger packages. Transaction costs for individual energy performance contracts tend to be high. In many cases it makes sense to bundle projects together into larger, multi-building contracts that are tendered competitively. Chinese authorities can usefully consult a variety of models, such as those practiced in Germany, Austria, the Czech Republic, Sweden, and the United States, among others. • Developing comprehensive projects. Most ESCOs in China today focus on relatively simple single-technology projects that yield savings and repayment in a short time. Overseas, however, markets have evolved such that ESCOs carry out more comprehensive energy performance contracting projects, based on the demand of clients. Quick and long-term payback projects with a variety of technologies are combined into long-term contracts, often including major facility upgrades of key interest to public entity clients. While it will take time for many ESCOs in China to develop the capacity to deliver such projects, the study team considers the development of projects with comprehensive measures a useful direction to support for the future. • Monitoring and verification. Energy performance contracts require an agreement between ESCOs and clients on the energy savings achieved from a project, as this is a condition of payment. The art of good measurement and verification protocols is to keep them simple, practical, and not too costly, while still providing satisfactory comfort to clients that projects have performed. The study team recommends that Chinese supervising entities and ESCOs consult the extensive experience of confirming energy savings in public building contracts in the United States and Europe. Next Steps and Priority Actions 14. To successfully deliver the public sector energy savings targets of the 12th FYP, the basic working system for promoting public institution energy efficiency established during the 11th FYP period needs to be completed as outlined above by the government—at central, provincial, and local levels. Many policy and regulation documents remain to be issued to allow work to be organized properly, especially at local levels. A large effort will also be needed to prepare and disseminate detailed technical guidelines, manuals, templates, and other types of instruction materials to show supervising agency and public entity staff how to meet the detailed requirements specified in the policies and regulations. 15. In addition, many concrete actions in the four areas mentioned above (para. 5) need to be organized within specific jurisdictions, particularly central government and local government buildings, universities, schools, and hospitals. Some actions may be taken by all jurisdictions, some are specific to individual jurisdictions. These are specified in Table 2. xvi Table 2: Recommended Priority Actions by Jurisdiction Responsible Jurisdictions Actions agencies 1. Providing training and capacity building programs for decision makers, leaders, and specialized staff of four audiences: government officials and entity leaders, facility management units, third party technical and service entities, and occupants/users/ owners. 2. Placing competent facility energy managers (including arranging for appointments, qualifications, and training). This includes reviewing the possible application of broader sustainability managers (to address energy/water, All agencies recycling, and other “green” measures) vs. the use of with direct specific energy managers. All implementation 3. Implementing reputation-based incentive programs. responsibilities 4. Improving statistics and metering, completing energy audits and site-specific energy savings project preparation, preparing benchmarks within jurisdictions, and implementing continuous evaluation of results, dissemination, and awareness raising. 5. Implementing key demonstration projects in the main jurisdictions. 6. Expanding information dissemination and exchange through cross-provincial and international exchanges. 1. Piloting entity consumption quotas tied to energy cost expenditure ceilings. 2. Organizing state-of-the-art metering pilot programs in key facilities, including for sub-metering. 3. Supporting continuing improvement of online data collection, reporting, and analysis. Central government GOA 4. Disseminating successful case studies, including of facilities management and supervision examples and energy efficiency (EE) technologies. 5. Assisting energy using entities to undertake EPC projects across the project development cycle (auditing, selecting ESCOs, applying for government and commercial financing/support, disbursement of government funds, M&V). xvii Responsible Jurisdictions Actions agencies 1. Completing energy savings plans in line with 12th FYP targets. 2. Piloting energy use quotas tied to energy cost expenditure ceilings. 3. Implementing simple energy audits and site-specific Provincial energy savings action plans, complete with project Provincial and and local proposals. local GOA or government equivalent 4. Implementing heat metering and consumption-based facilities billing programs in northern regions. 5. Piloting energy performance contracts through the government system. 6. Creating and operating EPC technical assistance units for all public institutions. 1. Developing a “University Energy Efficiency Network” (or Green University Network) of interested universities, with MOE support, and university energy savings commitments as a condition of participation. MOE, provincial 2. Implementing comprehensive metering pilot projects, education including sub-metering. Universities departments, university 3. Piloting award/bonus programs, including, possibly, representatives incentives programs where units receive improved equipment paid through energy cost savings of successful energy efficiency projects. 4. Sponsoring internal competitions and incentives programs. Provincial and 1. Integrating energy efficiency and renewable energy local education opportunities into school renovation projects, especially departments in northern regions where heating is required and in rural Schools (with guidance areas. from MOE), 2. Template project implementation, possibly with EPC. school district 3. Incorporating energy efficiency activities and education representatives into a wide range of educational curricula. 1. Implementing state-of-the-art metering pilots to generate data at the level of sophistication needed for hospital building energy audits. 2. Implementing carefully monitored pilot energy audits in several hospitals, covering their special and complex MOH, needs, followed by the development of site-specific pilot provincial health projects and monitoring of results; Generating case studies departments, and finding effective channels to disseminate experiences. Hospitals hospital associations and 3. Creating a “Hospital Energy Efficiency Network” (or representatives Green Hospital Network) similar to that recommended for universities. 4. Generating case studies of EPC, with concrete examples of technical options for hospital energy efficiency and lessons learned for implementing comprehensive EE retrofit projects. xviii Chapter 1: Introduction to Improving Energy Efficiency in China’s Public Institutions Chapter 1: Introduction to Improving Energy Efficiency in China’s Public Institutions About this Report 1.1. The main objective of this report is to provide information and analysis to the Chinese government to enable a better informed policy-development process towards a platform of policies and programs that can enable and more aggressively promote energy efficiency in China’s public facilities. The report will also inform those organizations that support the development of policies and programs about challenges and opportunities for energy efficiency in public institutions in China. 1.2. Scope. The report focuses on policies and initiatives to improve the energy efficiency of existing public buildings that belong to central, provincial, and municipal government agencies. This includes office buildings, schools, universities, and hospitals. The report thus focuses on policies for building renovation and does not cover policies and measures to support energy efficiency initiatives for new buildings, equipment procurement, or public vehicles. 1 Because energy efficiency efforts are often combined with renewable energy initiatives or measures to conserve water and other natural resources (thus supporting a broader sustainability agenda), where appropriate this report presents water conservation and other measures as part of energy conservation activities. 1.3. Roadmap. The remainder of this chapter, Chapter 1, defines “public institutions” in China, describes the reasons for improving energy efficiency in public facilities, and presents the key issues all countries face when improving energy efficiency in public institutions. Chapter 2 presents an overview of the organizational structures that provide the context for public institutional energy efficiency initiatives, as well as China’s recent efforts and progress in this area. Chapter 3 reviews the main challenges and options for China’s future efforts on public institutional energy efficiency. The chapter discusses China’s current medium-term goals and presents international experience from the United States and Europe. The second part of the chapter discusses specific barriers and possible solutions for sustained progress in energy conservation in China’s public institutions. Chapter 4 focuses on financing and describes how public institutions can pay for energy conservation projects without regular or special budget funding, but by using the project’s energy cost savings. The chapter presents the possible role of private energy service companies (ESCOs) to develop, finance, and implement energy conservation projects in public buildings. Finally, Chapter 5 summarizes priorities for policy and program development, as well as recommended next steps. 1.Energy-efficient purchasing is covered in an ESMAP report; see Public Procurement of Energy Efficient Products—China Case Study, consultant report to ESMAP by Liu Caifeng, November 2011. 2.This report does not cover military facilities and prisons. In many countries, however, such as in the United States, both types of facilities are major energy users and important targets of public sector energy conservation initiatives. 1 China: Improving Energy Efficiency in Public Institutions What is Included Under Public Institutions? 1.4. Public institutions in China are defined as those government agencies, public service units, and organizations that either fully or partially receive government budget funds. Table 1.1 presents an overview. This definition of public institutions conforms to international definitions. 2Most importantly, a key characteristic of all public facilities is their use of government budget funds, which directly impacts their response to program or policy incentives and project implementation mechanisms. As a result, special types of policy interventions are needed for public institutions. Table 1.1: Energy-using Facilities and Activities in the Public Sector Covered in this Public Sector Subsector Report Yes No Buildings/facilities New buildings X Existing buildings X • Central, provincial, local government X facilities • Institutes and government-affiliated X agencies • Universities X • Kindergartens and schools X • Hospitals and health facilities X • Museums, sports facilities, etc. X • Prisons X • Military facilities X • Public housing X Public purchasing of X goods and services Vehicle fleets X Public lighting X Public utilities X Source: Authors. 2 Chapter 1: Introduction to Improving Energy Efficiency in China’s Public Institutions Why is Improving Energy Efficiency in Public Facilities Important? 1.5. Government facilities are often major purchasers of energy services and energy-using equipment; they typically are the largest energy user in a country. However, the total amount of energy public buildings consume—for heating, air-conditioning, hot water preparation, lighting, and plug loads—is not particularly large compared to the rest of the economy and by itself would not merit a lot of special attention. Although few countries have reliable data, public buildings are estimated to account for only about 2-6% of a country’s total energy consumption. 3 1.6. There are, however, good reasons for central and local governments to engage in energy conservation in the buildings they own and operate. Four key reasons are: • Leading by example. Government laws and regulations for the environment and sustainable development affect all entities and citizens. To be credible and inspire others, the government must set and follow its own regulations. • Multiplier effect. Public institutions have an important educational role. Energy saving projects in public facilities give their users (such as teachers, students, and hospital staff or patients) an opportunity to learn about and practice energy conservation in their everyday environment. Energy conservation projects in public buildings worldwide have been known to influence the behavior and life-style choices of the building users. • Better use of public resources. Tax payments, by citizens and the private sector, are the largest source of public funds. Careless energy consumption is a waste of public money. Energy savings can be used for capital improvement projects or free up budgets for other purposes. • Market creation and transformation. The public sector can use its market power to help develop mechanisms and institutions for energy conservation in society at large, creating a strong, sustained, buyer-led shift in the market toward energy efficiency. The government’s buying power and active, visible leadership can provide a powerful non-regulatory means to stimulate demand for energy-efficient products and services. By establishing a reliable market, the government can encourage domestic suppliers to introduce more energy-efficient products at competitive prices4 and also create more opportunities for the energy efficiency services industry, including ESCOs, energy consultants, financing businesses, contractors, and equipment vendors. 1.7. Energy conservation has long been neglected in the public sector because of the difficulties of the public budget environment for promoting energy conservation. As a result, the potential for 3. In France, public sector buildings consume about 1.7% of total final energy (see Pouffary and Dupont 2009 and ADEME 2011). In this case, public buildings include communal buildings (local government) and central government buildings. In Germany, estimates indicate that public sector buildings account for about 2.3% of total final energy use. In the United States, the energy consumption of public buildings is around 4% of total energy consumption (rough estimate based on information from the U.S. Federal Energy Management Program (FEMP) Building Energy Data Book and para. 3.5 ). 4.See McGrory et al. 2002. The authors cite the example of the U.S. Energy Star label—based on “a 1993 policy directive that U.S. federal agencies were to purchase only energy-efficient computers and office equipment that qualified for the Energy Star label; this had an immediate positive effect on manufacturer participation in the labeling program; even though federal sales amounted to only 2-3% of the total market, Energy Star office equipment quickly achieved penetration rates of 90% or more for the entire U.S. market.” 3 China: Improving Energy Efficiency in Public Institutions quick gains is often large. In this situation it is common for low- or no-cost interventions (such as ensuring that lights are off after office or school hours or installing motion sensors in restrooms and other intermittently used rooms) to achieve 10-15% savings in energy consumption and costs. With larger, but still profitable investments, savings of 20-40% can be achieved. The Special Challenges of Promoting Energy Conservation in Public Institutions 1.8. Energy efficiency investments in public institutions are impeded by the same barriers that have slowed down energy conservation in other sectors of the economy: lack of information on energy efficiency potential and benefits, lack of trained personnel, lack of incentives, high transaction costs, and scarcity of financing. 1.9. In addition to those barriers, however, the public sector poses special challenges for efficient energy use. Without specific intervention this sector will continue to be slow in improving its energy intensity. The following “three no’s” are considered to be the main reasons for energy inefficiency in the public sector: • No incentives. Public entities have little incentive to save energy costs when energy costs are a line item in their operating cost budgets provided by the government. Savings in this budget line item typically would not benefit the public entity implementing the energy savings measure. If utility payments and other energy expenditures were reduced due to energy efficiency improvements, the budget would likely be cut accordingly in the future. Furthermore, there may be disincentives to change a facility’s energy systems as this may involve operational risks. This lack of incentives is exacerbated by bureaucratic hurdles— budgeting, accounting and procurement rules—that further impede investments in energy efficiency. • No technical competence or institutional responsibility. Public institutions typically don’t have a staff or office responsible for monitoring and potentially reducing energy costs. As a result, there is little interest in efficiency as long as systems continue to work. Without outside help, entities often lack the technical means and competence to monitor and improve energy use. Also, the metering of energy consumption and monitoring of energy use and statistics typically are poor, if they exist at all. • No funding. Without specific programs, regular government budget allocations are rarely spent on energy efficiency projects. Normal facility renovation budgets are small and used for other pressing needs. 1.10. The situation China faces in promoting energy savings in public institutions shows a striking similarity to those in other countries. Examples are the impact of the public sector budgeting system on incentives for improving energy management and on project financing channels, as well as the barriers faced in developing energy performance contracting (EPC) (see also Chapter 4). In addition, many countries also struggle to improve their human and technical infrastructure to 4 Chapter 1: Introduction to Improving Energy Efficiency in China’s Public Institutions monitor energy use and identify the most cost-effective energy-saving measures and projects—a situation that is recognizable in China. 1.11. China’s intensive efforts to improve energy management and energy efficiency in public institutions are relatively new. Many North American and European countries have been operating active programs in this area for more than two decades, with successes and failures and the lessons that come from both. Accordingly, lessons learned from international experience are drawn on in the discussions and recommendations on these issues. 1.12. While China can build on international experience, any lessons and solutions must be integrated into its own unique institutional setting. The next chapter will introduce that institutional framework of public organizations and describe China’s recent efforts related to public institution energy conservation. 5 China: Improving Energy Efficiency in Public Institutions Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions 2.1. Probably China’s two greatest achievements over the last ten years for promoting energy efficiency in public institutions have been the creation of a comprehensive policy and regulatory framework and the establishment of institutional systems to undertake the energy efficiency work. This chapter, after a brief overview of energy use in China’s public institutions, will describe China’s public sector institutional framework and present recent policies related to energy conservation in public institutions. A final section highlights efforts and successes from the implementation of China’s 11th Five-Year Plan (FYP). These recent successes and the institutional context will provide the background for the next chapters’ discussion on key challenges and opportunities for future expansion of energy savings in public institutions in China. Energy Use in China’s Public Institutions 2.2. In 2010, China’s public institutions consumed a total of about 192 million tons of coal equivalent (tce) in final energy, which represented 6.2% of the national total. This figure includes energy consumption for buildings and transportation purposes. Energy consumption in the sector has increased steadily in recent years, although the rate of increase has been slowing (see Figure 2.1). Public institution energy consumption rose about 15% during 2006-2010.5 Even though the number of buildings and the total floor area in public buildings has gone up over the last five years, Figure 2.1: Development of Final and Relative Energy Consumption by Public Entities in China (2005=100) Source: The Twelfth Five-Year Plan for Energy Conservation in Public Institutions. 5.“The Twelfth Five-Year Plan for Energy Conservation in Public Institutions,” as published in “Zhongguo Jiguan Houchin" (China Public Agency Facility Management magazine), Sept. 2011, pp 7-12. 6 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions the energy consumption per square meter has steadily decreased. Energy consumption per occupant decreased even faster. 2.3. Energy use in public institutional buildings is characterized by its dispersion among many entities and by substantial variations in energy use per unit of floor area or per occupant. There are almost 2 million public institutional entities in China (see Figure 2.2), although many involve small buildings in rural areas. Included in the sector are large government office and research institute compounds (from both central government ministries and provincial governments), about 20,500 hospitals (including some very large ones), and more than 2,700 universities (often involving large campus compounds). The sector also includes more than 360,000 primary and secondary schools, over 250,000 community or township health centers and clinics, and more than 600,000 village health stations. Figure 2.2: Number of Public Entities in China by Sector, 2010 (in thousands) Source: The Twelfth Five-Year Plan for Energy Conservation in Public Institutions. 2.4. Types of energy demand. The main types of energy demand in the public building sector are energy for space conditioning,6 lighting, and plug loads.7 Special additional loads, such as hot water heating, exist as well, particularly in hospitals and at some universities. Energy demands for space heating are particularly critical and large in northern areas, with heating typically relying on central hot water radiator systems supplied from district heating systems, or on individual coal or gas-fired boilers. Smaller office buildings, rural health facilities, and large numbers of primary and secondary schools in the countryside are often underheated in the winter. The efficient supply of sufficient heat for public building occupants is therefore easily the biggest energy use issue for these entities in the colder, northern areas of China. Coal and purchased heat account for more than 50% of the energy consumed in the public sector (see Figure 2.3). In most large and medium- 6. Demand for space conditioning (heating, cooling and ventilation), and with it building energy consumption, varies a lot across China as the country encompasses five climate zones: “extremely cold,” “cold,” “hot summer and cold winter,” “hot summer and warm winter,” and “warm.” 7.Plug loads refer to the amount of energy consumed by devices from an electrical outlet, such as office equipment and miscellaneous electrical equipment. 7 China: Improving Energy Efficiency in Public Institutions sized buildings in the southern, eastern, and central parts of China, especially in urban areas, electricity-based space cooling represents perhaps the biggest energy use, as summers are hot and ventilation requirements key. However, in many schools and smaller buildings, space conditioning is still considered a luxury and generally not common unless there are special circumstances. In north-central Sichuan Province, for example, even large university compounds have little space conditioning, and the total energy demand—stemming mainly from lighting, computer equipment, and some water pumping—is therefore quite small. In other areas, however, such as in Beijing, both space heating and cooling may be used in larger buildings. Figure 2.3: Percentage of Energy Consumption by Public Entities in China by Fuel, 2010 Source: The Twelfth Five-Year Plan for Energy Conservation in Public Institutions. 2.5. An important determinant of energy consumption is the occupancy pattern of buildings, which varies widely among public entities. For example, large sections of many hospitals are occupied 24 hours per day, while some government office facilities are only open during office hours five days per week. University facilities have a 24-hour occupation in dormitories, but only during the school year; classroom space is only used during class time. Other school facilities may only be used during the day and when class is in session. Dealing efficiently with occupation patterns is therefore a key energy management issue and an important factor in determining the real energy savings benefits from energy conservation projects. 2.6. Energy use statistics. Macro-level statistics on public institutional energy use are now collected, but detailed statistics are not available to the public. Efforts are underway to improve the system for collecting statistics. While officials at various levels have access to a variety of statistical reports, the quality and consistency of the reports is said to be very uneven. 8 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions Overview of the Institutional Framework for Public Organizations in China 2.7. Policies and specific activities for energy conservation in public institutions in China will need to work in the specific context of China’s institutional framework and budgeting process for public entities. Introduction to the Organization of the Chinese Government 2.8. China’s government is organized along a vertical hierarchy with four main levels: the central government, provincial governments,8 prefectural governments, and county governments (see Figure 2.4). The State Council, China’s highest executive body chaired by the premier, presides at the top of the government organization, with all central government ministries, independent departments, and all provincial-level governments reporting directly to the State Council. Of the 27 central government ministries and commissions reporting to the State Council, several are especially important for public institutional energy conservation work. These include the National Development and Reform Commission (NDRC), the Ministry of Housing and Urban-Rural Development (MOHURD), the Ministry of Finance (MOF), the Ministry of Education (MOE), and the Ministry of Health (MOH).9 As of early 2011, an additional 38 central organizations outside of the framework of ministries and commissions also reported to the State Council. These include the National Bureau of Statistics, the State Administration of Taxation, the Chinese Academy of Sciences, and the State Electricity Regulatory Commission. Among these 38 organizations is also the General Offices Administration (GOA) of the State Council.10 GOA is charged with oversight for central government office building development, land use, registration, occupation, management, operation, and renovation. It also plays a key role in energy conservation work, both for central government office buildings under its purview, and for China more generally. 2.9. Mirroring the responsibility of the premier at the national level, provincial governors lead governments at the provincial levels. They report directly to the State Council (occupying the same rank as ministers). The basic set-up of China’s central government is then repeated at the provincial level. Various commissions, provincial departments, and other agencies report to the governor’s office, such as provincial Development and Reform Commissions (DRCs), provincial finance bureaus (FBs), and provincial GOAs. In addition, prefecture directors also report directly to the governor. The prefecture government, under the leadership of these prefecture directors, then follows a setup similar to the provincial government system, as do the more than 4,000 county governments below them. 2.10. Provincial, prefecture, and county departments report to the government leaders at their own level, but also maintain working relationships with higher- and lower-level departments within their 8. Excluding Hong Kong SAR, Macao SAR, and Taiwan, provincial-rank administrative entities include 22 provinces, 4 provincial-level municipalities (Beijing, Shanghai, Tianjin, and Chongqing), and 5 provincial-level autonomous regions (Inner Mongolia, Guangxi, Tibet, Ningxia, and Xinjiang). For simplicity, general discussions of “provincial level” in this report include all of these entities. 9. For illustrative purposes, Figure 2.4 only shows four of China’s many central agencies reporting to the State Council. 10.The GOA of the State Council is not a ministry like the other three entities that are shown, but it does report independently and directly to the State Council. The organizational arrangements for completing government office administration tasks at provincial and local government levels vary—not all provincial and local governments have independent GOAs; see para.2.35. 9 China: Improving Energy Efficiency in Public Institutions Figure 2.4: China’s Multilevel Government Structure The Central Government Central Government: Government National Ministry of Offices Development Ministry of Housing and Administration of and Reform Finance Urban-Rural the State Council Commission Development Governor's Office Provincial Government: Government Development Offices Construction and Reform Finance Bureau Administration Commission Commission (FB) (GOA) (CC) (DRC) Prefecture Director's Office Prefecture Government GOA DRC FB CC County Director's Office County Government GOA DRC FB CC Note: For illustrative purposes, only a selection of agencies is shown for each level of government. Solid lines depict direct reporting relationships; dotted lines depict additional operational linkages within the same professional streams (“xitong” or work systems). Source: Authors. professional stream or “work system” (depicted by the dotted lines in Figure 2.4). For example, provincial FBs work closely with both MOF and prefecture and county FBs. Lower-level units receive guidance and professional instructions from higher level units in the same work system. The cohesiveness and extent of higher-level operational authority vary among work systems, depending on the needs of the work. For example, the work system of the Bureau of Statistics is more vertically driven and autonomous from local governments than for example the system including MOHURD and local Construction Commissions (CCs). MOHURD promulgates national policies and provides guidance and technical support, but allows local governments a strong direction in operational matters. 10 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions Overview of the Government Budgeting Process 2.11. The principles behind China’s basic government budget processes are similar to those of most other governments. MOF and local government FBs are in charge of the overall system. While there are broader, multi-year guidance plans, budget allocations to units receiving state budget support are made on an annual basis for the fiscal year (which in China follows the calendar year). At the central level, MOF has oversight of the central government’s allocation of its revenue to the annual budgets of central government departments and for transfers to provincial governments. On the provincial level, provincial FBs allocate their provincial government revenue to the annual budgets of the provincial government departments and for transfers to prefecture governments. This pattern continues with the local levels of government. The various ministries and departments have their own financial units, which oversee the details of the budget allocations they receive and also work with the various entities they supervise. For example, a provincial-level university will receive its state budget allocations from the finance unit of the provincial-level education department, which in turn receives its overall budget allocation from the provincial FB. 2.12. Special energy conservation funds. MOF and most provincial and local FBs have special energy conservation funds that can be used by government facilities to implement energy conservation projects. If a central government facility wants to use these funds for an energy conservation project, the facility management department submits an application to the relevant ministerial department, which in turn submits the application to GOA for review. If the review is positive and the project’s merits have been demonstrated, GOA submits the project to NDRC for approval. Once approved by NDRC, funds will be disbursed the following fiscal year by MOF. In the case of equipment purchases, suppliers must be selected from an approved list of suppliers for government procurement by central government institutions. This basic approval process for central government energy conservation projects is illustrated in Figure 2.5. The approval process at the provincial level is almost the same, with provincial entities replacing the central government ones. 2.13. The government budgeting process affects all public institutions in China, but the extent to which different public institutions rely on government budgets varies dramatically. Government offices typically rely on government budget allocations for all their expenditures. Primary and secondary schools also usually rely heavily on government budget allocations—especially in poorer areas—but may also have some funds from tuition and other sources. Universities typically have a mix of funding resources in addition to budget allocations. Hospitals are among the most independent in funding, with substantial revenue from user fees in addition to government funds. This variation has a big impact on the entities’ energy conservation incentives and financing options. 2.14. Central government offices. Although GOA has direct oversight over a broader range of central government facilities, office buildings and staff residential compounds comprise a large portion of its responsibility. GOA oversees the management of buildings of the central government and associated centers, institutes, and related institutions. This responsibility includes, but is not limited to, overall real estate and land use management; oversight of construction and renovation projects; establishment, implementation and supervision of policies guiding property management 11 China: Improving Energy Efficiency in Public Institutions Figure 2.5: Basic Approval Process for Funding Energy Conservation Retrofit Projects Government Offices Administration of the Ministry of Finance State Council • Energy budget or • Eligibility retrofit project • Comprehensive approval • Funding proposal review and disbursement clearance Central National Government Development and Institutions Reform Commission Source: Authors. units and contractors; and guidance of construction and property management of residential blocks for central government staff. GOA also is responsible for energy conservation work in central government facilities (see Table 2.1). 2.15. Provincial and local government offices. Government offices at provincial, prefectural, and county levels are each managed by GOAs or similar organizations at their respective levels of government. Although they may receive policy and program guidance from higher level GOA units, they report to the government leaders at their own level. Specific arrangements vary, but responsibilities similar to those of the central-level GOA for central government facilities are shared among one or more entities. For example, in some areas GOA-type functions are undertaken by one broad government unit, while in others these functions are split between different agencies, such as between government and Communist Party entities. Table 2.1: Ownership of and Responsibilities for Buildings of Different Public Institutions Number of Operation and Public separate entities Building O&M Investment maintenance institution /surface area ownership management budget (million m2) Central State Central government Unpublished MOF MOF Council government buildings GOA Provincial Provincial Provincial government Unpublished Provincial FB Provincial FB government GOA buildings Local Local Local government Unpublished Local FB Local FB government government buildings 12 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions Number of Operation and Public separate entities Building O&M Investment maintenance institution /surface area ownership management budget (million m2) - Central / - Central / MOE / provincial provincial MOE, other Provincial government government Universities 2700 / 590 government education - Own funds - Own funds entities department (tuition) (tuition) Local Local Local Schools 366,300 / 1388 MOE government government government 20,500 - MOH hospitals / MOF (for initial 240,000 other investment) Own revenue Hospitals MOH Hospital health centers (user fees) - Own 650,000 village revenue (for health stations renovation) Source: Authors. 2.16. Universities. The great majority of Chinese universities, especially the largest and best, are public universities. China’s more than 2,700 universities educate over 30 million students and occupy buildings with a total construction floor area of about 590 million square meters, equivalent to some 2.7% of the country’s total urban building area. Universities fall under the oversight of MOE and its local government affiliates, through whom universities also receive their government budget allocations. Many of the more famous universities report directly to MOE (and hence to the central government), but many others also report to provincial education commissions (and hence to provincial governments). A few report to both for historical reasons. While it is estimated that universities on average rely on government budget allocations for less than half of their expenditures (relying on tuition and other revenue sources for the rest), this ratio varies among universities. 2.17. Primary and secondary schools. The vast majority of China’s primary and secondary schools is also public. At the end of 2009, some 280,200 primary schools were in operation, of which less than 5,500 were private. Middle schools numbered 56,300, while high schools totaled almost 29,800.11 Total construction floor area of the primary and secondary schools amounted to 1,388 million square meters at the end of 2009, which is 2.4 times larger than the total floor area of higher education facilities. Primary and secondary schools report to and receive the bulk of their funding from local government education departments, which closely manage school investment, renovation, and operating cost budgets. As in many other countries, heavy reliance on local funding results in great differences between regions in the amount of resources available to schools. 11.Statistical Communiqué on National Educational Development, 2009. 13 China: Improving Energy Efficiency in Public Institutions 2.18. Hospitals. Although quite a few of China’s 20,500 hospitals are associated with universities or other broader institutions, most are managed independently. In addition to hospitals, almost 30,000 community health service centers, 38,000 township health centers, 174,000 clinics, and almost 650,000 village health stations are operated in the country. These institutions fall within the purview of MOH and its local government affiliates. Major hospitals may report directly to MOH, but many report to provincial government health departments. Hospitals are ranked into three classes. Class I hospitals are local hospitals, serving the surrounding local community, Class II hospitals are regional hospitals, serving several local communities (such as a city), and Class III hospitals serve beyond a particular region. With many hospitals expected to basically cover their own costs from user fees (including either insurance or patients’ out-of-pocket payments) and other revenue sources, public funding of hospital expenditures is estimated to only account for about 10% of total expenditures on average. 2.19. Other. Although their total energy consumption is small compared to that of the large public institutions, many other types of institutions (outside of the defense and security establishments) rely on budget allocations to operate buildings. Examples include sports facilities, cultural facilities such as museums or exhibition halls, and science and technology centers. These are overseen by other ministries and their affiliates, such as the Ministries of Culture or Science and Technology. Main Jurisdictions of Government Agencies for Energy Savings in Public Institutions 2.20. NDRC, MOF, MOHURD and GOA, as well as their local equivalents all have responsibilities developing policies and guidance on energy savings in public institutions. Direct responsibilities for meeting specific energy conservation goals, implementing programs, and supervising results fall to the agencies that have overall supervisory responsibility for a specific subsector. The main responsible agencies and their direct jurisdictions are as follows: • GOA: Guides and monitors the energy savings of public institutions nationally, and monitors and manages energy savings of central government facilities. • Provincial GOAs or equivalents: Provincial government facilities • Prefecture/county GOAs or equivalents: Prefecture/county government facilities • Ministry of Education: Universities reporting to the central government • Provincial departments of education: Universities and schools reporting to provincial governments • Prefecture/county departments of education: Schools reporting to local governments • Ministry of Health: Hospitals reporting to the central government • Provincial/prefecture/county departments of health: Hospitals and clinics reporting to provincial and local governments. Other facilities such as sports facilities, cultural centers, and science and technology centers follow similar patterns. 14 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions Overview of China’s Recent Policy Development for Energy Conservation in Public Institutions 2.21. China’s comprehensive effort to improve energy efficiency in public institutions is relatively new, compared to some other countries that have had programs in place for several decades. However, China’s effort is remarkable in that formal policy backing is strong and much progress has been made in a relatively short period of time. A Timeline of Recent Key Policies 2.22. Soon after the beginning of the new century, leaders in China’s government began to pay special attention to the issues of energy and water use efficiency in public institutions. In 2002, two surveys (using random samples) were used to collect information on energy use in public buildings, as well as on associated management issues. The survey results provided a basic and practical understanding of the situation, which was a foundation for future work. 2.23. In 2004 and 2005, a series of central government and Party documents were issued, calling for new and serious efforts to improve energy efficiency in the public sector. This in particular included proposals for the establishment of energy and water use quotas and related budget expenditure standards for government offices, the establishment of a new system to include energy efficiency criteria as a key element in the government’s procurement of new equipment and vehicles, and attention to energy efficiency issues when renovating government office buildings. Senior leaders also pointed out how important it was for the government to set a good example in using energy and water efficiently in its facilities, and the educational importance of leadership in promoting energy efficiency in educational institutions. 2.24. In 2006, China launched its 11th FYP (2006-10), and the plan’s energy efficiency program— far more aggressive than that of previous plans—for the first time included a focus and specific efforts to improve energy efficiency in public institutions. Figure 2.6 shows a timeline of successive key public sector energy efficiency policies. In February 2006, several government ministries issued a circular calling for improvements in resource savings in government institutions, setting a target to reduce both energy use per occupant and energy use per unit of building area by at least 20%. The circular also specifically mentioned an electricity and water savings target of 20% for each. Energy conservation in public institutions became one of the “Ten Key Energy Conservation Projects” for the 11th FYP, encompassing many of the initiatives discussed in subsequent sections of this chapter. New regulations also established lists of energy efficient and energy wasteful equipment, mandating use of the former and banning use of the latter in future government procurement.12 2.25. In 2007, China’s National People’s Congress passed a major amendment to the Energy Conservation Law, which included new sections on energy efficiency in public institutions. In the 12.China’s recent efforts to promote both the purchase of energy efficient equipment in government procurement transactions and energy conservation in public vehicle use are major topics. Because this report focuses on energy efficiency improvements of public institutional buildings these topics are not covered here. However, more information is available from public Chinese sources. Energy-efficient purchasing is covered in an ESMAP report; see Public Procurement of Energy Efficient Products—China Case Study, unpublished consultant report to ESMAP by Liu Caifeng, November 2011. 15 China: Improving Energy Efficiency in Public Institutions Figure 2.6: Timeline of Key Public Sector Energy Efficiency Policies (2006-2010) April 2010 • Opinions on Accelerating October 2008 the Promotion • Regulation of Energy on Energy Performance Conservation Contracting October 2007 in Public and the • Amendment of Institutions, Development China's Energy State Council of the Energy Conservation Efficiency Law, National Service Peoples' Industry, State March 2006 Congress Council • Approval of the 11th Five Year Plan, 2006- 2010, National Peoples' Congress Source: Authors. amended Law, public institutions are assigned definite obligations to improve energy management and the efficiency of their energy use. Specific provisions in the Law also set a strong legal basis for a suite of new regulations and policies that were subsequently issued, further discussed below. 2.26. In August 2008 the State Council issued the “Regulation on Energy Conservation by Public Institutions,” a key regulation describing the responsibilities and requirements of all public institutions for improving energy efficiency (see Box 2.1). Much of the subsequent work on public institution energy conservation has involved developing and organizing the more detailed programs and building the necessary capacity to implement this regulation. 2.27. In 2010 the State Council endorsed and issued “Opinions on Accelerating the Promotion of Energy Performance Contracting and the Development of the Energy Efficiency Service Industry.” Among its many provisions supporting further expansion of the EPC business, this regulation specifically states that where government entities at any level (as well as other non-corporatized public organizations) utilize EPC to implement energy conservation renovations, payments to the ESCOs according to the contracts can be listed in accounts as energy costs. This provision opens the door for elimination of one of the biggest barriers to EPC by public institutions (see para. 4.12). 2.28. Provincial and local governments have also issued complementary policy documents and regulations. By the end of 2011, at least 20 broad overview regulations for public institution energy conservation had been issued by provincial governments. 16 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions Box 2.1: Summary of the State Council’s August 2008 Regulation on Energy Conservation in Public Institutions (State Council Order 531) Issued on August 1st and effective October 1st, 2008, the Regulation on Energy Conservation in Public Institutions aims to strengthen energy management in public institutions and foster their use of feasible and economically rational measures to reduce energy consumption and waste. Energy conservation plans. Organizations responsible for overseeing management of public institutional facilities are required to prepare energy conservation plans for the institutional facilities under their purview. The plans should be in line with the overall medium and long-term energy efficiency plans at their respective government level. The plans should include a review of current energy use, issues, goals and targets, key steps for improving energy efficiency, and implementation assignments and duties. Individual entities should set specific annual energy conservation targets and develop implementation plans, specifying concrete measures and reporting on results. Energy conservation management. Entities should implement energy use measurement systems, with sub-metering for different fuel types and energy use systems. Entities should appoint specialized persons to be responsible for energy consumption statistics, including the recording of original energy use measurements and establishing statistical accounts. Every year by the end of March, entities should report the previous year’s energy use situation. Energy use quotas should be set, considering the overall energy consumption levels and special characteristics of different subsectors and systems. Finance departments should establish energy use expenditure standards based on these quotas. Above-quota energy use should be explained to the organization responsible for overseeing those particular public institutional facilities. Entities should procure new equipment from established energy efficient equipment lists, and not procure from established lists of banned wasteful equipment. Relevant design, construction and commissioning codes and standards should be strictly followed and supervised for new public building construction and building renovation projects. Project proposals must include energy efficiency assessments which must be approved. Energy auditing. Energy audits should be completed according to regulations. They should include technical and economic assessments and recommend specific energy conservation measures. Detailed methodologies should be set by relevant departments. The energy audits should include: (i) review of energy efficiency design standards used at the time of commissioning and as listed in equipment documentation; (ii) assessment of energy use of different systems and fuels, using measurement recording and financial receipts, and calculation of unit consumption per occupant and per unit floor area; (iii) inspection of the operational situation of energy use systems and equipment, and the systems being used for their management; (iv) review of follow-up on recommendations for rational energy use in previous audits; (v) assessment of energy savings potential for different segments or departments, and recommendations on rational energy use; (vi) inspection of annual energy conservation plans and the implementation of energy use quota, as well as a verification of reasons for any above-quota energy use; and (vii) inspection of the operating situation for energy metering equipment and a review of the validity and correctness of energy use statistical reporting. Energy conservation measures. Public institutions should establish energy system management protocols and in line with those protocols adopt low and no-cost energy efficiency improvements. Institutions should also establish energy management positions accountable for implementing state energy policies and hire specialized technical personnel to operate key energy using systems and equipment. EPC can be used. In selecting property management companies, institutions should consider the company’s energy conservation management capacity. Targets and requirements for energy conservation management 17 China: Improving Energy Efficiency in Public Institutions should be specified in the service contracts. Energy conservation renovation projects should be based on audits and a cost-benefit analysis, using clear energy savings indicators, which then should be monitored and verified upon project completion. Some of the technical measures called for include improved management of electrical equipment; adjustment of temperature controls according to regulations; use of natural light and natural ventilation; use of smart-control elevators; adoption of high energy efficiency lamps and optimized lighting system design; electrical circuit control; smart electricity control; and minimizing wasteful external lighting. Energy use in computer network facilities and canteens and for hot water heaters and boilers, among others, should be tested and evaluated to identify energy conservation measures. The use of public vehicles should follow regulations. Monitoring and guaranteeing results. Units responsible for supervising energy conservation management should increase their efforts. Supervision should include an evaluation of the following components: (i) the establishment and implementation of annual energy conservation targets and their implementation plans; (ii) energy use measurement, testing and statistics; (iii) execution of energy use quotas; (iv) establishment of internal energy management regulations; (v) establishment of energy management positions and implementation of related responsibility systems; (vi) operating conditions for energy use systems and equipment; (vii) implementation of energy audits; and (viii) public vehicle outfitting and use. Key Efforts Launched during the 11th Five-Year Plan Period 2.29. Building on the broad policies that had been issued in previous years and with active support from Government leadership, work during the 11th FYP period focused on putting the systems in place to implement the new polices and begin the flow of concrete project implementation. This involved work in three key areas to (i) organize the many groups involved in energy conservation in public institutions and clarify their responsibilities for implementation; (ii) develop statistics and baseline data (which required major improvements in metering and human capacity) to identify priority areas and implement the new energy efficiency management regulations, and (iii) set up and improve effective mechanisms to develop, finance, and implement more energy efficiency projects. Table 2.2 provides an overview of the key measures and programs undertaken during the 11th FYP period. 2.30. Substantial progress was made in all three areas during the 11th FYP period (as summarized below), although of course much work remains on most of the agenda items, with efforts continuing under the 12th FYP (see Chapter 3). Although probably the most important results of the 11th FYP effort were putting key policies in place, developing institutional systems to manage public institutional energy efficiency, and developing project implementation mechanisms, quantitative energy savings results were also achieved. Only a summary of overall energy savings by public institutions during the 11th FYP period has been made public, but results show that energy use per occupant fell by 20.27%, meeting the target set in the FYP. The 20% reduction target for energy use per building area was missed, however, with only a 15% decline reported; see Figure 2.1. 18 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions Table 2.2: Key Agenda Items Developed during the 11th FYP for Energy Conservation in Public Institutions Category Key measures and programs Establishment 1. Revised Energy Conservation Law (2007) of legal and 2. Public Institution Energy Conservation Regulations (2008) regulatory 3. Public Building Energy Conservation Design Standards* framework 4. Party and Government Office Building Design Standards* 1. Disaggregation and evaluation of energy conservation targets 2. Demarcation of work responsibilities, management of implementation arrangements, and coordination among state energy conservation management organizations 3. Establishment of a national management network for pursuing energy conservation in public institutions 4. Further highlighting and enforcement of the government’s energy conservation procurement system* Establishment 5. Completion of statistical systems for energy use in public institutions of management 6. Public institution energy use measurement and online reporting mechanisms platforms 7. Energy auditing 8. Development, implementation, and monitoring and evaluation of entity energy use quotas 9. Appraisal and complete process monitoring and supervision of the energy efficiency of the design for new buildings* 10. Management for conservation of water and land in buildings* 11. Management to conserve gasoline in public vehicles* 12. Information dissemination and training 1. Establishment of special funds for energy conservation projects and protocols for disbursement and monitoring 2. Promotion of EPC mechanisms 3. Sample project themes: Pursuing energy a. Renovation of lighting systems conservation renovation b. Completion of diagnostics and energy conservation renovation of projects heating and cooling systems c. Comprehensive electric power efficiency renovations d. Energy conservation renovations in canteen gas use e. Improved operational management and upgrading of large data centers to save energy * Issues and options concerning these agenda items are not covered in this report. Source: Authors. 19 China: Improving Energy Efficiency in Public Institutions Organizing Groups and Agencies involved in Energy Efficiency in Public Institutions 2.31. A particular challenge in China for promoting actions to improve energy efficiency in public institution buildings is coordinating and organizing the many different and separate groups involved. While the 2008 State Council Regulation is clear about what basic efforts need to be undertaken, these efforts must be implemented by a particularly large number of separate agencies, which are not as a group under any single direct higher command other than the State Council. China has made good progress in organizing the new public institution energy conservation effort, but it is not a simple task. 2.32. To clarify responsibilities for energy efficiency in public institutions, GOA in 2008 established a Public Institution Energy Conservation Management Office, with specialized staff and an objective to both oversee the implementation of energy efficiency measures in central government facilities and to more generally help promote the public institution energy conservation work. In 2010, the office was further upgraded to become the new Public Institution Energy Conservation Management Department. The new department is in charge of managing all of GOA’s work to promote energy efficiency in central government facilities, but also has been asked to promote, coordinate, and supervise the overall national public institution energy conservation effort. The department also guides the energy conservation work of other government ministries (such as MOE and MOH), undertakes broad promotional and training activities, and monitors and evaluates the overall national progress on public institution energy conservation work. 2.33. In its work, GOA must coordinate with many central government agencies on the same level. On energy efficiency issues, coordination at the central government level especially includes NDRC (which oversees the country’s overall energy efficiency policy and program), MOF (which manages relevant special energy conservation funds), and MOHURD (which guides the country’s overall building energy efficiency work). GOA must also coordinate with other ministries and agencies in charge of public institutional entities for which GOA does not have a direct mandate, such as with MOE on energy conservation in universities and schools, and with MOH on energy conservation in hospitals. 2.34. GOA’s relationship with provincial and local government entities on public institution energy conservation issues is one of guidance rather than direct authority. As described in para. 2.9, provincial government entities report to the provincial governor, and local government units report to their local government leaders. Moreover, with its function focused on managing central government facilities and with local government facilities managed by local offices, GOA does not traditionally have the same strong ties with local entities as many other work systems. With GOA’s new role of guiding national public institution energy conservation, efforts were needed to develop a national network system. 2.35. In the last few years, developing this national network has made good progress. By the end of 2011, 26 provinces had established special government divisions or sections for public institution 20 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions energy efficiency. 13The coverage of these new units varies in the extent that they also help guide other provincial or local entities in energy conservation work in education, health, or other sectors. GOA also has worked with the provinces to develop five regional coordination groups, each involving 5-8 provinces, with group chairmanship rotating between the provinces. It also has sponsored an innovative exchange program among practitioners to discuss policy developments and implementation issues and exchange new ideas. 2.36. In 2008 GOA and NDRC worked together to include the evaluation and results of the public institution energy conservation work as an important part of the national annual energy conservation target evaluation. In 2009 and 2011, authorities and experts from GOA and other relevant state departments inspected implementation progress in all provinces for the 2008 State Council Regulations. The review covered the local establishment of public institution energy conservation management systems, information dissemination and training efforts, development of energy conservation plans, the use of energy use statistics, implementation of specific measures, monitoring and evaluations efforts, and the arrangement of financing, among others. In addition to provincial-level inspections, for each province also two to three local governments were randomly selected for evaluation. Several provinces, for example Heilongjiang, have also instituted detailed monitoring and inspection procedures for lower levels of government in their provinces. This encourages improved performance and, on the national level, enables a better understanding of progress and problems on the ground. 2.37. Universities and schools. China’s MOE has promoted efforts to both improve the energy efficiency of universities and schools and also increase awareness of the importance of energy conservation as part of student education. Circulars, issued in 2006, to provincial education committees and higher learning institutions reporting directly to the ministry, called for the development of “resource saving schools.” This should be accomplished through improved planning, resource management, use of new technology, and other measures, including an emphasis on saving water and other resources in addition to saving energy. Use of technical expertise both inside and outside of schools has been encouraged. A subsequent circular in 2007 also emphasized the importance of developing and implementing a variety of activities on resource savings education, and the need to combine this with the development of the resource-savings schools.14 2.38. In June 2010, China’s launched its new National High Education Energy Conservation Alliance at a national meeting in Beijing. Almost one hundred universities participated as founding members. The platform was developed by these leading universities together with the Facility Management Department Sub-association of China’s Higher Education Association. It aims to promote more resource-saving college campuses, encourage the development of green universities, and increase environmental awareness and enthusiasm among university students. The Alliance has initiated a “10-100-1000-10,000 Program,” which seeks to promote 10 types of energy conservation projects among its university members; develop 100 model energy conservation universities 13.Separate public institution energy efficiency government divisions had not been formed in Beijing, Guangdong, Guizhou, Qinghai, and Xinjiang, where DRC divisions are responsible for energy efficiency for public institutions. 14.Ministry of Education (MOE), January 2006, “Notification on Development of Resource-saving School;” MOE, September 2007, “Notification on Launching Energy Conservation and Emissions Reduction School Activities.” 21 China: Improving Energy Efficiency in Public Institutions nationwide; foster the development of 1,000 student organizations that have energy conservation and environmental protection as their main focus; and train 10,000 energy conservation management personnel who can systematically promote energy conservation work in universities. 2.39. While most energy conservation activities in primary and secondary schools are organized locally, one national program was launched in August 2009. The pilot program, “20 Ways to 20% Savings,” aims to help over 100 local schools in Beijing, Shanghai, Chengdu, and Baoding integrate environmental education into their overall curriculum and school activities. The program publishes manuals, provides teacher training, coaches on the preparation of training materials, and periodically provides advice. The schools can cover environmental topics as part of Chinese language, mathematics, and foreign language classes, as well as through a wide variety of activities. In a precursor to the program, the World Wildlife Foundation helped organize energy conservation education competitions among over 60 schools in Beijing and Shanghai.15 2.40. Hospitals. The Property Management Professional Committee of China’s Hospital Association, which was established in the late 1990s, has been playing an increasingly active role in promoting energy conservation in China’s hospitals. It has done so with the encouragement of MOH. Virtually all hospitals in China are members of the association, and its committee provides a key forum for hospital authorities and related experts to exchange information and experiences in promoting energy efficiency. The committee maintains a well-populated website and organizes many specialized meetings. In 2008, it conducted an energy use survey, commissioned by MOH, of 50 hospitals of different classifications and in different climate zones. The committee is further developing energy conservation and emission reduction plans, including a challenging effort to develop benchmarks of energy use for hospitals that have similar characteristics. Developing Energy Use Measurement and Systems for Statistical Reporting and Analysis 2.41. To implement initiatives for improved energy management and energy savings, it is important to know how the energy is used. Energy use statistics must be reliably collected and analyzed. Preparation of accurate statistics also requires measurement of use. In addition, for specific projects an energy audit—an on-site diagnostic review of facility energy use—is needed. 2.42. When China, just after the turn of the century, launched its public institution energy conservation drive, no uniform system for preparing and collecting public institutional energy use data existed. The quality of statistics that were prepared was poor. While invoices and payment records existed for electricity, gas, and heat—as part of regular financial management systems—the data was not always reliable. Record keeping was sometimes lax, and payments would not always reflect actual energy use. This could be a result of substandard metering or, in the case of heat consumption, of the fact that payments are based on the amount of heated floor area and not actual heat use. Sub-metering of specific energy systems or sub-facilities (individual buildings or building compounds) generally is lacking and few energy audits had been attempted. 15.See http://wwfcn.panda.org/en/what_we_do/climate___energy/lclc/20_ways_to_20_/. 22 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions 2.43. Under the 11th FYP, China’s government launched major efforts to address this lack of reliable information, as it needed accurate statistics and end-use information to improve energy management and energy efficiency as set forth in the 2008 State Council Regulation and identify priority projects. This has involved assigning clear responsibilities for collecting and reporting (as well as supervising the collection process) of public institution energy use statistics; defining standardized methodologies and templates; further specifying metering requirements; training personnel; piloting new, on-line and real-time end-use reporting and monitoring; and launching various energy auditing efforts at central and provincial levels. While certainly more needs to be done (see Chapter 3), this investment has laid the foundation for long-term progress. 2.44. Statistical reporting. GOA has led a major effort to improve the system for collecting and reporting energy use statistics for central government facilities beginning in 2006. Most provinces participated in an initiative to develop an energy use statistical report for public institutions covering 2005-2008. In early 2009, GOA issued a circular to all provincial-level government office administration units emphasizing the need for regular statistical reporting to comply with the Energy Conservation Law and 2008 State Council Regulation. In January 2010, GOA formally issued the requirements and templates for reporting all public institution energy use, with the approval of the National Statistical Bureau.16 Public institution energy use statistics became part of the national statistical system, with uniform templates (for trial use until mid 2011) and clear requirements to report statistics to GOA at specified intervals. To ensure correct implementation, GOA has also organized and delivered training, including two sessions for central government entities and four for provincial and local level entities. Over 1,300 participants had attended the trainings by early 2011. 2.45. Several provinces also have made special efforts to formalize their statistical reporting systems. For example, after formally issuing its “Management Method for Energy Savings in Public Institutions,” Jiangsu Province also released its own detailed implementation requirements and guidelines for energy use statistical reporting, measurement, and auditing, along with a list of specific contact persons for queries. 2.46. While a good general framework has now been put in place, much work remains to be done to ensure statistical quality and consistency in the many reports coming from local entities and jurisdictions. This is a long process, requiring steady support, definitive guidance, and strong organization. 2.47. Metering. Statistics on the status of energy use metering for public institutions is not available, but it is understood that substandard metering systems and their incorrect operation are a common problem. Regulations issued during the 11th FYP period have increasingly emphasized the necessity of installing and using metering equipment according to the standards, but much more work needs to be done. In addition, relatively complex facilities, such as university campuses and large hospital compounds, need to install sub-metering, especially for electricity but also for gas and central heating, if a decent understanding is to be gained about who uses energy for what. 16.“The Public Institution Energy Resource Consumption Statistical System” was established by the Government Office Administration of the State Council with approval of the National Statistical Bureau, effective January 1, 2010. 23 China: Improving Energy Efficiency in Public Institutions 2.48. Over the last several years, a number of localities have introduced new real-time, on-line energy use reporting systems for the main government office buildings in their area. In 2007, MOF approved government financing for implementation of pilot systems in Beijing, Tianjin, and Shenzhen. The Beijing system covers 54 major entities, for which energy use can be monitored continually. Data from the system is also used for many types of analysis to determine priorities for future action, for example by establishing and monitoring unit energy consumption benchmarks for different types of consumers. Guangxi Autonomous Region, using its own funds, also developed a dynamic energy use monitoring system for 30 government office and other public buildings. 2.49. Auditing. The 2008 State Council Regulation emphasizes the importance of auditing energy use in public institutions and it set out the minimum scope that should be covered (see Box 2.1). Progress has been made with a range of auditing efforts nationwide. At the central government level, demonstration audits were undertaken for 13 relatively large ministries, including full system testing and diagnostic analysis and recommendations for no-cost, low-cost measures, as well as substantial renovation projects. Many provinces also have organized energy audits for their facilities. The government office administration of Shanxi Province, for example, organized the completion of 150 energy audits of public institutional facilities in the province in 2010. As with metering and quality statistical reporting, however, energy auditing work must be ramped up in the coming years. Developing and Scaling-up Project Implementation Mechanisms 2.50. During the 11 th FYP period, a variety of energy efficiency renovation projects were successfully completed in public institutions at different levels. Some projects were implemented through government budget allocations, using new energy efficiency special funds earmarked by the government. A few other projects were financed without special government budget allocations and used energy performance contracts with ESCOs (see paras. 2.57-2.62 for an introduction). With new promotion policies in place, the use of energy performance contracting (EPC) is expected to grow in coming years. Highlights of the 11th FYP are presented below, with further details provided in Chapters 3 and 4. 2.51. Projects implemented with government budget allocations or own resources. When using public funds for energy efficiency projects, public institutions can in principle use either government budget funds or their own funds. As discussed in para. 2.13, the ability to access own funds for possible investment in energy efficiency projects varies dramatically among the different types of public institutions, with hospitals having the most access and most primary and secondary schools, along with virtually all government facilities, having almost none. 2.52. One way to finance energy efficiency projects through annual government allocated budgets is by using funds allocated for facility renovations. Generally, the use of these longstanding line items needs to be discussed and agreed upon between the entity hosting the project and its supervising government agency. However, these funds are quite limited and many other longstanding priorities exist. Because of this, special public institution energy conservation financing programs were operated during the 11th FYP period, using the energy conservation special 24 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions funds established by MOF at the central government level and by the FBs at the provincial and local levels. The energy conservation special funds are allocated each year in lump sum amounts as part of the overall annual budget developed by the relevant government. Over the entire duration of the 11th FYP period, MOF arranged RMB 500 million for energy conservation renovation efforts in central government public institutions. Provincial and local governments provided at least an additional RMB 215 million during 2006-2009 alone. 2.53. Project proposals to use the special government funds are usually developed by the facility management units17 of the host public institution. These units are in charge of overall facility management, renovation, upkeep, and especially daily operation. Once approved by the leadership of the host entity, the project proposal must be approved through the regular channels (see para. 2.12). The time between project proposal submission and receipt of funds usually is more than one year. 2.54. When initiating projects (either for government financing or EPC), the roles of the various property management units, entity leaderships, and relevant supervising government entities are all very different, but important. Property management units best understand the daily operation of their facilities and must be responsible for detailed project implementation and the ongoing maintenance of implemented measures. The property management units, however, are not likely to directly gain from the energy cost savings and they rarely receive a lot of management attention. Strong involvement and interest of the entity’s leadership is essential for successful project implementation, in part because the leadership can pull together relevant departments, such as the finance department. The important role of entity leadership has been particularly demonstrated at universities and hospitals. In the case of primary and secondary schools, the various units within local education departments responsible for major property management, project financing, and cost savings will all need to work closely together. School principals may be enthusiastic about energy savings possibilities, but the responsible authorities will need to be involved to make projects happen. The same is true for government office facilities, where collaboration between building property management units and the relevant GOAs is key. 2.55. The public institutional energy efficiency projects that were implemented during the 11 th FYP period with support from MOF’s energy conservation special fund included renovations of more than two million square meters of central government office building space and about 525,000 square meters of government-owned residential area used by government staff. Upgraded equipment included boilers, building space conditioning systems, gas stoves, electric hot water heaters, and lighting systems. In 2009, GOA oversaw renovation project investments for heating and air conditioning systems in about 20 agencies, including NDRC and the Ministry of Industry and Information Technology. Over 2,000 smart energy control systems were installed in about 10 major agencies, including MOF, with electricity savings estimated to be around 36%. Thirty-two agencies installed improved dish washing equipment in their canteens, each reducing water use by more than 50%. 17.Sometimes more strictly translated as “logistical management units.” 25 China: Improving Energy Efficiency in Public Institutions 2.56. Among the many successful projects undertaken during the 11th FYP, one is an energy- efficient lamp subsidy program for central government organizations. The program was launched in 2009 by NDRC, MOF, GOA, and other agencies. By May 2010, some 3.3 million energy efficient lighting products had been disseminated, already surpassing the goal of 2 million for the year. Estimated annual energy savings were about 110 Gigawatt hours (GWh). By the end of 2011, the number of energy efficient lighting products that had been disseminated had risen to 4.8 million. To support the program’s implementation, GOA had established strict procedures for application, clear disbursement mechanisms with proper fiduciary control, monitoring and supervision procedures, and good program outreach and technical assistance. 2.57. Projects implemented through EPC. When using EPC to implement public institution energy conservation projects—using either the common shared-savings or the outsourcing models as practiced in China—the public institution or government entity has little or no financial outlay. The investments are paid for from the energy cost savings achieved. A third-party ESCO works with the host entity to develop an energy conservation investment project and signs an energy performance contract. Current common practice is for ESCOs to be engaged through direct negotiation or through simple, relatively quick, procurement procedures. Under the shared savings type of contract commonly used in China, the ESCO will pay for the project investment (sometimes using funds it borrows elsewhere), oversee equipment purchases and project construction, complete commissioning of the project together with the client, and guarantee the energy savings. The ESCO is then paid amounts to cover the investment plus reasonable profits from a portion of the estimated or actual energy savings achieved by the project, based on the provisions in the energy performance contract. Contract durations in China are typically 2-5 years, with the ESCO often receiving 80% or somewhat less of the energy cost savings, and the host receiving the balance. So far, however, relatively few EPC projects have been implemented in public institutions in general, or in government offices specifically (see para. 2.61). 2.58. Today, China’s ESCO industry is very vibrant. EPC in China has developed from the initial operations in 1996 of three pilot ESCOs to a domestic industry with investments exceeding US$ 4.2 billion in 2010, making China and the United States the two global leaders in the EPC business. Energy performance contracts in China are generally classified into three types: shared savings, guaranteed savings, and outsourcing contracts (see Chapter 4 for a comprehensive discussion of EPC). Although generally similar to energy performance contracts in North America and other countries, Chinese contracts do have some unique characteristics. Under all three contract types, ESCOs typically undertake the detailed project design, manage most project implementation aspects, and guarantee energy savings performance. Financing, contract details, and asset ownership however vary by contract type.18 2.59. Most of the energy performance contracts, about 61%, that were implemented during 2007- 09 by the more than 400 members of the ESCO Committee of the China Energy Conservation Association (also known as China’s Energy Management Company Association, or EMCA) were “shared savings” contracts. China’s shared savings contracts are different from contracts with 18.For more information on China’s ESCOs, see Sun et al. 2011, “China’s ESCO Industry 2010: Saving more Energy Everyday through the Market” (unpublished report, May 2011, available from EMCA). 26 Chapter 2: Recent Progress in Promoting Energy Efficiency in Public Institutions similar names that are used in other countries; most shared savings contracts in China base the payments to the ESCOs on an agreed percentage of an agreed estimated minimum energy savings scenario, as long as project savings monitoring arrangements verify that at least the agreed level of energy savings has materialized with normal asset operation. Any additional savings are usually ‘given’ to the clients. As long as the project delivers the basic results that originally had been expected, these contracts typically result in a predictable payment stream. Although cases exist in which payment streams vary every payment period, as they are based on ongoing measurements of actual savings during the contract period, these cases are a minority. Hence, most Chinese shared savings contracts are actually more similar in principle to the ”ESCO-financed guaranteed energy savings contracts” typically used for federal government energy performance contracts in the U.S., except that Chinese ESCOs usually share some portion of energy cost savings with their clients throughout contract periods. 2.60. About 36% of energy performance contracts implemented by EMCA members during 2007-09 were “guaranteed savings” contracts. Under these contracts clients provide the bulk of the financing themselves, while ESCOs offer some form of financially significant guarantee of the energy savings performance. The remaining few contracts during the same period were “outsourcing” contracts. With outsourcing contracts, which are growing in popularity, ESCOs finance, manage, and operate (or assume long-term management contracts) key energy-using assets within the client’s facilities in exchange for compensation that in some way is related to the energy savings resulting from the operation of the asset. 2.61. Industrial sector EPC currently dominates the ESCO industry in China. It accounts for half of all projects and three-quarters of the total investment of EMCA member ESCOs during 2007- 2009. Although the investment levels per project are lower, energy performance contracted building projects are common and thriving, accounting for 49% of project totals. However, the bulk of building energy performance contract projects is with commercial establishments. Some energy performance contracts have been successfully implemented with universities and hospitals, but projects involving government facilities are rare. This is dramatically different from the ESCO industry in the United States, where EPC with public institutions, especially government facilities and schools, has long dominated the ESCO industry, and where EPC with commercial building entities or industries is relatively rare. 2.62. With the strong support of the government, strong market growth momentum, and the new provisions in the April 2010 ESCO policy statement of the State Council, a good basis exists for development of the public institutional facility EPC market. However, EPC in the public sector must overcome a variety of hurdles. After strong initial enthusiasm in 2011, many Chinese ESCOs are frustrated in their efforts to rapidly develop this market. After a discussion of key challenges and options for public institution energy savings in China (in Chapter 3), examples and suggestions for further developing EPC in China are presented in Chapter 4. 27 China: Improving Energy Efficiency in Public Institutions Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results 3.1. China’s recent efforts, described in the previous chapter, have enabled and created a solid base for energy efficiency programs in China’s public institutions. The next step will be to broaden and deepen the current energy efficiency programs. This chapter reviews the issues and options to do so. After a brief overview of China’s current plans for the medium term, the chapter presents relevant experiences from the United States and Europe that have proven useful in addressing the three key barriers—the “three no’s”—described in Chapter 1: no incentives, no technical competence and no funding. The chapter presents options to overcome these barriers so that sustained progress in energy conservation in public institutions can be achieved. Plans for the Mid-term: Energy Conservation Efforts in Public Institutions under China’s 12th Five-Year Plan 3.2. China’s new 12th FYP includes a key target to further reduce China’s energy consumption per unit of gross domestic product (GDP) by 16%. This follows the 19.1% reduction already achieved during the 11th FYP period. One of the specific measures to achieve this goal is the further promotion of energy efficiency in public institutions. Specifically, public institutions’ energy consumption per person should be reduced by 15% and the unit energy consumption for building floor area by 12%. 3.3. To meet these targets, the government would like to put a relatively complete public institution energy conservation organization and management system in place by 2015. This system should include a regulatory system, a measurement and supervision system, a technical support system, a public information and training system, and a marketized service system (that is, EPC). The focus of the 12th FYP is to continue with concrete measures to implement the vision laid out in the 2008 State Council Regulation and the agenda initiated during the 11th FYP period (compare Table 2.2). Key goals include the following: • Completing the organization of the management system and strengthening coordination of organizations. This includes increased coordination between central government agencies and within specific subsectors such as education and health, establishing energy conservation management and supervision systems based on the special conditions of the sectors. • Completing the policy system and establishing institutional and management mechanisms that can be effective over the long term. This includes research into setting up an energy auditing system and strengthening economic and technical assessments of public institution energy use situations. To complete the statistical system for public institution energy consumption, norms are to be established for the types of and calculation methods for energy use statistics. Public institution energy consumption quotas and expenditure disbursement standards will be introduced, considering the energy use levels and special characteristics of different subsectors. 28 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results • Strengthening measurement and statistics to solidify the foundation for work and provide a better basis for decision making. This includes four important areas: (i) Establishment of a system of standards for measuring public institution energy consumption by user, type, and use system; (ii) normalization of measurement equipment and management, and development of pilots, demonstration, and promotional efforts for measurements for different users, energy types and energy use systems, with a special emphasis of installing heat measurement equipment in entities with appropriate conditions and in new buildings; (iii) improvements in the collection, transfer, and processing stages for public institution energy consumption statistical data, including statistical data checking and specialized supervision and inspection of statistics; and (iv) development and training of statistical staff. • Strengthening the supervision system and monitoring of entity target achievement, with incentives and penalties. The energy conservation responsibility system will be further developed with the gradual assignment of targets and supervision of compliance at different levels. A system of awards and penalties will be established. • Establishing a technology support system and speeding up new technology demonstrations and popularization. This includes a catalogue of technologies to promote. • Deepening the development of promotion, education and training, and promoting capacity building. This will consist of a series of information dissemination and training programs on various topics, including energy management. • Developing mechanisms for multiple channels of financing to increase the level of investment. The catalytic role of government funds is emphasized and the need to include funds for energy efficiency (EE) operating expenses and some EE renovation work in regular government budgets, at the central, provincial and local levels. This could be supplemented with regional energy conservation funds, and, importantly, with increased levels of private sector funds, especially through EPC. To encourage the use of EPC, subsidies and the ability to retain some savings by entities implementing EPC projects will be considered. • Strengthening international exchange and promoting international cooperation. To study advanced energy conservation policy, technology, mature management experiences, and models that are relevant to public institution energy conservation, international exchanges and training will be organized and developed with international organizations, international financial institutions, and the energy conservation cooperation programs of different countries and regions. • Implementing energy efficiency demonstration projects. The following areas are targeted for the realization of energy conservation investments: (i) model public entity energy conservation programs, (ii) demonstrations of good energy use metering and sub-metering 19.It is interesting to note both similarities and differences in the relationships between the federal and state government programs in the United States, between the European Union (EU) and individual country and local programs in Europe, and between the central and provincial government programs in China. 29 China: Improving Energy Efficiency in Public Institutions systems (including both separate energy-use system metering and separate key sub-entity metering), (iii) demonstrations of effective metering and use of consumption-based billing systems for heat, and (iv) demonstrations of key energy efficiency renovation projects. Public buildings and their energy use systems will continue to be a key focal area for activities, as will be vehicle fleets, use of new and renewable energy, and water conservation. Table 3.1 presents an overview of planned projects in these areas, showing 2011-15 targets for energy savings and penetration. Table 3.1: 12th FYP Key Public Institution Projects and Targets 2011-2015 Energy 2015 Penetration savings target target (mtce) Model energy saving public institutions energy efficiency 2000 units with 1.2 renovation of building envelope and key energy-using systems 20 million m2 Green lighting • 100% • High efficiency fluorescent lamps 0.6 • 10% (25 • LED (and other advanced lighting) million units) Green data centers 0.4 1000 entities Office equipment energy use planning 0.64 N/A Energy efficient gas stoves 0.36 80% Building heat metering and energy conservation • 100 million • Measured heat supply and consumption-based billing m2 • Building envelope structural energy conservation 1.3 • 30 million m2 renovation • 15,000 tons of • Heat boiler renovation steam New and renewable energy (solar energy use and ground- 0.2 2% source heat pumps) Efficient water devices N/A 80% High-efficiency or new energy vehicles of newly procured N/A 50% vehicles Garbage separation N/A 80% Recycled/properly managed disposal of old lamps and N/A 80% electrical equipment Total targeted energy savings from key projects 4.7 Note: N/A=Not applicable Source: “The Twelfth Five-Year Plan for Energy Conservation in Public Institutions,” as published in “Zhongguo Jiguan Houchin" (China Public Agency Facility Management magazine), Sept. 2011, pp 7-12. 30 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results Relevant International Experience 3.4. While China’s situation and government structure differ from those in Europe and the United States, many similarities exist, making it relevant to study these regions’ experiences with initiating, sustaining, and growing energy savings projects in public institutions.19 One key similarity is the impact of the public sector’s budgeting system on both incentives and financing channels for energy savings projects. In addition, many countries have also had to address the same issues of statistical conformity, metering, energy auditing, benchmarking, building labeling and development of alternative financing mechanisms (in particular EPC, discussed in Chapter 4) that China currently faces. Because programs in Europe and the United States have been developed over the last 30 years, many good examples of successes—and failures—exist, which can help China make informed decisions about the best ways to accomplish its medium term goals. Public Institution Energy Efficiency Targets in the United States 3.5. The U.S. Federal Government is the largest single energy consumer in the United States. It oversees approximately 500,000 buildings with a total of about 280 million square meters. Federal construction spending is approximately US$30 billion per year. Energy costs alone equal about US$7 billion annually.20 Still, federal government energy use, which covers public universities, schools, and medical and government facilities, accounts for only about 20% of total public facility Figure 3.1: U.S. Federal Government Progress toward Facility Energy Efficiency Goals (2003 – 2015) Btu=British Thermal Unit, RE=renewable energy, EISA=Energy Independence and Security Act, EO=Executive Order, GSF=Gross Square Foot Source: Tremper 2011. 20.See FEMP, Sustainable Buildings and Campuses. 31 China: Improving Energy Efficiency in Public Institutions energy use in the country. Public entities at the state and local level account for the remaining 80%, with public schools as one of the largest consumers of energy. 3.6. The United States currently does not have a target for an overall reduction in energy intensity of the national economy or an overall national target for energy savings in public buildings. However, the federal government and many states and municipalities have set their own targets for energy savings in their public buildings. Many of these targeting programs have fairly long histories. 3.7. At the federal level, national energy laws and executive orders have established requirements for energy savings, starting with the 1988 Amendment to the National Energy Conservation Policy Act (NECPA), which set a goal to achieve energy savings of 10% by fiscal year (FY) 1995, compared to a FY 1985 baseline. Since then, targets have become stricter, more detailed, and more comprehensive, encompassing mandates for renewable energy deployment, water conservation, greater efficiencies in vehicle fleet energy consumption, and other sustainability aspects. The current goal, established in 2007 in Executive Order (EO) 13423 and codified in the Energy Independence and Security Act (EISA) in the same year, is to reduce building energy use by 3% annually and 30% in total by the end of 2015, relative to 2003. 3.8. Figure 3.1 contrasts the annual targets and actual energy use in federal government buildings between 2003 and 2015. Preliminary data suggest that the interim goal for 2010 was missed in terms of the energy savings measured “at site.” If, however, energy saving credits from reduced energy use “at source”21 and from renewable energy purchases are considered, the interim goal of 15% savings was achieved. 3.9. The latest Executive Order to set sustainable energy goals is the 2009 EO 13514, requiring federal agencies to measure, manage, and reduce greenhouse gas (GHG) emissions toward specific agency-defined targets. For example, the General Services Administration (GSA) had a target to reduce GHG emissions by 28.6% during 2008-2010, the Environmental Protection Agency (EPA) 25%, and the Department of State 20%, to be achieved through reduction of the intensity of energy use in buildings and transport and an increase in renewable energy use. Together with previous laws and executive orders, EO 13514 establishes a framework for strategic planning, accountability, and transparency in implementing those goals. This includes targets for the implementation of certain measures, such as the designation of energy managers, metering, auditing, and benchmarking of facilities. Box B.1 in Appendix B provides more information on energy efficiency policies and programs in the federal government; subsequent sections in this chapter discuss implementation issues and results. 3.10. To implement the program and meet federal targets, federal agencies cannot rely on the very limited budgets specifically appropriated for this program. Instead, federal agencies use other 21.For details on the calculation of energy consumption at site and on a source basis, cp. DOE/FEMP 2004; see FEMP 2004, Section 502(e) Guidance: Providing Credit Toward Energy Efficiency Goals for Cost-Effective Projects—Where Source Energy Use Declines But Site Energy Use Increases (Amended October 1, 2004). 22.The American Council for an Energy-Efficient Economy (ACEEE) notes in its report, The 2010 State Energy Efficiency Scorecard (ACEEE 2010), that all but five states have “Lead by Example Policies.” Such policies are one component in determining a state’s ranking in ACEEE’s state energy efficiency score card, published each year by this non-profit energy research organization. 32 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results retained budget funds as well as alternative financing sources such as Energy Savings Performance Contracts (ESPCs) and Utility Energy Services Contracts (UESCs), or special incentives and investment cost rebates offered by energy utilities in many states following state government regulation; for details see paras. 3.81-3.89 and Chapter 4. Using both budget financing and alternative financing sources, investments in energy efficiency measures in federal buildings are more than US$6 billion over 20 years. As a result, energy consumption in federal buildings has been reduced by about 30%. Between 1998 and May 2011, the Super ESPC concept alone has resulted in US$2.4 billion of project investment and annual energy savings of about 637 million tce, generating a total energy cost savings of US$6.6 billion and net savings for the federal agencies of US$220 million (see Box 4.1). 3.11. In addition to federal government targets, almost all states22 and many cities and local governments have independently established their own mandatory targets for state agencies to reduce GHG emissions and energy consumption. Some of the targets are quite aggressive (see also Table B.1 in Appendix B). Many states have fairly comprehensive programs for public buildings, which might specify, among other things, that new and refurbished buildings must comply with Leadership in Energy and Environmental Design (LEED)23 or other green building standards, or surpass existing state building energy codes. Several states and cities have acquired a reputation for being leaders on energy efficiency or climate-related issues. Key examples are the states of California and the city of San Francisco, the state of Oregon, the state of Washington and the city of Seattle, the state of Massachusetts and the city of Cambridge, and the capital city, Washington, D.C., among others. Their innovative programs can serve as best practice examples for other governments.24 Public Institution Energy Efficiency Targets in the European Union 3.12. Since the late 1990s, the development of energy policies in general and energy efficiency policies in particular in member states of the European Union (EU) has been driven by overall EU policies and regulations. An overarching energy policy was established by the EU 20-20-20 Plan: In 2007, the EU committed to reduce absolute GHG emissions and primary energy use totals by 20% each, and to increase the renewable energy share in the energy mix to 20%, all by 2020, irrespective of how fast the economy would grow. Recent EU Commission estimates, however, have shown that the EU has been on course to only achieve about half of the targeted reduction in total energy consumption. Accordingly, the Commission published a new Energy Efficiency Plan in early 2011, designed to close the energy savings gap. It includes several proposals relevant for public institutions. The plan states that public institutions should set a good example for others, as they own or occupy about 12% of the entire EU building stock by area. The building renovation rate should be doubled to at least 3% of the stock per year, bringing public building energy efficiency up to the level of the best 10% of the overall building stock. The EU Commission also is proposing for energy efficiency standards to be incorporated more fully into public procurement. The Commission 23.LEED (http://www.usgbc.org/LEED) is a green building certification system, developed and administered by the U.S. Green Building Council (USGBC). LEED promotes a whole-building approach and rates performance in nine areas: sustainable site development, water savings, energy efficiency, materials selection, indoor environmental quality, location and linkages, awareness and education, innovation in design, and regional priority. 24. See ACEEE 2010 (footnote 22) and EPA report, Energy Efficiency in Local Government Facilities and Operations. 33 China: Improving Energy Efficiency in Public Institutions calls for ESCOs to play a more important role in building energy efficiency in both the private and public sectors. There will be legislative proposals to increase their role.25 3.13. Several EU Directives of the European Parliament and of the European Council have been enacted in support of the 20-20-20 Plan. Relevant for public sector energy efficiency initiatives is the Energy Services Directive (ESD)26 2006/32/EC on energy end-use efficiency and energy services. It has six key elements: • Preparation of national energy efficiency action plans (NEEAPs) every three years • National indicative energy saving targets of 9% in absolute terms over a period of nine years • Emphasis on the importance of the public sector, particularly as a market driver • Agreement that governments can impose public service obligations regarding energy efficiency on those operating in the gas and electricity sectors • Support for creating conditions to develop and promote a market for energy services (ESCOs) • Requirements on metering and billing of energy consumption. 3.14. Member States of the EU need to establish their national energy saving targets and adopt their NEEAPs with specific measures in each of the six areas mentioned to reach their individual energy saving targets. Member states had to prepare follow-up NEEAPs in 2011, including evaluations of the results of their initial 2007 NEEAPs. Major policy targets and measures for energy efficiency improvements in public facilities in Germany are briefly described in Box 3.1. Box 3.1: Energy Efficiency in Germany’s Public Facilities Of the approximately 200,000 public properties in Germany, only slightly more than 2% are owned by the federal government. The overwhelming majority (94%) of public properties is used by local governments, the remainder by state governments. Because local government buildings are small and consume less energy, federal government buildings account for 16% of the more than €3.5 billion spent on energy in public buildings annually. Local government buildings account for 64%.27 Germany’s 2007 National Energy Efficiency Action Plan (NEEAP) commits to a 9% reduction in total energy use over 9 years compared to a 2001-05 baseline. The federal German government re-affirmed its commitment to reduce carbon dioxide emissions in its facilities by 30%, as it had specified earlier in its 2005 national climate protection program. This reduction would be achieved by increased emphasis on EPC and through a government-budgeted investment program of €120 million annually between 2008 and 2012. Energy efficiency retrofitting of state and municipal public buildings will continue to be supported by low-interest loans from the German Development Bank, the Kreditanstalt für Wiederaufbau (KfW). Energy management and close monitoring of energy-using equipment in public buildings is expected 25.See press release on The Commission's new Energy Efficiency Directive: http://europa.eu/rapid/pressReleasesAction.do?reference=MEM O/11/440&format=HTML&aged=0&language=en&guiLanguage=en 26.See Official Journal of the European Union, Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006. 27.Marktstudie: Contracting-Potenzial in öffentlichen Liegenschaften (Dena/Prognos, 2007). 34 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results to identify low-cost energy efficiency measures, resulting in 10% energy savings. 28 The energy performance of new federal buildings should be 20% above what is required by the German building energy code. Germany’s new 2011 NEEAP reflects the 2010 national “Energy Concept,” with the overarching target of an absolute cut of GHG emissions by 40% by 2020 and 80% by 2050 (compared to 1990). This would be achieved by increasing the share of renewable energy, to 18% by 2020 and to 60% by 2050 and by decreasing primary energy consumption by 20% (by 2020) and 50% (by 2050), compared to 2008. The building stock is expected to be almost carbon-neutral by 2050.29 In line with these national targets, the federal government committed to reducing carbon dioxide emissions in its own buildings with 50% by 2020, compared to the 1990 baseline. This follows earlier targets of 20% and 30% emission reductions for 2005 and 2010, respectively, against the same baseline. The proposed measures to achieve the new goal include improved energy efficiency of old and new buildings, increased use of renewable energy, and energy efficient procurement. Progress in the federal government’s program has been strong: by 2007 GHG emissions in federal government facilities had been cut by 42% compared to 1990.30 The Federal Real Estate Agency (Bundesanstalt für Immobilienaufgaben) is currently in the process of assuming ownership and management of all federal government buildings. Together with the Ministry of Construction, it is developing a long-term strategy and timetable for the energy efficient retrofit of federal buildings. A preliminary estimate of the investment necessary to reach the 2020 target is €200 million. Both agencies will report annually about the retrofit achievements, regarding both energy consumption and carbon dioxide emissions, for every federal ministry and agency, possibly also disaggregated by property (see footnote 29). Most of the German states—if not all—have developed climate protection programs designed to fit in with the national program and targets. They emphasize the need to “lead by example” and decrease carbon dioxide emissions, mostly through energy efficiency retrofitting of state- owned buildings. EPC is a preferred delivery and financing mechanism. Many states have created state property agencies that are responsible for the management and operation of buildings owned and leased by the state. Most of these agencies have introduced energy management in state facilities and produce energy reports on a regular basis.31 Similar climate protection strategies and concepts are pursued by an increasing number of local governments, many of which are members of various European energy efficiency and climate networks. Box B.2 in Appendix B provides details of the programs in the states of Baden- Württemberg and Berlin. 28.German 2007 National Energy Efficiency Action Plan (BMWI, 2007). 29.Note that these targets for renewable energy share and decrease in energy consumption are being revised in the light of the 2011 decision to complete the phase-out of nuclear energy by 2022. Additional energy efficiency measures in the public sector will include improved funding of energy efficiency activities through EPC and a new national Energy Efficiency Fund; see German Energy Plan (“Energiekonzept”) and the Second NEEAP 2011, http://www.bmwi.de/English/Redaktion/Pdf/zweiter-nationaler-energieeffizienz-aktionsplan-der-brd,property= pdf,bereich=bmwi,sprache=en,rwb=true.pdf. 30.See German report on Translating the concept of sustainability into administrative actions (“Nachhaltigkeit konkret im Verwaltungshandeln umsetzen”)—a program of sustainability measures of the federal government. 31.See for example the German report, Energiebericht 2010 für die landesgenutzten Liegenschaften in Schleswig-Holstein for state properties in the state of Schleswig-Holstein. Results are typical for most public properties in Germany, showing a reduction of energy consumption for heating, but an increase in electricity consumption, resulting in a small decrease of CO2 emissions during the past 10 years. In parallel, energy costs have increased more than 75%. (Gebaeudemanagement Schleswig-Holstein (GMSH) 2010). 35 China: Improving Energy Efficiency in Public Institutions Three Major Barriers to Promoting Energy Efficiency in Public Institutions 3.15. Three major barriers make implementation of energy conservation measures especially difficult in the public sector—lack of incentives, need for improved human infrastructure and information/diagnostic systems and need for additional financing mechanisms. Finding and implementing solutions to these issues is necessary to achieve sustained progress in energy conservation in China’s public institutions, just as in other countries. Improving Energy Saving Incentives for Building Managers and Occupants 3.16. As described in Chapter 1, expanding energy conservation in public institutions in China will require overcoming three key barriers, the first of which is the lack of incentives for property managers and building occupants to take energy saving actions. Unless specific measures are adopted, these actors generally have no reason to care about the amount of energy that is used. Property management units are primarily concerned with operating a facility according to service quality requirements. Energy bills are paid by other departments (usually the finance department), often with budget allocations determined by higher levels within the organization. The occupants themselves generally also have few incentives and are only concerned with having satisfactory comfort and convenience. If energy costs are saved, this provides no direct benefit to the property managers, the occupants, or even—if energy costs are paid for from state budgets—the entities using the buildings. This severe problem of a lack of incentives for improving public institutional energy efficiency is true worldwide. 3.17. To overcome this barrier, several options exist. Establishing clear public targets—as is being done in China and many other countries—is essential. Incentives to achieve those targets can be improved by publicizing energy saving results and thus linking energy saving performance to an institution’s reputation. In addition, allowing the energy cost savings to be used to finance improvements in other priority areas, such as facility upgrades and improved services, will provide further incentives. The sections below will discuss these various options. Use of Targeting Systems 3.18. Benefits of targeting systems. Over the last several years, China has put in place the framework for a system to manage and save energy that relies on using targets, assigning responsibilities, and making entities accountable. This system of “targeting, responsibility, and accountability” is essential for drawing the attention of public entities to their energy management responsibilities and for putting energy efficiency squarely on the agenda. Other countries have also relied on targeting systems to galvanize energy efficiency efforts, but many have been weak on monitoring and evaluation. China has started to combine its targeting system with systems for responsibility and accountability by annually evaluating progress and preparing report cards of achievements against targets at various levels. 36 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results 3.19. However, more needs to be done to strengthen and deepen China’s system, to make the process as objective and systematic as possible, and—in particular—increase efforts at lower levels and in all types of public institutions. It would be useful for key performance indicators (such as energy use targets per square meter or per building occupant) to be defined for the various subsectors in the different geographic jurisdictions. A key part of this effort will also have to be further improvement in the systematic gathering of the necessary and detailed data of the diverse facilities and their energy use, including the development of baselines against which targets can be established. Given the large number and diversity of facilities at the various government levels, this effort will take considerable time and energy. Efforts must include defining how and which data will be collected to ensure the data is comparable and reliable (see also 3.53-3.55). Supervision efforts with checking systems must also be further developed to enhance data quality. The development of benchmarking for different types of buildings will be helpful in creating an energy use targeting system that is perceived as fair and useful (see 3.70 -3.76). 3.20. Quota systems. China’s amended Energy Conservation Law and the 2008 State Council Regulations call for the eventual establishment of energy use quotas for public institutions, which would directly link to the government-provided energy expenditure budgets for those institutions. This systematic and direct link between energy use quotas and budget allocation shows similarities with an approach in Russia, where the government has a goal to reduce public energy use by 3% annually and reduces the budgets by that amount regardless of whether energy is saved or not. To survive, agencies need to save energy, even though in practice they often might just reduce comfort or other expenses.32 The statistical and technical challenges are obvious: the quotas need to be fair and attainable, but also sufficiently rigorous and appropriate for a variety of public entities that all face different circumstances in terms of climate and common energy loads. To set fair but rigorous quota, excellent data is needed on consumption patterns of the energy systems at the various locations and the key factors influencing those patterns. This must be followed by a sophisticated analysis of norms and benchmarks before any quotas are established. As suggested by some Chinese experts, perhaps it would be best to first pilot several quota-expenditure allocation systems in relatively advanced areas. For example, pilots might first be developed in entities with statistical reporting systems that are or can be sound, where a good amount of detailed energy auditing work in different types of facilities has been or can be undertaken, and—ideally—where online, real-time and detailed energy use monitoring systems for the targeted public institutions are already in place or well on their way. 3.21. Limitations of targeting and energy use quotas. The use of targets and energy use quotas certainly provides an incentive for energy savings, especially in institutions close to the government. This is especially true if achievement of the target is part of the leadership’s performance evaluation. As a policy tool, however, their use has several limitations. First, to be a valuable incentives tool, targets (or quotas) have to be disaggregated to micro levels to influence the behavior of the actual entities as directly as possible.33 This disaggregation involves overcoming many technical difficulties in order to be fair and objective. Second, basic targeting and especially 32.Jas Singh, personal communication, February 2012. 33.The monitoring and targeting system employed by the Ukrainian city of Lviv is a good case in point; see the case study on Lviv’s experience at http://www.esmap.org/esmap/node/1246. 37 China: Improving Energy Efficiency in Public Institutions the use of quotas can be quite valuable for identifying and eliminating cases of extreme energy waste (putting pressure on the most wasteful entities—the outliers—to change), but they are not as useful for generating better-than-average performance. Targets and quotas need to be set at levels that are realistic for most entities. By definition, that means they are unlikely to challenge entities that can achieve more than the average. In this way, the systems may result in incentivizing mediocrity. Third, targeting and quotas tend to be most effective when government energy budgets are important, and less so when entities primarily rely on their own resources, such as is the case for hospitals and some universities. Fourth, property managers may not understand why their building underperforms and may not know how to respond. This may lead to slower than expected physical investments. Reputational Incentives 3.22. Public institutions serve the people. As often emphasized by China’s leaders, government institutions should be the first to abide by the government’s own rules and lead by example. In addition, many people interact with public institutions, for example, by using universities, schools, local medical facilities, and certain government offices. Visible, successful initiatives to increase sustainable use of resources in these facilities can leave a strong and positive impression on the local community. Similarly, examples of obvious waste can leave a poor impression. For these reasons, leaders and managers in public entities will often be quite concerned about the reputation of their institutions. 3.23. Many countries have instituted programs to harness this natural interest of leaders and managers in public entities for positive, public recognition, and use it to create additional incentives for pursuing energy efficiency or “green development.” By acknowledging their current energy consumption and being pro-active, these public institutions position themselves as promoters of energy efficiency and green development and thus can avoid public criticism for being wasteful. However, this requires that credible, unbiased information on energy efficiency or other types of environmental performance is made public. 3.24. Reputational incentives work especially well in environments where local communities care about climate change and other environmental or sustainability issues. In universities, for example, the opinions of students, faculty, and trustees are important and in many cases have propelled university administrations to participate in activities related to energy efficiency, such as creating climate-neutral campuses.34 Faculty and students can also provide a tremendous pool of enthusiasm and productive ideas. Some universities in the United States and Europe are now even reporting that their reputation related to clean energy and the environment has become a factor in the students’ choice for a university as it is one signal of the attitude of the school administration. Local governments too can be eager to show their responsiveness, as is shown by the many networks and alliances of local governments worldwide that are focused on sustainability and climate change. Table B.2 in Appendix B lists some of the many networks, including some sector-specific ones. 34.For example, almost 700 universities with about a third of the U.S. higher education student population are members of the American Colleges and Universities Presidents’ Climate Commitment (ACUPCC). GHG inventories, climate action plans, energy saving projects, and other information on individual universities and comparative statistics can be found at ACUPCC Reporting System - Reporting Institutions. See also the information on ACUPCC in Appendix B, Table B.2. 38 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results 3.25. One frequently used way to strengthen reputational incentives is by recognizing success through awards. Awards introduce an element of competition and enable those who have made progress to show it, hopefully generating enthusiasm for increased efforts in their own facilities and inspiring others to create their own programs. The Energy Star awards of the U.S. EPA are a good example. Receiving public recognition from Energy Star, for example, helped the Council Rock School District in Newtown, Pennsylvania, bolster its energy conservation program. The school district managed to curtail its energy consumption between 2005 and 2011 by more than 40% and its energy costs by US$5.3 million. It did this using an energy management program, re- commissioning newer buildings, and requiring Energy Star labeled products, when possible, for new purchases.35 Figure 3.2: Example of U.S. Federal Government Scorecard U.S. Department FY2010 OMB Scorecard on of Justice Sustainability/Energy Scope 1&2 GHG Emission Reduction Target • Submitted comprehensive inventory as 2008 baseline for Scope 1&2 GHG Reduction Target of 16.4% by 2020 Score: GREEN Scope 3 GHG Emission Reduction Target • Submitted comprehensive inventory as 2008 baseline for Scope 3 GHG Reduction Target of 3.8% by 2020 Score: GREEN Reduction in Energy Intensity • Reduction in energy intensity in goal-subject facilities compared with 2003: 37.9% and on track for 30% by 2015 Score: GREEN Use of Renewable Energy • Use of renewable energy as a percent of facility electricity use: 1.4% Score: RED Reduction in Potable Water Intensity • Reduction in potable water intensity compared with 2007: 0.4% increase and not on track Score: RED Reduction in Fleet Petroleum Use • Reduction in fleet petroleum use compared to 2005: 57% and on track for 20% by 2015 Score: GREEN Green Buildings • Sustainable green buildings: 3.32% of buildings sustainable 3.51% GSF of inventory sustainable, as reported in FRPP Score: RED Source: Adapted from U.S. Department of Justice FY2010 OMB Scorecard on Sustainability/Energy. 35.See, EPA, Energy Efficiency Programs in K-12 Schools. 39 China: Improving Energy Efficiency in Public Institutions 3.26. Another way to develop perhaps even stronger reputation incentives is to rate the energy savings (and environmental) performance of all entities within a specific category and publish the results. A good example is the U.S. Federal Government Scorecard, which rates the performance of federal agencies in achieving the energy efficiency and environmental sustainability targets set by the government.36 It is said that the scorecards reversed the long-held attitude “where fear of action was greater than fear of inaction” (Vallina 2007). The scorecards represent summaries of the implementation status for the sustainability and energy goals that each agency must report twice a year to the Office of Management and Budget (OMB). After several years of internal use, scorecards were first released publicly on the White House’s website in 2011.37 3.27. An example of a scorecard for the U.S. Department of Justice, which received mixed scores, is provided in Figure 3.2. Another large agency, after getting several ratings that were less than satisfactory, felt compelled to publish a detailed explanation of why its ratings were less than Figure 3.3: Comparison of U.S. Federal Agencies’ Scorecards, FY 2010 No. of Federal Agencies Meeting Goal Green Yellow Red TAD N/A Scope 1&2 Scope 3 Reduction in Use of Reduction in Reduction in Green GHG GHG Energy Renewable Potable Fleet Buildings Emission Emission Intensity Energy Water Petroleum Reduction Reduction Intensity Use Target Target Note: The definition of the Green, Yellow, and Red Standards depends on the specific target that is scored; green indicates the target was met, while the yellow (intermediate) and red indicate that improvements are still needed and that the agency is not on track to meet future targets. See http://www.justice.gov/jmd/ep/docs/omb-scorecard.pdf for exact definitions. TBD=To be determined; N/A = Not available. Source: Adapted from Schmutter 2011, Alliance to Save Energy e-Efficiency News, Federal Sustainability Scorecards: An Overview of a Program ‘Leading by Example’. 36.Energy scorecards are also used in the private sector. AT&T, a U.S. telecommunications company, for example, developed an Energy Scorecard to track and benchmark the energy performance at each of its 500 largest energy-consuming facilities. This information is used to set goals for each facility. Quarterly, the AT&T Energy Team reviews performance and gives each real estate manager a score for her or his efforts, determined by variables such as projects, savings, electricity usage, and training. In 2010, scores improved by 58% compared to 2009 (see AT&T’s program Managing energy, improving efficiency). 37.See http://www.whitehouse.gov/administration/eop/ceq/sustainability/omb-scorecards. 40 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results perfect, along with planned actions to improve them. Other than the results for the GHG emission reduction targets, less than perfect scores are in fact the norm rather than the exception, as shown in Figure 3.3. 3.28. Study recommendations. In China, authorities might consider the following three types of initiatives to take advantage of public institutions’ interest in positive public attention: • Energy efficiency award program. Implementation of a highly visible “model energy efficiency unit” award program for one or more specific categories of public institutions could create publicity and incentives for energy conservation. One option would be a nationwide, competitive energy efficiency award program for universities, in which perhaps 10 universities would be recognized as energy efficiency leaders. A monetary award, even if small, could provide additional incentive. Evaluation criteria would need to be established well in advance and be both rigorous and fair; the evaluation must also be scientific and objective. The launch and award announcements would also have to be highly publicized and perhaps could be introduced by a well known national leader. Similar programs might be considered for competitions among government agencies or schools. The latter could be designed to involve staff and students, as well as local communities. • “Energy Efficiency Networks” (or “Green Networks”) for universities and hospitals. An energy efficiency network for universities could be organized with support from the Ministry of Education, while a network for hospitals could be organized with support from the Ministry of Health. Membership could be open to any hospital or university, but an interested entity would need to implement and commit to specific—and quite aggressive—energy savings and other sustainability/green actions and results before being admitted. In return, membership would recognize the university or hospital as a leading energy-efficiency/green actor, which could be a priority position for certain types of government support and provide an excellent opportunity to exchange experiences with similar institutions trying to increase energy efficiency. • Pilot program of energy efficiency scorecards. A program to publish scorecards similar to those of the U.S. OMB could also create incentives and transparency. The pilot could cover subsets of public institutions—for example office buildings of government agencies within one jurisdiction. The agencies would need to receive a timely warning about the planned pilot program to prepare for the public release of their energy saving results. Cost-Savings Incentives in Public Institutions 3.29. Reduced energy consumption can lead to significant cost savings. In commercial entities, this potential for cost savings and increased profitability from economically attractive energy conservation measures is a critical selling point for energy conservation projects. Most public entities, however, have far less incentive to react to cost-saving opportunities because they are not driven by the motive to increase profits. Furthermore, if energy savings lead to a reduced need for government budgeted funds, there is no incentive to pursue these cost savings if they only result in 41 China: Improving Energy Efficiency in Public Institutions future cuts in energy operating cost budgets and the savings are realized by others. If government budgets account for only a share of the total budget of a public institution, such as at universities and hospitals, cost savings incentives may become more significant as savings may result in savings of own funds, which can be redeployed by the entity itself. Whether in commercial buildings or public institution buildings, if an entity’s energy costs are relatively low, interest in energy conservation to achieve cost savings may still be scant. According to a 2008 survey by the Property Management Professional Committee of the China Hospital Association among 50 hospitals, energy costs averaged some 2-5% of total hospital costs. While not a trivial amount, it will not easily attract management attention. 3.30. Despite these traditional weaknesses in using cost-savings incentives with public institutions, appropriate incentives can be developed. Specific policies and initiatives, however, will be needed to develop and implement them. Box 3.2: Energy Savings in Schools through Shared Benefits and Education Programs District-wide shared-savings initiatives. Schools in the Gresham-Barlow district of Oregon in the United States accumulate financial rewards based on a variety of metrics, such as savings achieved during particular periods of the year or whether or not the school has created a resource committee. In Wake County, North Carolina, schools get to keep 10 percent of the annual savings achieved, which has been a primary factor in rounding up over US$600,000 per year in energy savings at the district’s 100 campuses. Much of Wake County’s savings are due to student and faculty activity as well as training. The school district of Philadelphia, Pennsylvania, discovered that a similar program brought in unexpected savings from demand-charge reductions. Those unanticipated funds were channeled into capital retrofits to capture even more savings.38 Alliance to Save Energy Green Schools Program. School districts that sign on to the Green Schools Program pledge to give at least 50 percent of the savings back to individual school sites. The Lake Elsinore school district in California in the United States agreed to give 70 percent back to its schools in 2009-2010, and 80 percent in 2010-2011. The savings can be spent in whichever way schools see fit to support curricular or extra-curricular activities. As a result, more than US$216,000 (70 percent of US$308,000 in savings) went back to the schools throughout the district in 2009-2010. Enrolled schools are given a US$1,000 stipend per year to create and manage a Green Team at each site. An energy conservation curriculum is provided and districts are equipped with data monitoring models to accurately measure their savings. Measures to conserve energy at schools have included auto-shutdown of all major electronics, unplugging appliances not in use, retrofitting lights, and applying set points for heating, ventilation and air conditioning (HVAC) systems.39 38. See Energy Star, Facility Type: K–12 Schools. 39.See Alliance to Save Energy’s Green School Program, Green California Schools Summit Advances Energy Efficiency. http://ase.org/ efficiencynews/southern-california-green-schools-save-nearly-1-million-energy-costs. 42 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results 3.31. Cost-savings retention. A fundamental requirement of cost-savings incentives in public entities is to allow the individual entity to use at least a portion of the cost-savings, without passing all of the savings on to other government departments. In the United States, some state governments (for example Washington and Delaware),40 many school districts, and the federal government have made such provisions.41 Box 3.2 provides examples of budget retention policies generating enthusiasm for energy savings in schools. 3.32. Aware of the potential value of using incentives, some provincial governments in China have begun to devise policies concerning retention of government budget energy cost savings by entities implementing energy conservation projects. In its “Interim Measures for Management Funds for Fiscal Awards to Energy Performance Contracted Projects” of November 2010, for example, the Beijing municipal government included specific provisions allowing public institutions to retain their portion of energy cost savings delivered from energy performance contract projects and use these funds according to an overall plan. This is important as virtually all shared savings energy performance contracts provide some cost-savings cash flow to host entities throughout the contract period. The Beijing Municipality regulation also states that entities may retain all of the annual energy cost savings achieved from energy performance contracts for three years after ESCOs have been fully paid and contracts concluded. This is significant because most energy performance contracts in China are much shorter than those abroad.42 3.33. If entities are allowed to retain some of the savings generated from energy conservation initiatives, the question arises how they would be allowed to use these funds. What line items could they be allocated to? Obviously the entities will have the most enthusiasm for pursuing energy cost savings if they have maximum flexibility and can use the cost savings funds for their own priorities and programs popular with staff. Chinese authorities may wish to pilot various programs, including local pilot programs, which explicitly allow use of saved funds for relatively minor but popular facility upgrades or cultural and recreational expenses. Such programs could run for a few years and may create great enthusiasm among office workers or students and faculty. Bilateral agencies or other donors might be interested in supporting these activities. In the end, the government both saves money and increases energy efficiency. Along these lines, one idea may be for a province or prefecture to pilot an “Energy Savings for New Computers” program in selected secondary schools, allowing the schools to use most if not all of the energy cost savings (and perhaps water and other utility cost savings) they achieve to purchase new computers for the students. 3.34. Retaining energy cost savings is important, but issuing and implementing the necessary government financial management policies to allow it, is not a simple matter. Policy development will require key officials involved in government budget management to agree, and implementation 40.See The Bond Buyer, Energy Efficiency Deal Powers Up. 41.Energy cost savings retention for federal agencies was explicitly allowed but limited to 50% in the 2005 EPAct legislation. The 2007 EISA legislation then went further, allowing agencies to retain 100% of energy and water cost savings and use them for additional energy projects, including staff incentive programs. If EPC is used, however, the incentives value of these provisions is less than it might appear, as U.S. energy performance contracts with federal entities allow ESCOs to share all of the savings until contract completion. Still, since the energy performance contract guaranteed savings are usually conservative, entities do receive cost savings above those guaranteed in contracts, and are allowed by law to retain those savings. 42.“Interim Measures for Management Funds for Fiscal Awards to Energy Performance Contracts in Beijing Municipality,” issued by the FB and DRC of Beijing Municipality, November 30, 2010. 43 China: Improving Energy Efficiency in Public Institutions will involve working through a variety of detailed issues. Provincial and municipal governments interested in aggressively promoting public institution energy savings should prepare and promulgate necessary regulations allowing retention of energy cost budget savings under properly defined circumstances, as allowed in the State Council’s 2008 Order 531. Following pilot implementation efforts, it also would be useful to issue detailed implementation guidance. The central government also could support the effort by issuing regulations covering central government facilities and by providing specific support and guidance for local efforts. 3.35. Cost-saving incentives in budget-cutting environments. Following the financial and housing market crises, local governments in the United States and quite a few other countries have seen tax revenues fall sharply and have had to make major cuts in all types of local public expenditures. Rather than cutting expenses across the board, eliminating the wasteful use of resources would contribute to the optimal use of scarce resources. Thus, taking a hard look at energy (and water) cost savings possibilities would enable local governments to avoid cutting popular programs or key staff. Again, although in a somewhat different and perhaps less obvious way, reductions in energy costs can thus be used to support other entity priorities. Gaining Facility Upgrades and Improved Service Quality through Energy Conservation Projects 3.36. In addition to setting targets and establishing reputational and cost-savings incentives, a fourth incentive for public institutions to engage in energy conservation projects is the opportunity to upgrade their facilities or otherwise improve service quality. Public agencies are often less than fully funded, especially when it comes to investments to renovate rundown facilities or replace worn-out equipment. This is the case in China (see Chapter 2 for the different subsectors), but also in the United States and in Europe.43 Schools in particular have been suffering from capital investment shortfalls, since they depend on widely divergent local funding, and have been eager— especially in the United States—to use a variety of financial instruments to finance replacement of old utility and building infrastructure. 3.37. For many public entities, upgrading opportunities are actually their strongest incentive to proceed with energy savings programs. A few of the many examples of how an energy savings program can be used to upgrade a facility include upgrading building cooling and ventilation systems, installation of quality automatic room temperature controls that enable temperatures to be consistently maintained at comfort levels (and room temperature conditioning to be curtailed when rooms are unoccupied), installation of improved windows, improvements in lighting quality, provision of quality heat service, and the installation of new canteen cooking and refrigeration equipment. 43.In member states of the European Union, governments, including at the regional and local level, were required to abide by strict fiscal discipline starting in the 1990s. Many governments found that they were unable to finance the rehabilitation of public facilities from their own budgets and, moreover, that they needed to reduce operational costs. In this situation, energy service contracting, including energy performance and energy supply contracting or outsourcing, seemed the perfect instruments to achieve both budget cuts and facility retrofits. Energy agencies in several countries, foremost Austria and Germany, started to promote them to public agencies at the state and local level. See the example of Berlin (Germany) in Box 4.4. 44 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results 3.38. When EPC is used, with ESCOs providing financing and services while being compensated from the energy cost savings, the public entity will in effect be receiving new equipment and various building improvements without any budget expenditures. ESCOs worldwide report that in cases where clients heavily rely on government budgets, a key driving force in the interest of such clients in pursuing EPC is their ability to receive upgrades that add to comfort, convenience, reliability and good service, and a sense of modernity. In the United States, where EPC investments with public entities are the highest in the world, this interest of public entities in multi-benefit upgrades is a key reason for contracts to be structured with virtually all of the cost savings used to compensate the ESCOs. The public entities generally prefer contracts that provide for more equipment and upgrades rather than the cost savings in cash.44 3.39. Governments have invested in energy efficiency upgrades to promote a broad, nation-wide energy efficiency agenda. Schools and other social services facilities are chosen not only for their societal benefits (upgrading the functionality of the building used by people in need) but also for their demonstration value. Occupants and building users who see real comfort and convenience benefits may push agency and local government leaders to implement more energy efficiency investments, especially if successful projects are widely publicized. They may also become motivated to act outside the facility, for example at home, and share experiences widely. 3.40. Box 3.3 introduces recent World Bank projects in Serbia and Armenia in which major renovation projects were implemented in local hospitals and schools to improve the functional environment and educational performance through better heat supply and lighting. Energy performance contracts were not used in these cases. Nevertheless, the study team recommends exploring similar approaches in China, especially utilizing bundled projects to implement improved heating systems in schools in northern China, perhaps through energy performance contracts. Funds from energy savings alone are not likely to cover the brunt of investment projects to improve heating services in schools, and broader renovation funds will likely be required to make these projects happen. However, energy savings can cover an important part of the costs if well-designed energy performance contracts are used and if heating is paid for according to energy consumption (rather than a flat square meter rate). (See also para. 3.84). Box 3.3: Improved Heating and Energy Efficiency in Schools and Hospitals in Serbia and Armenia Many public buildings in Serbia and Armenia suffer from insufficient heating provided by dirty fuels, a situation exacerbated by the run-down condition of many facilities. In schools especially this situation was so bad that in some cases only part of the building could be heated, or buildings could only be heated to a very low temperature. Some schools had to be closed during the coldest winter months. 44.Super ESPC projects in the U.S. federal sector are structured to maximize the amount of investment—not only are contract terms up to 25 years and investment payback times between 5 and 15 years (Hopper et al. 2005), but client agencies also receive only US$1 of benefits, leaving the remainder of guaranteed savings to repay ESCOs, while still managing to abide by the contract term restriction. Energy performance contracts in U.S. schools tend to have longer contract terms and include more measures (including non-energy measures) than in other state or local public agencies (Hopper et al. 2005). In Pennsylvania, the authorizing EPC legislation allows limited non-energy measures (up to 15% of the total project value; not just for schools) to be added to energy performance contracts to expedite overall facility modernization (Bharvirkar et al. 2008). 45 China: Improving Energy Efficiency in Public Institutions To improve the heating and building conditions in schools and hospitals, the World Bank extended loans to governments in both countries. In both cases, municipalities received the improvements as a grant. Both projects were highly successful and users are very satisfied with the multiple benefits they have received, such as improved comfort, better education outcomes, and an improved indoor environment. Serbia. In Serbia, a series of small building interventions—such as the installation of new windows, thermostatic valves, automatic temperature control equipment, and efficient lighting—have led to huge energy savings. Between 2005 and 2010, the consumption of energy was reduced by 40 percent on average in 18 schools and 10 hospitals. In some schools it was possible to finance the upgrade of the heating system with the cost savings from lower fuel consumption due to the thermal renovation of the building.45 In the first phase of the project, the owners of the buildings—the municipalities—benefited from the reduced energy costs. In the second phase, a benefit-sharing scheme will be implemented to allow the building users (the schools and hospitals) to participate in the savings. In the schools in particular, there was a significant spill-over effect from the energy saving retrofit measures. The combination of introducing lessons and other pedagogical approaches during the school day and special events about the measures taken at the school and the visible benefits of a better functioning and more comfortable facility, raised awareness of the benefits of energy efficient lifestyles not only among students but also among teachers and parents who are starting to implement energy saving measures in their homes. Armenia. In Armenia, 117 schools that were previously heated with wood stoves, kerosene, or expensive electricity were equipped with new gas-fired boilers. As a result, comfort improved significantly and heating costs came down for some schools that had previously used electricity. Schools had been selected such that investment costs would be below US$120 per student. In 11 schools, additional energy efficiency measures were installed (such as insulation of windows, walls, and roofs, and the replacement of windows by walls). In those schools energy savings ranged from 10 to 40%. Average energy cost savings are 23% if taking into account the actual energy price before renovation, and 50% based on the current energy price, which increased substantially.46 Building Human Infrastructure and Information and Diagnostic Systems 3.41. To overcome the second major barrier to the expansion of energy conservation in public institutions—a lack of technical competence and reliable data—China will need to focus on building the necessary human infrastructure as well as diagnostic systems that can provide the technical support and data for energy conservation projects. This is already a core part of China’s energy conservation plan for public institutions for the next five years. The following sections will focus on five specific actions to increase technical competence and the availability of reliable data: (i) assigning energy managers to assume responsibility for meeting energy efficiency requirements, (ii) strengthening metering and energy use data collection, (iii) developing and implementing targeted auditing programs and preparing site-specific energy savings plans, (iv) benchmarking and labeling of energy use, and (v) monitoring and verifying results. 3.42. Carrying out these efforts will generate essential knowledge about the status of public buildings and their energy consumption and abilities to develop action programs within entities. 45.See The World Bank, Serbian Schools and Hospitals Are Warmer and More Energy Efficient. 46.See The World Bank, Education Rescued from the Cold. 46 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results Assigned and trained energy managers will be able to determine how well their own building is performing and what basic measures could be taken to improve performance. Alternatively they would know where to get support and to supervise it. On a broader level—for example, in local governments or subsectors—those responsible for achieving the energy conservation targets would possess the information and tools to decide about priority projects based on audits and benchmarking. 3.43. Implementing this vision, however, is a truly massive task. Given China’s size and diversity, each of these areas requires great effort, which must be sustained over quite a few years. Initiatives and work programs will need to be staggered, with some efforts given priorities over others. As in so many areas in China, an effective procedure is likely to be piloting at local levels with some central guidance and keen observation, and then building up successful results with strong policy support. The subsections below highlight various issues, present international experience and offer some suggestions for priority activities. Assigning Energy Managers 3.44. China’s Energy Conservation Law and the 2008 State Council Regulation emphasize the need for public entities to assign energy managerial personnel to oversee energy management and energy savings activities at the entity’s facilities. Following the Plan-Do-Check-Act (PDCA) method,47 energy management in a typical public institutional entity would involve at least the following steps: • Plan. Planning for energy management involves securing top management commitment and appointing a responsible energy manager. In addition, the public institution needs to establish its energy vision and priorities for improvement, addressing their (i) energy profile; (ii) energy baseline; (iii) energy performance indicators; (iv) legal and other requirements; and (v) objectives, targets, and action plans. • Do. Following the planning, energy improvement programs (such as installing, retrofitting, or upgrading building systems) can be implemented. This must be combined with the set-up of a management system to support the improvement programs. This management system could include (i) competence, training, and awareness programs; (ii) documentation requirements and control; (iii) communication systems; and (iv) procurement procedures for energy services and products (as applicable). • Check. Implementation must be combined with monitoring, measuring, and evaluating the performance of energy management, determining the extent to which energy objectives and targets are met. This includes dealing with actual and potential nonconformities and taking corrective or preventive actions. 47.The PDCA method is in line with the (i) Chinese Energy Management Standard (National Standard GB/T 23331-2009, “Management System for Energy-Requirements,” issued by the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China, March 11, 2009); (ii) the EPA guideline cited in footnote 52; and the (iii) European Energy Management Standard EN 16001 of 2009, which has been adopted in every member state of the EU (for example in Germany, see DIN EN 16001: Energy Management Systems in Practice). 47 China: Improving Energy Efficiency in Public Institutions • Act. Progress and success of energy policy, objectives, and targets must be reviewed. This includes (i) tracking progress and analyzing how well the energy-saving efforts have worked, (ii) taking corrective and preventive actions to ensure the continuing suitability, adequacy, and effectiveness of the energy management program, (iii) applying lessons learned, and (iv) expanding both the scope of the energy management program and the involvement of energy managerial personnel. 3.45. Entity energy managers do not necessarily need to be able to do all of these tasks themselves. The key is for them to have the responsibility, competence, and resources to ensure that this process is properly carried out and completed. Energy managers can rely on specialized experts, such as energy auditing companies, but must have enough technical knowledge to oversee their work. Many countries require energy managers to pass specific training courses or demonstrate competence through certification. 3.46. Which facilities should have energy managers? In most countries the required number of energy managers per agency depends on the size of the agency and the number of facilities involved. In both Japan and India, facilities above a certain size must employ full-time energy management professionals. In the United States, federal agencies are required, since the 2005 Energy Policy Act, to assign energy managers for all larger energy-using facilities in a way that at least 75% of the agency’s total annual energy use is managed by professional energy managers. By 2009, 99% of more than 4,000 designated federal government facilities had in fact assigned an energy manager.48 In Germany, the recommendation is for local governments of smaller municipalities with 50,000-100,000 inhabitants to have a municipal energy management office with 2-5 staff members, and for larger municipalities to increase staff depending on the number of public buildings in the municipality. In Berlin, each city district is obligated to have an energy manager, but by 2009 only 7 of the 12 districts had complied.49 3.47. For smaller entities involving only a few facilities, most countries aim to have part-time energy managers or perhaps one full-time energy management professional covering a number of different entities. Another option is for this professional to combine energy management with other infrastructure or sustainability-related management tasks, such as water and waste management. However, as is well understood in China and elsewhere in the world, allowing staff with other responsibilities or full-time jobs to assume energy manager tasks part time, can result in the appointment of staff that are energy managers in name only, or that have no real competence or dedication to the work. Clear obligations and demonstrated basic competence remain important, even if assignments are not full-time. 3.48. Scope of responsibility. During the past few years, various governments and entities have begun to merge concerns about energy management and energy conservation with broader “green management” work, including water conservation, on-site renewable energy use, waste management, and waste minimization. This has led to the establishment of an increasing number of “sustainability management” units, which cover energy management together with other topics. 48.See FEMP, Covered Facility Footprint and Energy Manager Assignment (Federal-wide). 49.See Berlin Energy Plan 2020 (“Energiekonzept 2020”). 48 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results In larger entities, specific professional energy managers may still be in place, but they would then operate within such a broader unit. Sustainability units are especially popular in universities (see footnote 34 on ACUPCC). The federal government in the United States also has started to require agencies to engage in sustainability planning. However, administrative issues need to be considered, as institutional conflicts can emerge. In the United States, for example, FEMP remains responsible for energy management, but a different “office” within the Department of Energy is responsible for sustainability management. 3.49. Competence of energy managers. Among the many issues governments face is the issue how to best confirm that staff carrying out energy manager functions are competent and meet required qualifications. Should this be carried out through accreditation, and if yes which organization should be in charge? Or should continuous education requirements with examinations be established; should they be administered by the government or by a professional organization? Could documentation of having satisfactorily completed specific training be sufficient proof of qualification? Various governments have taken different approaches. Japan has established a well- known system to certify Qualified Energy Managers (QEM) and Certified Energy Managers (CEM). QEMs are certified after passing a national exam, while CEMs are recognized after completing specific training. In India, the Bureau of Energy Efficiency (the national agency tasked to lead energy efficiency efforts) conducts annual national-level examinations for both energy manager and energy auditor certification.50 In the United States, certification of energy managers is provided by the Association of Energy Engineers (AEE), as well as other institutions. Since the 1980s, AEE has certified more than 10,000 energy managers. AEE certification is recognized by the relevant federal U.S. agencies as well as by numerous state energy offices, major utilities, corporations, and ESCOs.51 A very similar approach is currently being taken in China to train energy managers for industry and provide them with documented evidence that they have passed suitable training or qualification courses. This route also seems appropriate for public sector energy managers. The study team does not recommend a new type of formal professional-stream distinction since this would introduce an unnecessary barrier to entry and complexities of approval systems. 3.50. Training. Staff assuming energy manager responsibilities will, in almost all cases, need to receive training on various aspects of energy management. Training should cover technical aspects—such as energy measurement, use analysis, preventative maintenance, opportunities in system operation and maintenance (O&M), renovation project development, and implementation— but also the basics of financial evaluation of projects. Training can be provided by professional associations, universities, or other groups. In the public sector, staff is often required to undergo continuing education to keep up with new developments. It may also be helpful to organize regular meetings or workshops for energy managers of agencies at certain levels (such as municipal government facility energy managers in a province, or central government agency energy managers) to create networks and provide opportunities to exchange experiences on technical issues. In Germany, for example, the state government of Hessen has been organizing such workshops for more than 20 years. In addition, guidelines on energy management within a specific subsector can 50.See Energy Manager Training. 51.See AEE, Certification and Comprehensive 5-Day Training Program for Energy Managers. 49 China: Improving Energy Efficiency in Public Institutions be helpful to provide a common understanding of the tasks and requirements involved. In the United States, for example, energy management guidelines targeting local governments are produced by the U.S. EPA; in Germany they are developed by the Association of Cities (“Staedtetag”).52 3.51. Study team recommendations. As China continues to put energy managers in place in public institutions, a step-by-step approach is likely to be necessary. As various Chinese experts and authorities are already considering, elements of such a step-by-step approach could include the following: • Placement of energy managers in large agencies and their key facilities. While eventually most agencies and facilities will need energy managers, the first focus should be on the larger agencies and key facilities. • Piloting the development of integrated public institution energy manager and training and certification programs within several relatively advanced jurisdictions. Pilot programs could be developed for a selection of central government facilities or in one or more provinces. Programs could include the full set of policies and programs needed to make the efforts effective, including (i) issuance of clear policies describing which institutions must retain what levels of energy managers; (ii) issuance of clear policies on what specific competencies are required; (iii) issuance of policies for certification of energy managers, along with implementation arrangements for testing, issuing certificates, and so forth; (iv) development of multi-year training programs, including curriculum, course content, and training delivery plans; and (v) training delivery. • Development of national-level guidance and manuals on the work scope, approaches, and methods for pursuing energy management in the various subsectors of public institutions. Guidance could for example cover government office buildings, universities, schools, and medical facilities.53 • Review of possibilities for introducing broader sustainability management units and staff in key entities. This effort might perhaps begin with universities. 3.52. International donor groups will likely be able to help introduce experience from abroad and help plan, organize, and initially deliver part of such efforts. Strengthening Metering and Energy-use Data Collection 3.53. Information on buildings and their energy consumption is essential for proper building energy management. Information is used for several purposes: • Development and reporting on energy saving targets • Assessment and comparison of the relative performance of buildings and agencies, among others 52.See Energy Star, Guidelines for Energy Management Overview and German Association of Cities Information on municipal energy management ("Hinweise zum kommunalen Energiemanagement"). 53.Table B.2 in Appendix B contains a list of specific information tools and networking resources for energy managers in the various subsectors. Table B.3 gives examples of manuals for the energy-efficient operation of key energy-using equipment. 50 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results • Identification and prioritization of energy saving measures and projects, at both the project and the program level • Monitoring of progress. 3.54. Over the last several years, China has made substantial progress in laying the foundations for energy-use data collection and statistical reporting in public institutions. It has issued regulations to assign responsibilities and establish basic data collection requirements. It has also provided some guidance on methods and staff training and made initial investments in metering and data collection systems. The vision of authorities and experts for the future is to continue to build the data collection system to (i) improve the quality of statistics, (ii) develop selected, integrated data collection and analysis systems for various building groups, using real time reporting, (iii) develop energy-use benchmarking systems so that energy use in different buildings can be compared, and (iv) utilize this information to improve the targeting system. Achieving this vision will require a concerted effort over quite a few years. Implementation of improved data collection and analysis systems in the different subsectors of public institutions also requires somewhat different approaches as the role of the government and the conditions on the ground vary. 3.55. The first step forward will be the improved collection of basic data. For buildings, this includes information about building size and occupancy, state of the building (for example about the type of windows and wall insulation), and details about major energy consuming equipment, as well as actual energy use. Metering of power, heat, and fuel consumption is the most correct way of assessing energy consumption in a building, but installing the necessary hardware and combining it with the software and billing system is a challenge. If a building is not metered, information on the consumption of various utilities and other fuels must be estimated based on the type of equipment, its energy demand, and hours of use.54 Weather data should also be considered. Climate plays a major role in energy consumption and variations in annual data, for example the number of heating and cooling days, depend for a large part on weather changes. To separate the influence of climate, energy consumption data can be averaged over a period of about three years or, as a more advanced method, corrected with climate data that are now available for many individual locations. 55 This basic data collection is best done at the local level. To ensure that data are comparable and reliable, continued efforts are needed to ensure that a unified methodology and standardized data compilation protocol is used across all the subsectors at all different levels. Central guidance needs to be adhered to and training for local officials and enumerators on how to correctly follow the guidelines needs to be further expanded. For small and simple buildings a simplified methodology might be useful to consider. All local data is then aggregated as necessary at the provincial and national levels. Basic checks must be employed to ensure the data are free of obvious mistakes. 54.The USAID publication “Powering Health, Energy Management in Your Facility” provides a guide to energy management in health care facilities in rural settings that are frequently supplied by off-grid power (see Powering Health - Energy Management in Your Health Facility). 55.Weather normalization correlates the relationship between usage and weather data—typically through statistical methods such as regression analysis—and allows for a comparison of a building’s energy use relative to itself over time, accounting for year-to-year differences in weather. For an example, see Energy Star, Portfolio Manager Methodology for Accounting for Weather. Another example is the Natural Resources Canada’s Benchmarking Guide for School Facility Managers, which uses the average heating degree days (HDD) for the past 30 years to normalize heating energy consumption for a specific year, using the weather data obtained from Environment Canada and the methodology provided by the Agence de l'efficacité énergétique and Quebec's Ministère de l'Éducation. A similar procedure can be used to weather-normalize cooling energy consumption using cooling degree days (CDD). 51 China: Improving Energy Efficiency in Public Institutions 3.56. Given the lack of serious attention until recently and considering how widely dispersed facilities are, proper metering of energy use in China’s various public institutional subsectors presents tremendous challenges. Perhaps these challenges can be addressed through actions in three areas: (i) strengthening basic metering and purchase recording, as well as improving methodologies to estimate basic fuel and electricity consumption, (ii) dealing with the major heat metering and control issues in the standard hot-water radiator central heating systems of northern China, and (iii) implementing sub-metering of key energy-use systems and sub-entities. 3.57. Basic metering and energy use recording. Chinese authorities and experts have recently put a strong emphasis on improving basic metering and recording of the main energy purchases of entities, and with good reason. Basic, main meter installations need to be checked and improved to ensure they are properly in place, up to standard, and calibrated. Metering data and purchase records need to be analyzed and reconciled. Coal supply, distribution, and use statistics need to be reconciled, and checked by authorities. Metering and purchase recording may need to be realigned to properly report the baseline energy use of different public entities, which in the past may have been sharing meters or recording systems. 3.58. Heat metering and system control. Measurement and control of public building heat use in northern China involve the complex and broader issues of China’s heat pricing and billing system reform and associated required major technical renovations.56 Except for a few pilot projects and special efforts in a few cities such as Beijing,57 central heating relying on local district heating systems is billed according to the floor area of heat supplied (for example per square meter of living area) rather than according to heat consumption. Accordingly, building heat consumption is rarely metered and actual building-level heat use is therefore unknown. Furthermore, the traditional heat supply systems based on Soviet-era technology do not allow for adjustment of heat levels by consumers, including even at the building level, unless heat substations have been specifically configured to allow for such control or buildings have separate heating systems. In this situation, therefore, there are few incentives to undertake heat savings measures. Even if an entity undertakes such measures, they will not result in heat savings at the source because the heat supplier cannot adjust its heat supply level to match reduced demand. 3.59. China is in the midst of major heat supply system reforms to address these problems. These reforms involve (i) renovation of heat distribution system configurations, including changes from fixed flow to variable flow systems, which would allow adjustments in heat supply to buildings based on actual demand; (ii) increased use of dual, horizontal internal heat piping systems (as opposed to the single, vertical heat piping systems) in new buildings, with thermostats or other end- use control devices which allow for heat radiator control within buildings; (iii) renovation of old- system heat piping systems within buildings to allow for at least some control of heat use within buildings; (iv) installation of heat meters at building levels, and, where needed, within buildings; (v) reform of heat pricing systems to include charges for actual heat used; and (vi) revamping of heat billing to accommodate the new metering and pricing systems. 56.For an introduction to heat system reform issues and their importance for building energy efficiency in China, see Taylor et al. 2001, China: Opportunities to Improve Energy Efficiency in Buildings. 57.In Beijing, completion of heat metering of all public buildings and use of consumption-based billing in all public institutions will become mandatory starting with the 2012/13 heating season. 52 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results 3.60. Public institutions are just one set of heat consumers among many others and have no other option than to operate within the systems established by the municipalities. This makes them dependent on the rate of progress of the heat system reform by these municipal governments. If the public institution’s buildings are part of the local district heating system, overall upgrading and reform of that system will dictate much of what the institution can do to generate heat savings. Nevertheless, public institutions can take several actions to both increase their own heat savings and support progress of the overall heat system reform. First, municipal governments, in the spirit of “setting an example,” should offer their own facilities as among the first for piloting upgrades and billing reforms on the customer end (including passing the payment responsibility for the bill to residential consumers), and help spur municipal heat supply companies to accommodate accordingly. Second, in the case of relatively new buildings with modern-era internal heat systems and control potential, public institutions can push for a local configuration that would allow them to have their own meter, preferably at the building or staircase level. Third, in such buildings, public entities could promote advanced heat saving technologies like building-level substations and thermostatic radiator valves. This will provide excellent show-cases of potential good management and savings schemes. Fourth, if the public facilities operate their own local heat production and supply system, they should upgrade and reform their own system to include demand-based heat dispatch, modern controls, and other heat savings measures (to the extent allowed by the internal heat pipe configurations of older buildings). Using the outsourcing-option of EPC may be a good way to implement this fourth type of measure but only if it does not “lock in” a heating tariff based on floor area. 3.61. Sub-metering. If at large facilities, such as large provincial government compounds or university campuses, only the energy consumption for the entire complex is known, it is very difficult to assess priorities for energy savings or get users excited for improved energy management. Electricity, gas, and heating sub-meters need to be installed for different key energy systems (such as the main air conditioning and lighting systems or key data centers) and for important subgroups, so that more specific energy management plans can be developed and monitored. In fact, without the advance installation of some types of sub-meters in these large facilities, it is almost impossible to have a reliable energy audit or develop meaningful energy savings incentives programs. 3.62. Installation of sub-meters is part of most successful energy management programs, unless facilities are quite small. Box 3.4 provides an example from the university subsector in the United States. In China’s public institutions, however, few sub-meters exist and it will be important to prioritize efforts. To yield the greatest benefits, sub-metering should focus first on the largest energy consumers and on facilities where follow-up action is definitely planned. 53 China: Improving Energy Efficiency in Public Institutions Box 3.4: Energy Sub-metering at University Campuses in the United States A recent survey on sub-metering on university campuses undertaken by the Energy Star Program and the Association of Higher Education Facilities Officers (APPA) showed that 69% of participating universities meter all dormitories and 48% meter all non-laboratory classroom facilities (both types of facilities account for the majority of floor space in these universities) for one or several types of energy uses. The trend towards increased sub-metering, especially for electricity, is driven by cost reduction efforts, charge-back practices, and efforts to establish accountability. For example, the University of Michigan has installed meters for every single building. A dedicated website provides information on the monthly consumption of each building, how that compares with previous months and years, and how much the associated energy costs are. The site also reports on recent energy savings investments and cost savings at each building.58 3.63. Suggestions for the development of metering programs. While it is essential to maintain the current drive to achieve basic energy metering in all main facilities as soon as possible, the extent of the need for energy metering in the public institutional sector is so great that it may best be tackled in staggered approaches. The study team has two suggestions: • Focus on selected subsectors in specific localities. Developing programs to improve energy metering for selected subsectors in selected localities will build the necessary experience while starting to provide an improved basis for energy management and design of energy efficiency programs in key subsectors. Examples could include provincial and municipal government office buildings in a province, a selected number of interested universities or hospitals, or a number of school districts in a given area. Programs could include a time-bound, relatively comprehensive plan, including meeting all basic energy metering requirements, but also selection of key pilots for sub-metering, heat metering, and perhaps smart metering (where relevant energy tariffs exist). Specific technical guidance should be provided, perhaps similar to what the U.S. Department of Energy (DOE) provides for electricity metering in U.S. federal government buildings.59 The relevant FBs should allocate funds to support meter purchase and installation. • Target entities with high savings potential and concrete plans. For the implementation of all but the basic metering programs, it is suggested to target entities that have both a substantial savings potential as well as concrete plans to implement specific energy savings programs. Considering the great need for advanced metering in many locations, it may be best to focus on cases where meters can be expected to lead to incentives programs for management improvement or energy savings investment, rather than just used for information purposes alone. 58.See Energy Star, Sub-Metering Energy Use in Colleges and Universities: Incentives and Challenges and University of Michigan, Plant Operations Division, Energy Management, Building Information. 59.See FEMP, Guidance for Electric Metering in Federal Buildings. 54 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results Energy Audits and Preparation of Site-Specific Energy-savings Plans 3.64. Energy audits are informational or diagnostic reviews of energy use in specific facilities. They involve some kind of on-site inspection, usually by third-party experts, which can either be a simple one-day activity combined with a review of readily available data and a quick “walk through” of facilities, or a complex, multi-month activity involving sophisticated measurement and diagnostic analysis of all energy systems and facility sub-groups. 3.65. Energy audit objectives. Because energy audits can be pursued for different reasons, successful energy auditing programs are clear about the audit’s objectives and manage expectations of the involved parties. Also, most importantly, successful audits specify required follow-up action. Three common types of energy audits are: • Diagnostic reviews for developing improved internal energy management systems. To help entities develop improved internal management methods, a detailed understanding of existing internal procedures is key. Auditors will need to work closely with many of the staff at the public entity. Expected follow-up to this kind of energy audit would include the institutionalization of improved internal procedures and management methods. • Audits to provide information to supervising units as well as to the entities themselves. Simple audits can be used to confirm or augment statistical reports from the public entities on building characteristics and energy use patterns. This could also confirm the feasibility of possible project ideas. The audit results could also be used by the supervising units and the host public entity as basic information for policy and program development. The audit could involve just information collection and analysis, but expected follow-up may also encompass use of the information to establish benchmarks for future quota systems, facility energy efficiency performance labeling, or minimum certification. As these different objectives may have different implications for the entities involved, and thus for the auditing process, clarity at the outset would be useful. • Diagnostic reviews to identify future projects, including renovation investments, and promote implementation of those investments. The level of detail in project-related diagnostic reviews varies dramatically depending upon the objective. Simple walk-through audits may be helpful for screening potential project types for future analysis. Full investment grade audits (IGAs) are often required for major projects, especially if multiple measures and technologies are included. Typically these IGA reports become key contractual documents. In all cases, however, if the objective of the audit is to identify future projects, the audit must cover a credible financial analysis, identification of practical implementation issues, assignment of next-step implementation responsibilities, and identification of eligible financing sources, to ensure serious follow-up. The selection of auditing companies also may have implications for the future procurement of contractors for project implementation, which needs to be considered upfront.60 60. If EPC projects are planned, a first-stage relatively simple audit is used to provide basic information to interested ESCOs and to set basic parameters for ESCOs to prepare proposals. Once a contract is awarded, an IGA is then often completed “to finalize the precise details of the energy performance contract, document the baseline and develop the detailed project design.” The cost of this audit is rolled into the contract. See also Chapter 4 of this report and Singh et al. 2010, Public Procurement of Energy Efficiency Services - Lessons from International Experience, p. 78. 55 China: Improving Energy Efficiency in Public Institutions 3.66. Linking energy auditing with results. Inadequate follow-up to energy audits is a common problem in most countries. If one of the key reasons for undertaking an audit was to help the entity improve its energy management, was an improved energy management system in fact adopted by the entity? If the audit was undertaken to provide supervising entities with more information, was the provided information useful and credible? If the main purpose of the audit was to identify attractive renovation investments for implementation, is the entity now actively investing in new projects? A successful audit means that the broader objectives of the audit are met, not just that the actual diagnostic review or walk-through happened. The best approach for increasing audit follow up is to be clear about objectives and expectations in advance, and then to ensure that audits are part of a broader program to realize those objectives, rather than an isolated exercise focused solely on producing a report. 3.67. Many countries require energy audits in public facilities to identify cost-effective energy efficiency projects. This is for example the case in the Czech Republic, France,61 India, Thailand, and the United States. In some cases this mandatory requirement pertains to all public facilities (Czech Republic, France, and the state of Ohio in the United States62), while in other cases it pertains only to larger buildings (for example in India and Thailand, and federal government facilities in the United States63). Unless satisfactory financing arrangements and mandates to implement cost-effective measures are in place, however, these mandatory audits are often of low quality and do not properly result in follow-up investments. The program in the Czech Republic provides an example.64 3.68. Insufficient attention to the identification of good investment projects is a serious problem in many audits completed recently in China. Too often, audit reports provide only an engineering analysis of energy consumption and a general list, on the final pages, of potential measures for entities to consider. A major gap then exists between the completed basic energy use analysis and the preparation of actionable management improvements and investment projects for the site that was audited. Too often, the preparation of site-specific energy savings plans is vague and insufficiently detailed to provide a basis for immediate action. It would be most efficient to include the preparation of this kind of specific energy savings plan in the overall auditing process. 61.The “Grenelle 1” law of July 2009 requires that all public buildings undergo an energy audit before the end of 2010 and on the basis of the audit recommendations start their energy efficiency retrofits work before the end of 2012. It is expected that 250 million square meters of the total of about 920 million square meters of public buildings will be renovated by 2020. EPC is a recommended tool to be used by public entities, especially by local governments, in addition to budgetary resources (€24 billion mainly for the retrofit of 120 million square meters of buildings owned by the state and public bodies). The goal is to reduce energy consumption of public buildings by 40% by 2020. See Eco-Building International Club, Climate change policy in France after the “Grenelle de l’environnement,” Policy and measures in the building sector and Energy audits: state-of-the-art study. 62.In the United States, in the state of Ohio, a 2007 Executive Order (2007-02S) required all state agencies, boards and commissions to conduct energy audits for all state-owned and state-leased facilities by June 2007 and to reduce energy use in their facilities by 5% during the next year, and 15% during the next four fiscal years (Office of the Governor News Release 2007). 63.Since 2009, U.S. federal agencies are required to evaluate the energy and water use of 25% of their “covered” buildings (those accounting for 75% of an agency’s energy use) every year. As of December 2010, almost 50% of the number of facilities had been evaluated, accounting for 38% of the gross area and 34% of the total energy use. Source: http://www1.eere.energy.gov/femp/regulations/facility_ ctsreports.html. 64.In the Czech Republic, the Energy Management Act of 2000 required the preparation of an energy audit for most buildings in the public sector, to be completed by end 2006, and the obligation to implement low-cost audit recommendations. However, funding for the audits and the implementation of the recommended measures was quite limited. This resulted in agencies contracting low-cost auditors who often delivered low-quality and fairly useless audits; see European Federation of Agencies and Regions for Energy and Environment, Framework Conditions for Energy Performance Contracting and International Energy Agency (IEA), Energy Efficiency Policies and Measures, Czech- Republic. 56 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results However, if that is not possible, a second “pre-investment” study should be undertaken. To improve achievement of energy savings results from audits the study team recommends that new energy audits for public institutional buildings should include specific requirements for the preparation of detailed, actionable energy savings plans, complete with an analysis of financial requirements and paybacks for recommended projects. This should be a specific requirement for audits supported with public budget allocations. 3.69. Auditing priorities. In general, energy audits should initially be limited to larger facilities that are older and have not been renovated recently, or facilities that have high energy costs or equipment that has reached its useful lifetime.65 In smaller facilities with fairly basic equipment, it may be best for facility managers to complete audit templates themselves and provide basic facility descriptions, equipment inventories, and energy bill summaries. Especially in the beginning of public sector energy efficiency programs, energy agencies and utilities (or similar entities) are often available to provide support or to complete simple audits for free or minimal charges. In Germany, for example, many local or regional energy agencies assist local governments in the preparation of calls for proposals for EPC projects by assembling basic data on the buildings and their energy consumption using fairly simple checklists.66 In China, however, this approach may initially be difficult in buildings that are supplied by district heating and not metered. Estimation of heat consumption would involve more complicated calculations. This, however, is not a limitation in other parts of China. 3.70. Setting auditor qualifications. Energy audits can be undertaken by a wide range of organizations, ranging from in-house technicians to energy agencies, universities, utilities, engineering companies, and specialized energy auditing companies. The purpose of the audit should determine the level of required expertise. National or local guidelines can help ensure conformity and minimum quality, but such guidelines might best include strong emphasis on the specific objectives of specific auditing programs and cater auditing content and procedures to best meet those objectives in the broader program framework. It may be useful to consider certification of auditing companies to ensure that they have minimum qualifications and experience. However, certification criteria and procedures for those companies need to ensure that companies after certification retain the human expertise at the time of certification. It should also be noted that few countries require formal certification for energy auditors. In the United States, auditors working in the residential building sector need to be certified by one of several industry associations, but there is no certification requirement for other building energy auditors. In India, energy auditors work mostly in the industrial sector and need to obtain certification through a national exam. Benchmarking and Labeling of Energy Use in Different Buildings 3.71. For buildings, benchmarking, generally, is the process of establishing and comparing a metered building’s current energy performance with its energy baseline,67 or comparing a 65.These are the essential criteria recommended for the U.S. federal government buildings; see FEMP, Energy Savings Assessment Training Manual. 66.See the German Guide to Energy Performance Contracting in Public Buildings ("Leitfaden f ür Energiespar-Contracting in ofentlichen Liegenschaften'). 67.The baseline is an initial period of metered energy consumption used as a point of reference for comparison purposes. For example, the Energy Star Portfolio Manager tool uses a 12-month period of metered building energy consumption as the energy baseline. 57 China: Improving Energy Efficiency in Public Institutions metered building’s energy performance with the energy performance of similar types of buildings. Benchmarking can be used to compare performance over time, within and between peer groups, or to document top performers.68 The difference between a monitoring system and a benchmarking system is that the latter relates energy management processes within a building or the entire building to top performers in their class or group for the purpose of generating plans to improve a certain process or entire building’s energy use. Benchmarks are typically expressed in unit energy consumption, for example energy per unit floor area or energy per occupant. 3.72. Benchmarking has a strong information function and can be used as a basis for targeting, establishing quotas, or establishing incentives for improvements. Especially in the latter case, care is required to ensure fair comparability. Not only must the basic building and energy use data be collected using the same definitions and methodology to ensure that data are comparable and reliable, when using the data, building types must be defined and grouped according to similar operational and energy use patterns. Climate correction should be applied to the data to make energy use comparable over time and across climate zones that are not too different from each other. Next, appropriate performance scales should be developed for building groups, such as a range of energy use per square meter (for most buildings, where m2 is uniformly determined), per occupant, or per bed (for hospitals). Buildings can then be rated on this scale according to their relative energy use. 3.73. Informative benchmarking. When benchmarking is used as an information tool, the audience can be the facility itself or even the public. A key goal of this type of benchmarking system is for users to be able to compare themselves with other, similar, but unnamed, facilities. Users can elect to share their data with other users or decide not to. An example is the Energy Star Portfolio Manager benchmarking tool (see also Box 3.5). In the Energy Star system the top 25% of buildings in terms of energy efficiency can choose to make their ranking public and display an Energy Star plaque. Metered federal government facilities are required to participate in this benchmarking program. In the Minnesota program, the benchmarking tool for public buildings also helps users to identify energy savings measures and assess the potential application and cost- effectiveness of these measures in different buildings. Box 3.5: Informational Benchmarking as a Tool for Energy Efficiency Improvements in Public Buildings Following the 2007 Energy Independence and Security Act (EISA), metered U.S. federal buildings are required to be benchmarked. DOE selected Energy Star Portfolio Manager, which has the following characteristics:69 • Ability to compare the energy performance of a building to a statistically representative model created with data from DOE’s Commercial Building Energy Consumption Survey (CBECS) • Ability to provide an energy performance rating for several commercial building types that represent over 60 percent of the U.S. commercial floor space • Designed for benchmarking and capable of storing energy consumption data 68.See FEMP, Building Energy Use Benchmarking Guidance. 69.See Energy Star, Portfolio Manager Overview. 58 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results • Developed as a Web-based application with secure access. A Portfolio Manager user controls data access and chooses whether or not to share building data with other users • Ability to be used by all commercial and institutional buildings to track energy consumption over time, and also track water consumption, energy costs, water costs, and carbon emissions • Designed to be simple to use and easily understood, requiring only minimal, easy-to- acquire information • Opportunities for data entry using manual entry (either for a single building or for large sets of data using a spreadsheet template) or automated benchmarking (with data directly uploaded by the utility or by the benchmarking service providers). Portfolio Manager rates the energy consumed by a building or facility on a scale of 1 to 100, relative to similar buildings nationwide. Known as the Energy Star Energy Performance Rating, this score is based on comparing twelve months of weather-normalized energy data for each meter in the facility to a twelve-month energy baseline. It also adjusts for the unique operating characteristics of the building, such as operating hours and occupancy. Once all the required data is entered, the score indicates a percentile rank of the facility. A score of 75 or higher qualifies the building to earn the Energy Star Building Label. In 2004, the state of Minnesota in the United States launched the B3 Energy Benchmarking program (https://mn.b3benchmarking.com). The program includes buildings in all public building sectors: state, cities, counties, and public school districts. The B3 Benchmarking program collects information on the design, operation, and energy performance of existing public buildings so that the state and its political subdivisions can direct energy conservation improvements where they are most needed and most cost-effective, and where the return on investment for a capital expenditure is greatest. Information on design and operations is used to create engineering baseline models for the specific space uses in their locations. B3 Benchmarking contains building models and consumption information for more than 5,100 public buildings in the state. The data collection process of the benchmarking program relies on a Web-based tool through which building representatives of public buildings enter data, including building characteristics and utility bills. The users can see how their buildings compare to individualized benchmarks. B3 advances a unique approach to determining the benchmarks, using a parametric model based on space-type simulations combined with the prescriptive requirements in the current Minnesota energy code. By comparing a building to its unique benchmark, the opportunity for energy savings can be determined. By then comparing opportunities across buildings, the user can come up with a prioritized list of buildings that offer the highest potential for cost- effective improvements in energy consumption. This systematic method of comparison will help managers justify and secure the funds necessary to complete further analysis through energy audits and, ultimately, energy conservation upgrades. In 2009, an upgraded Website tool provided functionality for on-going—weather normalized— operational building energy management where users can compare their buildings’ energy consumption to a previous year of their choice to evaluate technology and operational improvements. B3 Benchmarking supplements an Energy Star analysis in two important ways: by providing an engineered model of performance, and by providing greater climate and space type specificity (ACEEE 2010). 59 China: Improving Energy Efficiency in Public Institutions 3.74. Benchmarking is frequently used for the initial targeting of buildings for energy efficiency improvements. Once identified, the building will have to undergo a preliminary audit to confirm that the building is indeed a below-average performer, determine the reasons for under-performance, and identify specific energy saving measures. In German municipalities, for example, buildings are pre- selected for participation in a pool for EPC based on comparison with the benchmark. Comparing a building’s energy consumption to an appropriate benchmark will provide an indicator about the level of potential energy savings. Measuring the energy performance of a building, however, is not a one-time exercise. The process is continuous, requiring periodic updating of the benchmark itself and subsequent comparisons to it. 3.75. Incentivizing benchmarking. Benchmarking can also be used as a basis for reputational incentives or targeting/quota system incentives (see paras. 3.21–3.27). If the unit energy consumption of specific facilities is publicly compared to benchmarks for similar facilities, as in various publicized building labeling systems (see paras. 3.78-3.80 for the systems in EU countries), this can provide reputational incentives for entities to improve performance. Publicly labeled good performance provides reputational benefits, while public disclosure of poor ratings provides reputational costs, unless the ratings are improved. For example, Danish public buildings are rated according to a benchmarking system, with both good and bad results provided on a publicly accessible website (see para. 3.78). Several U.S. states and municipal governments require benchmarking of commercial buildings, including public buildings, and disclosure of the benchmark values. New York City requires that benchmarked public buildings undergo retro- commissioning every 10 years, as well as an energy audit. Buildings owned or leased by the city are required to implement any recommendations that have a payback time of seven years or less.70 3.76. In some cases, such as in the Energy Star system in the United States, the focus is only on publicly recognizing good performers. Another example of such rewarding benchmarking systems is the award of “energy-saving hospital” certificates in Germany, for which a key criterion is achievement of unit energy consumption levels below the lower quartile benchmark value of comparable hospitals (see Appendix C). 3.77. If benchmarking is used for establishing mandatory energy savings targets, for setting energy use quotas, or for punishing bad performers, the tool should be fairly refined and well tested, to avoid penalizing energy use that is justifiably higher. Buildings with bad benchmarking values should also be given time to improve performance. 3.78. In China, MOHURD has already developed a national building energy rating and labeling system 71and is piloting the effort in a number of provinces and municipalities. At this point, however, this building labeling system does not include recommended energy efficiency improvements and public disclosure (in the building or on the internet) is not required. MOHURD’s commercial building monitoring programs or Shanghai (Chanping) municipalities’ ongoing effort to target commercial buildings for energy efficiency retrofits may provide data and experience to kick 70.See Burr et al. 2010, The Future of Building Energy Rating and Disclosure Mandates: What Europe Can Learn From the United States. For a definition and more information of retro-commissioning, see Table B3 in Appendix B. 71.See Cao 2011, Building Energy-Efficiency Evaluation & Labeling Technologies in China for an update and discussion of issues and plans for broader dissemination. 60 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results start efforts in public institution buildings with similar functions. This could include the definition of common processes, building classifications, performance indicators, and other metrics. 3.79. Building energy performance certification in EU Member States. In the member countries of the EU, all larger buildings, including all public buildings, are required to undergo an energy performance certification at least every ten years in fulfillment of the 2002 Energy Performance of Buildings Directive. The certification report includes a list of recommended improvements. Initially, larger public buildings were simply required to publicly display a label showing they had undergone such a certification process. However, this did not prove very useful and now onsite inspection by an expert is required for energy performance certification. In Germany, energy performance certifications for federal government buildings are taken very seriously and involve complex and costly simulations of energy demand. In Denmark and Portugal, public building owners are required to implement all recommended energy efficiency measures with a payback time of less than five and eight years, respectively.72 Danish public buildings also need to participate in an online benchmarking system and regularly register their energy use online. This allows energy- efficient equipment suppliers and providers of energy services to acquire information on market opportunities. 3.80. The EU requirement for certification of building performance has encountered many implementation problems 73 and in its early years great variation existed in the rigor and meaningfulness of the program. Early implementation suffered from a lack of qualified experts and in a number of countries certification began several years late. Also, few certificates were issued for non-residential buildings. The quality of the exercise, and therefore its ultimate value, also varied among countries due to differences in requirements, training, and the qualifications of the entity providing the assessment. Labels were not directly comparable, even within one country, due to a lack of standard methodologies. Moreover, the sources and quality of the information used for the certifications also varied substantially, from using default values or simple utility data, to the use of intensive assessment systems combined with detailed building inspections. Quality control was insufficient or did not exist in many countries and the accuracy of certificates was not randomly verified. Central databases or registration of certifications were established only in a few countries, making it difficult to undertake proper monitoring, evaluation, quality control and enforcement, and rendering the certification data useless for follow-up analysis and policy development. 3.81. In May 2010, a recasting of the Energy Performance of Buildings Directive was adopted by the European Parliament and the Council of the EU. The revision is expected to help solve many of the issues experienced in the first few years of the program and should improve the quality and credibility of the system. For example, member states will have to set up control systems to check the accuracy of performance certification. In the meantime, the European Committee for Standardization (CEN) (or “Comité Européen de Normalisation”) published a standard for the calculation of the energy performance of buildings and the definition of ratings (EN 15603).74 72.Measures falling within these payback ranges depend on the level of energy prices, but typically include optimization and control of HVAC, ventilation heat recovery, insulation of boiler and piping, water saving and sometimes lighting measures; compare, for example, Coolen 2009,http://www.fedarene.org/documents/projects/EESI/Country_report/Country_Report_Belgium.pdf. 73.See, for example, The Buildings Performance Institute Europe (BPIE) 2010, Energy Performance Certificates across Europe, and The RAND Corporation 2009, Improving the Energy Performance of Buildings. 74.See CENSE, Information paper on energy performance of buildings – Overall energy use and definition of energy ratings – Calculated energy rating EN 15603 (Overall energy use). (Zirngibl 2009). 61 China: Improving Energy Efficiency in Public Institutions Financing Public Institution Energy Efficiency Investments 3.82. With proper incentives, dedicated and qualified technical staff, and reliable information about energy use and potential projects, public entities can proceed with project design and development. For the actual implementation of projects, however, the third and final key barrier to expanding energy management in public facilities—“no financing”—must be overcome and financing must be arranged. For public institutions, financing sources are more limited than for commercial entities. Government departments, schools, and many other types of public institutions are tightly constrained in their ability to raise funds. Traditionally these entities have had little choice but to rely on government budget resources. However, additional options can and should be developed. 3.83. In all countries implementing major public institution energy conservation programs, government budget appropriations alone are never large enough to support the level of energy conservation investment that must be undertaken. In many countries, public institutions also face severe restrictions on their ability to borrow on the market for such projects. As a result, countries have taken advantage of various alternative financing mechanisms for public institution energy conservation projects. These include (i) the use of energy performance contracts (under which ESCOs provide the bulk of project financing); (ii) use of incentives provided by local energy supply utilities; (iii) use of special revolving loan funds; and (iv) issuance of special bonds, use of leasing arrangements, or use of other mechanisms (where regulations allow). In most cases, averaged over the years, the amount of funding provided by such alternative financing mechanisms substantially exceeds amounts funded through government budget allocations. 3.84. Similar to other countries, China cannot expect to rely primarily on government budget allocations to fund the huge amount of public institution energy savings investment that is cost effective and needs to be undertaken. Alternative financing mechanisms must be aggressively developed to complement budget allocations. The next sections will briefly discuss the use of government budget appropriations, alternative financing in the United States and Europe, and the potential use of revolving funds. Chapter 4 will discuss what may be the most promising alternative financing mechanism for China: energy performance contracting (EPC). 3.85. Use of government budget appropriations and special funds. Continued allocations from China’s energy conservation special funds, which are in place at the national level, many provinces, and even some sub-provincial government levels, are critical for the public institution energy conservation effort. These funds provide important financing that co-finance traditional, very constrained renovation budget allocations. It is very important to maintain stability in funding allocations for public institutions to match the multi-year nature of many capital expenditure plans and subsequent implementation contracts. While specific financing arrangements need to be tailored to local circumstances (such as types of projects or the financial performance of the local government), strong support from the public special energy efficiency funds is especially useful in the following cases: 62 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results • Financing of a wide variety of demonstration projects within all of the public institutional subsectors, especially for introduction of new approaches and technologies. An overview of the main areas targeted for demonstration projects during the 12th FYP is provided in Table 3.1. • Provision of targeted subsidies. In some useful cases, such as the energy efficient lamp subsidies discussed earlier (see para. 2.55), targeted subsidies can help reduce the payback period of certain energy efficiency technologies. Using such subsidies, public entities may be able to combine regular expense provisions in their annual budgets with the incremental cost subsidy to buy equipment that saves large amounts of energy over its lifetime. Another key area is providing subsidies for energy savings investments in entities that are typically very constrained in financing options for upfront costs, such as rural schools. Subsidies for projects in such cases can improve basic conditions, including heating, in addition to saving energy. • Budget support for various soft costs. This includes costs for training energy managers, setting up statistical reporting systems, installing meters, energy auditing and preparation of site-specific energy savings plans, and monitoring and supervision. Without specific budget support, it is difficult for most government-budget-dependent entities and their energy managers to undertake these activities properly, even though they are critical for program success. While most of these areas have received some level of budget support in the past, one particular area that deserves more consideration is public funding for the costs of preparing site-specific energy savings plans. This could be better included in funding for overall energy auditing work. 3.86. Overview of alternative financing in the United States. In the United States, where government budget allocations have always been insufficient for the large investments that are needed to comply with energy saving targets, a variety of financing models has emerged. Alternative financing mechanisms are used at the federal level, but also especially at state and local levels, where there has been much innovation. One driving force for most state and local governments is that, with only a few exceptions, these governments are usually required by local law to balance their operating budgets. In addition, local laws allow a variety of financial arrangements, such as setting up capital funds with earmarked revenue streams and allowance for borrowings (the debt service of which is clearly covered by the revenue) for specifically defined capital expenditure purposes. The arrangements generally depend on state regulations and considerations such as publicly approved borrowing authorizations, loan security regulations, transaction costs, tax implications, and public balance sheet treatment. 3.87. At the U.S. federal level, financing choices for energy efficiency investments are limited to three sources: direct budget appropriations, energy performance contracts—in the United States referred to as energy savings performance contracts (ESPCs)—and utility energy services contracts (UESCs). The last two are often referred to as alternative financing. Federal government ESPCs require ESCOs to arrange the bulk of the financing. This initially made this energy efficiency 63 China: Improving Energy Efficiency in Public Institutions delivery mechanism attractive to lawmakers, but the model also has received some criticism because the financing costs for ESCOs tend to be higher than for federal government agencies, by a premium of about 3%.75 3.88. Use of Utility Energy Services Contracts (UESCs) varies depending upon the services offered by local energy supply utilities. Building on the already existing relationship with the utility, UESCs allow federal government agencies to contract directly for comprehensive energy services. The local utility arranges financing (alternatively, appropriations can be used) to cover the capital costs of the energy conservation project, which are repaid over the contract term from cost savings76 generated by the energy efficiency measures. 3.89. Energy efficiency and renewable energy projects in federal (and other public) agencies also benefit from utility incentives and rebates from so-called public benefit programs that are bundled into the financing arrangements as much as possible, since this tends to lower overall costs. In most U.S. states, public utility regulatory agencies have directed utilities (especially electricity utilities) or public benefit administrators to invest in energy efficiency, develop energy savings programs among their customers, and demonstrate these savings to the regulatory agencies. The regulatory agencies allow the utilities to be compensated for these services, usually from the energy prices set by these agencies.77 Examples of incentives and rebates include: rebates for energy efficiency equipment, “custom” incentives for non-standard equipment or whole building approaches, no or low-cost energy audits, and re- and retro-commissioning (see Table B.3 in Appendix B).78 3.90. Figure 3.4 compares the amount of direct appropriations and alternative financing of energy efficiency and renewable energy projects in the federal sector in the U.S. during 2003-2010. In “normal” years, alternative financing amounts are about equal to budget appropriation amounts. In recent years, as a result of government stimulus funding in the United States (and many European countries), special government funding of energy efficiency programs in public buildings has increased. This increase, however, is expected to be only temporary. 3.91. Compared to the federal government, state and local governments and school districts in the United States have a larger number of financial instruments for energy efficiency projects at their disposal. They can issue bonds, enter into financial leases, receive grants from the federal government, use rebates and other incentives from utilities, or enter into contracts with ESCOs. Bonds issued by the state and local governments or school districts can provide an important source of energy efficiency financing, especially at the state level. Public entities repay bonds with public funds, using a variety of public revenue mechanisms depending on the case. The interest paid on government or public entity bonds is typically tax-exempt for investors, leading to lower financing 75.See Coleman 2010, http://www.esmap.org/esmap/sites/esmap.org/files/World%20Bank%20talk%20on%20US%20Gov't%20ESPC%20 experience.pdf. More details on financing ESPCs can be found in Box 4.1. 76.In UESCs, energy savings do not have to be guaranteed or measured and verified; it is, however recommended that at least a minimal performance assurance plan is part of the contract; see FEMP, Quick Guide: Utility Energy Services Contracting. 77.Public benefit programs: U.S. States fund energy efficiency programs operated by utilities, state agencies, or third parties primarily through a charge on ratepayer utility bills known as a “Systems Benefits Charge (SBC),” see for example an overview of these programs and funds in U.S. states at http://www.epa.gov/statelocalclimate/documents/pdf/guide_action_chap4_s2.pdf and a database on state utility programs at http://www.aceee.org/sector/state-policy/utility-policies. 78.Stuart 2011 gives an overview of the current status of the Energy Project Incentive Funds Updates and Trends and their use in the federal government sector. 64 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results costs. Financial leasing is another financing instrument that is quite popular at the local level.79 Financing terms can be attractive because the interest paid to the lessor is exempt from federal income tax. If local public entities can secure cheaper financing than they can through ESCOs, which is often the case, public agencies will tend to provide project financing even if energy performance contracts are used, taking advantage of ESCOs’ services and result guarantees, but not their financing. Figure 3.4: Investments in Energy Efficiency and Renewable Energy Projects in the U.S. Federal Sector using Direct Appropriations, UESC, and ESPC Source: Adapted from Tremper 2011. 3.92. In the United States (similar to the situation in Canada and most European countries), government buildings are the dominant customers for the ESCO industry. In 2008 alone, U.S. federal and other public institution markets contributed an estimated US$3.4 billion to ESCO revenues, almost 84% of overall ESCO industry revenues. Between 1990 and 2003 a total of US$15–19 billion of energy efficiency investments was done on the basis of ESCO activities in the federal, state and local government, university, school, and hospital sectors. The federal sector accounts for about US$3 billion of this, with ESCOs working under ESPCs, implementing UESCs, and being contractors of projects funded by direct appropriations.80 79.In the future, this financing tool will probably become more expensive and therefore more limited in its application, since a change in accounting rules would require listing of all lease transactions as assets and liabilities on balance sheets (this is not currently required for operating leases). This requirement could deter energy-efficiency investments for developers, companies, and non-profits by eliminating the “off-the-books” benefits of sale leasebacks (Feldman 2011). 80.Satchwell et al. 2010, A Survey of the U.S. ESCO Industry: Market Growth and Development from 2008 to 2011. 65 China: Improving Energy Efficiency in Public Institutions 3.93. Examples of U.S. states that have seen fairly large EPC investments in the public institution sector include Massachusetts, Pennsylvania (both more than US$400 million so far), Colorado, Maryland, Virginia, and Texas (each more than US$200 million). In terms of investments per capita, Idaho, Hawaii, Utah, and Kansas have been quite successful in the use of EPC as well. Kansas has energy performance contracts in place for about 75% of the floor area of state-owned or state- occupied buildings.81 In general, however, overall EPC market penetration is still relatively low (20% or less), even in states actively promoting it. While some of the larger U.S. states—California, New York and Texas in particular—have seen substantial EPC activities, their other energy efficiency activities (funded by utility energy efficiency programs, direct appropriations, energy bonds, and loan programs) are much larger.82 3.94. Overview of alternative financing in Europe. In European countries, public building energy efficiency projects are funded from four major sources: direct budget appropriations, special grants, loan programs (including revolving loan funds), and EPC. Direct budget appropriation levels have varied, but budget allocation availability has improved recently due to special stimulus measures following the 2007 financial collapse. Subsidized loan programs and revolving funds have been made available to local governments, the education sector, and the health sector as part of climate change mitigation programs. Box 3.6 provides examples of each of those programs. 3.95. EPC is not as widespread in Europe as it is in the United States, but the public sector market for ESCOs has been growing gradually. Similar to the situation in the United States, public institutions are also the largest customer sector for ESCOs in almost all European countries. ESCO project financing is a key attraction in Europe and EPC projects in public facilities of EU member countries almost always require that ESCOs provide the bulk of the financing. Since the 1990s, EU treaties require strict fiscal discipline at all levels of government, which limits their financing options. Many cities were required to reduce operational costs and—unable to fund the rehabilitation of public facilities from their own budgets—began entering into contracts with ESCOs for facility retrofits. 3.96. Many European countries also provide investment subsidies for public entities that have some revenue of their own (such as for lower levels of government or education and health sector entities). In Sweden, for example, the national level Climate Investment Programme (KLIMP) has supported municipalities and other local actors between 2003 and 2008 with grants of up to 30% of the investment for long-term projects that reduce GHG emissions. Between 2003 and 2008, the program catalyzed an investment volume of about €728 million with its funding of approximately €164 million, of which 10% was spent in the buildings sector. Quite a few of the projects were implemented using EPC. One possible reason for the fairly low share of building sector projects in this program is that heat supply in Sweden is already fairly efficient and provided by low-carbon technologies such as biomass boilers. GHG emission reductions are estimated at 1.1 million tons of carbon dioxide (tCO2) equivalents per year, corresponding to about a third of the Swedish climate 81.The data rely on self-reporting and thus some states with a large EPC program may be omitted. See Energy Services Coalition, Energy Performance Contracting. 82.See Bharvirkar et al. 2008, Performance Contracting and Energy Efficiency in the State Government Market. 66 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results Box 3.6: Special Financing Programs for Energy Efficiency Improvements in Public Buildings Special loan programs. The German Development Bank (KfW) has several long-term/low- interest loan programs for building energy efficiency investments. One of those programs is for the energy-efficient retrofit of municipal buildings. In these projects, the renovation has to result in an energy consumption either equal to or 15% below the prevailing building energy code requirements for new buildings. In the first case, the maximum loan amount is €350/m2, in the second €600/m2. An accredited expert has to certify that implementation was according to plan. Alternatively, several prescriptive, individual measures can be implemented and financed with a low-interest loan.84 Revolving loan funds. The Salix Revolving Fund for England and Wales has provided interest-free loans of more than £40 (€59) million to 166 public sector bodies from 2005 to 2008. Typically, funding of around £250,000 (€370,000) was made available, matched by each borrower, and fed into a ring-fenced fund to be spent on proven energy saving projects with maximum five-year payback periods and carbon costs of £100(€150)/tCO2. The energy savings are returned to the fund until the original project investment is repaid. After that, clients are free to keep the savings to spend on front-line services. The fund itself can stay in place, and as long as sufficient compliant projects continue to come forward, the fund will not normally ask for the original investment to be returned. A similar fund was established for the higher education sector, amounting to £30 (€44) million from 2008 to 2011.85 (Note: Exchange rate of December 31, 2006.) objective, which is reducing the level of GHG emissions by four percent over the period 2008-2012 compared to the 1990 level.83 3.97. Revolving loan funds. While EPC has much potential for use in the public institutional sector in China (see Chapter 4), the use of revolving loan funds also presents an interesting opportunity for funding public sector energy savings programs in China. Two other financial options, bond issuance and utility financed schemes, right now are not of great interest in China, as provincial and local governments are currently not allowed to issue bonds and major energy supply utility energy conservation programs are not yet in the mainstream. Development of revolving loan funds may be a possibility, however, especially if fund financing, fund operation, and fund use are all within the same level of government and are basically internal arrangements.86 3.98. Study team recommendation. The study team recommends that agencies responsible for different public institutional jurisdictions, especially at provincial levels (for example, provincial education departments for provincial universities or schools, and provincial health departments for local hospitals), review the feasibility of setting up revolving loan funds for use of public 83.See Lindgren and Nilsson 2009, Transforming the “efficiency gap” into a viable business opportunity: lessons learned from the ESCO experience in Sweden; and Swedish Environmental Protection Agency, Climate Investment Programmes (Klimp). 84.See KfW, Energy Efficient Rehabilitation - Municipalities ("Energieeffizient Sanieren - Kommunen"). 85.See the United Kingdom Department for Environment, Food and Rural Affairs, UK Energy Efficiency Action Plan 2007 and United Kingdom Parliament, Environmental Audit Committee, Written evidence submitted by Salix Finance. For the education sector revolving fund see Salix Finance/The Higher Education Funding Council for England, Salix/HEFCE Revolving Green Fund - Update and Evaluation of the Revolving Green Fund: a report to HEFCE. 86.In Germany, several public agencies have had good experience with “intracting”. Units within the municipal administration set up a revolving fund to finance energy and water-saving measures of other departments, enabling the implementation of smaller projects for which external contracting (EPC) would be too expensive. In the city of Stuttgart, for example, the Environment Department has taken on some roles of an internal ESCO and offers energy services to other units of the municipal administration (host departments) and municipally-owned public utilities; see http://www.reneuer.com/upload/STUT_EN_M.PDF. 67 China: Improving Energy Efficiency in Public Institutions entities within their jurisdictions. Revolving loan funds could be capitalized with government budget resources blended with other financing sources. Public entities could pay back loans from the energy cost savings of projects, providing funds for new loans. This can greatly leverage government budget resources, allowing those resources to achieve benefits in many more projects than if provided as grants or subsidies. This type of arrangement has worked well in a number of countries. Some lessons learned and suggestions from experience elsewhere suggest that the set-up of revolving loan funds should include the following considerations: • Initial capital sources. Revolving loan funds can be set up with direct budget appropriations, but also with temporary appropriations (for example from stimulus funds), 87 from special sources such as carbon credits, or even using other sources such as bond issuance or financing from international organizations (such as the World Bank or bilateral donors). • Leveraging of other funds. Borrowers with some access to capital may be required to provide a substantial investment share. Funds from other non-public sources also are sometimes blended with public funds in the overall program, for example, if the administrator of the fund is a commercial financial institution that contributes its own funds to the program. • Terms. In many cases, borrowers, especially from the public sector, are charged positive interest rates that are lower than market rates (for an example, see the program of the German Development Bank in Box 3.6). However, below-market interest rates risk crowding out commercial financing when there is market pick up, thus requiring very careful analysis before engaging in such a scheme. Borrowers usually must provide some share of the investment financing from their own sources. This can be waived in special cases. Borrowers may be required to provide insurance or collateral. Many programs have fairly long terms, which allow implementation of measures with longer paybacks. Loan tenures tend to increase with time since fewer and fewer short payback measures may be available over time. Long loan tenures, however, limit the ability of revolving of the funds and before long can lead to oversubscription. • Eligibility. Projects usually must meet a series of criteria (for example payback criteria), minimum rates of return, and minimum energy savings cost-effectiveness. This helps to ensure that the original goal of the revolving fund is achieved, such as contribution to energy savings or GHG emission reduction targets. At the beginning of operations, however, some funds have been especially flexible, operating largely on a first-come-first-serve basis—at least at the outset—to effectively launch the flow of funds. • Revolving of funds. Most funds require borrowers to pay back loans to the fund using the energy cost savings cash flow. However, some funds, such as the Salix fund in the United Kingdom (Box 3.6), allow entities to revolve the funds themselves, using the energy cost savings cash flow to fund more projects in their own facilities. 87.In the United States, the federal government promoted the set-up of revolving funds from American Recovery and Reinvestment Act (ARRA) funds destined for the State Energy Program; for example, Utah has a fund for schools; see U.S. DOE, Energy Efficiency & Renewable Energy, Weatherization & Intergovernmental Program, Revolving Loan Funds and the State Energy Program. 68 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results • Fund administration. The fund should be designed to strictly contain operating costs so that fund capital is not depleted. Professional expertise is important, however, especially for credit review, project review, efficient funds flow, and good active loan monitoring. Engagement of a financial institution to operate the fund as an agent of the government is an option. • Complementary technical assistance. For the revolving loan fund to be successful, special funds should be available for complementary activities such as marketing and outreach to create a solid project pipeline, workforce development, contractor certification and training, evaluation, and M&V. The Texas LoanStar Program described in Box 3.7 has extensively implemented such activities. Sometimes these activities are subsidized program costs, but sometimes clients may be required to pay for some of these services, for example, energy savings M&V. Box 3.7: The Texas LoanSTAR Program—A Revolving Fund with Extensive Quality Control The state of Texas in the United States has operated a very successful public buildings energy efficiency revolving loan fund since 1988, called the LoanSTAR Program. Using US$98.6 million of original funding from government funds received as penalties paid under federal government oil pricing policies, the LoanSTAR Program by 2007 had funded 191 loans to public entities totaling over US$240 million, resulting in energy cost savings of US$212 million. Loans are made with a 3% interest rate over a maximum of 10 years (this term was initially shorter). Since 2001, projects carried out under EPC and with water conservation measures can also be funded. The program is overseen by the State Energy Office. The quality control on all phases of LoanSTAR has made it one of the most successful and best-documented building energy efficiency programs, state or federal, in the United States. Quality control measures include: • Development of LoanSTAR technical energy assessment report guidelines • Training of local energy engineering consulting firms on audit techniques and the LoanSTAR guidelines • Development of protocols to have each LoanSTAR project metered and monitored to track pre- and post-retrofit energy consumption (only during the first five years of the program all major projects had to be metered and monitored for savings verification) • Development of methodologies for analyzing energy savings from retrofits. The LoanSTAR Program has been known for its audit guidelines, training, metering and monitoring, follow-up with agencies to ensure the retrofits were working properly, and building commissioning assistance for improved operation and efficiency. As a result of these efforts, the actual measured and verified LoanSTAR energy savings have exceeded energy audit estimates of energy savings. Source: State Energy Conservation Office, LoanSTAR Revolving Loan Program. Monitoring and Supervision Systems: Evaluation of Progress 3.99. Establishing and maintaining a monitoring system. China has already started to develop more comprehensive and meaningful systems to monitor energy use trends and comply with the government energy conservation targets for public institutions under the 12th FYP. Many of the key 69 China: Improving Energy Efficiency in Public Institutions indicators that would be important for the monitoring effort—energy use broken down by subsector and type of energy (power, heat), energy costs, floor area, and similar data such as occupancy, GHG emissions, and investments—are currently monitored in other countries as well. It may be useful for Chinese experts to exchange views and ideas about the development of monitoring systems in China with practioners abroad. 3.100. The development of China’s system to monitor target compliance in government buildings is proceeding quickly, but additional efforts are needed to also implement effective monitoring systems for the non-government public institutional subsectors (such as universities, schools, and medical facilities). The most difficult challenge will be improving the metering systems and accuracy of the energy use data (see paras. 3.54-3.59). Having access to accurate data on heat consumption in particular will require years of effort. 3.101. Evaluating progress. The monitoring systems that are being put in place in China help provide a foundation for evaluating progress over time. In addition to evaluating the progress of various agencies and jurisdications in meeting energy conservation targets, however, the study team highly recommends the development of systematic efforts to objectively evaluate energy savings projects and, from those, evaluate the programs that support the projects. It is important to evaluate projects properly to be able to both highlight successful cases and foster their replication, and to objectively understand less successful cases and make adjustments accordingly. Evaluation requires good project monitoring and verification of savings (see paras. 4.57-4.62), and good evaluation of the cost-effectiveness of investments, especially public investments. Some programs in other countries require third-party verification of data to ensure an unbiased assessment of energy saving claims.88 One example is the annual evaluation of Vermont’s Energy Efficiency Utility, described in Box 3.8. Resources for conducting such evaluations are available, for example, the Model Energy Efficiency Program Impact Evaluation Guide developed under the U.S. National Action Plan for Energy Efficiency.89 Typical issues to be determined are the benefits (energy savings, cost savings, emission reductions, but also job creation, health benefits, and system reliability) and costs of a program and its cost-effectiveness, and whether it has in fact met its goals. If it hasn’t, the evaluation should indicate the reasons for the shortfall and possible changes to the program. An example is the evaluation of the German EPC program in federal government buildings after the completion of its five-year pilot phase.90 Even though overall results of the individual 19 projects were quite positive with average energy savings of 29% and payback periods of five years, it was pointed out that participation in the program depended too much on the marketing and support activities of the project facilitator, the German energy agency DENA. Recommendations were to develop central competence centers and strenghten the own initiative of federal departments and agencies, for example by providing incentives, encouraging establishment of internal energy saving goals, and establishing emissions trading. 88.The Energy Star program, for example, requires that energy savings in buildings are verified by a certified professional engineer before a building can qualify for an Energy Star label; see Energy Star, 2010 Licensed Professional’s Guide to the Energy Star Label for Commercial Buildings. 89.See U.S. EPA, Model Energy Efficiency Program Impact Evaluation Guide. 90.See German report, Evaluation of the project "Contracting for Government properties" on the basis of benchmarks and monitoring of selected measures ("Bewertung des Projektes "Contracting für Bundesliegenschaften" auf der Grundlage von Benchmarks und Monitoring ausgewählter Maßnahmen") 70 Chapter 3: Broadening and Deepening Energy Efficiency Programs in Public Institutions to Expand Energy-Saving Results Box 3.8: The Value of Monitoring and Supervision Systems in Nurturing Cost-Effective Government Incentives for Energy Efficiency In 1999, the Vermont Energy Investment Corporation (VEIC), a private company, won a competitively bid contract to supply energy efficiency services to the state of Vermont. Vermont (population about 626,000) wanted to combine all its energy efficiency programs into one single program for the state. It created “Efficiency Vermont,” an Energy Efficiency Utility (EEU), which was the first-of-its-kind to coordinate delivery mechanism for energy efficiency services in the United States. VEIC implements energy savings projects financed from electricity ratepayer resources (public benefits charge) that are eventually collected by Efficiency Vermont through power utility bills. VEIC signed a contract with Efficiency Vermont and is paid based on minimum energy savings performance requirements and measurable performance indicators. There is a significant financial hold-back to assure VEIC’s performance and VEIC is paid only if performance is satisfactory. The contract includes clear roles and responsibilities, including the build-up and maintenance of a rigorous and independent evaluation system. The State utility regulator sends independent measurement and verification specialists to Efficiency Vermont each year to verify savings. The annual verification of savings is very technical and rigorous, intended to identify errors in calculations, assumptions, and methodologies. Due to many small projects, statistical methods are used to sample project groups in terms of size (KW and kWh) and type of project (such as retrofit). The incentive for the VEIC, therefore, is to have a sound information system, which is essential for credibility, reliability, and data sharing. The system maintains record of items such as implemented measures, savings assumptions, customer communications, and references to project partners. These data systems not only prove what the energy efficiency utility has done, but also support improved targeting, planning, and evaluation of the utility’s own systems. It becomes a virtuous cycle. Efficiency Vermont has reported that average costs of efficiency improvements amounted to about 4.1 cents/kWh while the average cost of electricity supply is 14.4 cents. Source: Vermont Energy Investment Company Presentation, Beijing, November 2011. 71 China: Improving Energy Efficiency in Public Institutions Chapter 4: Energy Performance Contracting—Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions 4.1. Energy Performance Contracting (EPC)91 will be a useful mechanism for China to expand energy saving programs in public institutions. Using EPC, public institutions can pay for energy efficiency projects by using the energy cost savings generated by the project. This chapter describes the benefits of EPC in the public sector in China—introducing the two popular approaches to EPC—and describes what is needed to allow and enable the use of EPC in China’s public institutions. The last section addresses the key challenges—and possible solutions-for scaling up the use of EPC in public institutions in China. Benefits of Energy Performance Contracting in the Public Sector 4.2. Chapter 2 first presented an overview of the Chinese ESCO industry. The industry is already strong in the industrial sector and making progress in the building sector. There are quite a few strong ESCOs in different parts of China now focusing entirely on the buildings market, with impressive business growth and technical competence. In recent years, ESCOs have been able to develop a few successful cases of EPC projects with public institutions, in particular with university and hospital clients. 4.3. Two popular Chinese EPC models being used in those initial projects for public institutional buildings include: • The Chinese-defined shared savings model, in which ESCOs provide the bulk of the project financing and are repaid by receiving a large share of the project energy cost savings, which they guarantee. (Note that this model is not the same as the so called “shared savings model” in the United States, which has fallen out of favor.92) • Energy facility outsourcing contracts, whereby ESCOs assume responsibility for the operation of complex energy utility systems (especially heating systems in northern China), under building maintenance contracts with a special focus on energy efficiency and involving an upgrade of the utility system. 4.4. These initial projects have shown the basic advantages of EPC, including: • Ability to proceed with projects independently of special government project financing by providing access to alternative financing from the ESCO 91.In the United States EPC is known as Energy Savings Performance Contracting (ESPC). 92The early EPC projects with U.S. public sector entities were based upon sharing the energy cost savings between the ESCO and the customer, with the ESCO undertaking the borrowing. This concept was largely abandoned in the 1980s due to excessive litigation over claimed savings. See Taylor et al. 2008. 72 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions • Opportunities for more rapid and technically advanced project development by introducing a technically competent actor (the ESCO) who brings project management and implementation skills, as well as technical knowledge and innovation to the project • Transfer of the technical and economic risks from the public sector client to the ESCO, in particular the risk that the project will not result in the estimated savings and that the equipment will not perform at high efficiency levels. 4.5. These advantages, however, are not enough by themselves to trigger a substantial uptake of EPC projects in the public sector. The efforts of ESCOs to develop further into this market have been stymied by several systemic particularities of the public sector: • Public entity accounting initially is not prepared to deal with the disbursements of payments to ESCOs on energy performance contracts. For example, there has been a lack of clarity on which budget line to charge, and it can be problematic to authorize multi-year contract payments when fiscal budgets only cover a 12-month period. • Incentives for public entity representatives to actively pursue EPC with third parties remain weak despite new targets for energy efficiency improvements. • It is difficult to achieve sufficient economies of scale to make the high project development costs in the public sector worthwhile. 4.6. Interest for opening up the government system to engage in EPC projects has been building for several years and today, at the onset of the 12th FYP period, interest is especially high among energy conservation authorities at all levels of government. The April 2010 State Council decree on further encouraging EPC (see Chapter 2) and subsequent more detailed policies have provided a new, strong catalyst to overcome some of the barriers mentioned above. However, the decree and policies will need to be implemented at the provincial and local levels and supplemented with additional measures. 4.7. The difficulties China experiences in this start-up phase of its public sector EPC programs are similar to those other countries have experienced. Even though the specific workings of government institutions vary among countries, enough similarities exist to make it instructive for Chinese experts to review the policies and administrative and support measures that other governments have implemented to boost the uptake of EPC in their public sectors. Opening Doors for EPC in Public Institutions 4.8. EPC is a relatively new business model and so far in China has been developed and used primarily with corporate clients. To use EPC in the public sector—beyond a few initial demonstration projects—accounting and budgeting rules will need to be adjusted and the following questions will need to be addressed: 73 China: Improving Energy Efficiency in Public Institutions • Do regulations allow for the financing of public investments through energy cost savings (that is, EPC) and thus allow for the payment of contract costs from the budget for current expenditures? • How should agency budgets account for payments to contractors? • How should contract payments that occur in future fiscal years be handled? • If investments are financed by a third party under EPC, will this count against any debt limit that may be imposed on the government? • Under which conditions will EPC in locally-owned facilities be allowed by supervising authorities at higher levels? • What encouragement and help do public agencies need to engage in EPC? 4.9. If these questions cannot be satisfactorily answered, then EPC is unlikely to be deployable beyond initial demonstration projects.93 4.10. In addressing these questions, it will be useful to look at the experience of several countries that have been able to turn EPC into a mainstream delivery mechanism for energy efficiency investments in the public sector. In the United States and Canada, 94 for example, the federal governments were the initiators of EPC in the public sector and have enacted legislation and implementation rules to enable the use of EPC in federal government facilities. State governments in the United States later followed the federal initiative and their experience is particularly instructive: 49 states have enacted EPC legislation, which generally also covers local governments, with support arrangements and results varying substantially.95 In other countries, such as Germany and Austria, EPC developed more from the bottom up. Some leading states and provinces experimented with EPC and eventually adopted budgetary and accounting rules that enabled public facilities to enter into energy performance contracts. The following sections will present examples of these and other countries’ actions to allow, enable, and encourage EPC in public institutions by solving disbursement and accounting issues, providing the right incentives, and supporting the agencies using EPC. Resolving Disbursement and Accounting Issues 4.11. In virtually all countries, fiscal budgets are usually appropriated on an annual basis based on the spending of previous years, and a surplus cannot be transferred to the next fiscal year. In addition, there is a strict division between the capital budget and the operating cost budget. These kinds of budgeting rules are a deterrent for all investments in energy efficiency, but particularly 93.See Taylor et al. 2008, Financing Energy Efficiency - Lessons from Brazil, China, India, and Beyond and Singh et al. 2010, Public Procurement of Energy Efficiency Services - Lessons from International Experience. 94.In Canada, the Federal Buildings Initiative of Natural Resources Canada has facilitated 86 retrofit projects since 1991, attracting US$320 million in private sector investments and generating over US$43 million in annual energy cost savings. For information on the EPC process in Canada, see also Singh et al. 2010, case study 2. 95.See Oak Ridge National Laboratory, Status of ESPC Enabling Legislation in the United States. 74 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions problematic for financing energy efficiency investments from savings that occur over several years in the future, such as is the case in EPC. Three specific issues that will need to be addressed are: (i) public entity accounting of EPC payments, (ii) multi-year contracting, and (iii) the contribution of EPC to government debts. 4.12. Public entity accounting of payments to ESCOs on energy performance contracts. The State Council’s April 2010 policy statement on EPC explicitly states that public institutions can make payments under energy performance contracts from energy cost provisions in their fiscal budgets. While this high-level policy statement provides the foundation for solving the basic problems around EPC accounting in China, detailed regulations will need to be issued by financial departments in the various jurisdictions (especially on the provincial government level) to provide specific guidance on how disbursements should be made. Beijing Municipality, where public institutions are responsible for a particularly large part of the municipality’s energy consumption, has issued such a regulation to specify how EPC disbursement can be made from energy cost savings.96 Once local regulations are issued, the next step is to process several contracts through the system, which will further clarify the road that EPC can follow. 4.13. Other countries have issued regulations with a similar intent. Many U.S. state governments, for example, have specified that utility expense budget lines can be used to pay for energy performance contracts. In Germany, payments to ESCOs are budgeted as building maintenance expenditures. 4.14. Multi-year contracting. As China’s local authorities begin to issue regulations on disbursement of energy performance contracts, it is important to ensure these regulations also facilitate multi-year contracting. Some countries, such as Korea,97 have needed to make explicit legislative or regulatory changes to allow public entities to enter into multi-year energy performance contracts. In Germany, for big energy performance contracts at the federal level, an authorization for financial commitments beyond the current fiscal year must be included in the federal budget (for details see Singh et al. 2010, p. 178). In the United States, federal agencies were authorized by 1992 legislation to enter into multi-year guaranteed savings contracts (see Box 4.1). 4.15. Contribution to government debts? One question that will need to be addressed is whether the investments under EPC, which are financed by a third party, count against statutory debt limits. Strict rules against indebtedness of sub-national governments have forced some countries to clarify whether or not energy performance contracts are counted as government debt. Frequently, but not always, the answer is that projects that generate net savings (that is, the value of the savings over the contract period is higher than the total of contract payments to the ESCO) do not count as debts for purposes of meeting statutory debt limits. This has been the decision in many states in Germany and the United States. 96.“The Beijing Municipality regulations stipulate that“during the contract period, the municipal finance authority should allocate the budget item ‘common expense,’ based on the reduced energy consumption; the part of the energy savings paid to the ESCO, as agreed in the contract, should be prepared under the entity’s expenditure budget and be submitted together with the departmental budget for approval; the energy savings left to the hosting institution should be managed by the entity for coordinated use.” Common expenses include utility expenses, expenses for logistics, conferences, business trips, office facilities and so on; Item 26 of the Interim Measures for Management Funds for Fiscal Awards to Energy Performance Contracts in Beijing Municipality (November 30, 2010). 97.Cited in Singh et al. 2010, p. 67. 75 China: Improving Energy Efficiency in Public Institutions Box 4.1: Energy Performance Contracting in the U.S. Federal Sector—FEMP The U.S. Federal Energy Management Program (FEMP), operated by the U.S. Department of Energy (DOE), is responsible for coordinating the activities of federal agencies in the areas of energy efficiency, renewable energy, water efficiency, and greenhouse gas management. FEMP supports federal agencies in identifying, obtaining, and implementing alternative financing (see para. 3.85-3.89) to fund energy and water efficiency projects. EPC in the federal government started in the mid-1980s, building on the experiences with EPC in state and local schools since the 1970s (see Taylor et al. 2008). Model contracts, model procurement procedures, and model monitoring and verification requirements were needed to develop a smooth path through contracting and procurement systems. In addition, incentives for organizations and officials to participate in the new way of doing business, as well as training programs, had to be put into place. Several legislative acts and federal DOE regulations are at the base of the federal government’s ability to use EPC. These are the National Energy Conservation Policy Act (NEPCA), Energy Policy Act (EPAct), the DOE Final Rule 10 CFR 436 Subpart B, the National Defense Authorization Act (NDAA), and the Energy Independence and Security Act (EISA). Legislation authorizing ESPCs was enacted in 1992 through EPAct, and DOE promulgated regulations for their use in 1995. ESPC authority was made permanent in 2007 through EISA. NEPCA and EPAct: The NECPA, signed into law in 1978, first gave federal agencies the authority to enter into shared-energy savings contracts with private-sector ESCOs. It was superceded by the EPAct of 1992, which included the following provisions: • Authorized federal agencies to execute guaranteed-savings ESPCs • Required ESCOs to guarantee savings • Allowed an exception to the Antideficiency Act,98 specifying that a Federal agency can enter into an ESPC with funds for repayment on hand for only the first year of the contract, provided energy cost savings exceed payments every year • Required M&V of savings • Set the maximum contract term at 25 years, including the construction period. DOE Final Rule: The 1995 DOE Final Rule 10 Code of Federal Regulations (CFR) 436 Subpart B promulgated clarifying regulations for the use of ESPCs. It: • Established a list of qualified ESCOs • Specified procurement procedures and criteria for selecting ESCOs • Allowed unsolicited proposals • Recommended standard terms and conditions • Defined conditions of payment: Payments made to the contractor could only come from funds made available to an agency for energy and related operations and maintenance expenses • Addressed annual M&V requirements • Prioritized 10 CFR 436 over Federal Acquisition Regulations procurement requirements if the two conflict. 98.Under the Antideficiency Act, government officials may not make payments or commit the United States to make payments at some future time for goods or services unless there is enough money available in the relevant appropriation to cover the cost in full. For details see, U.S. Government Accountability Office (GAO), Antideficiency Act Background. 76 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions The National Defense Authorization Act (NDAA) for FY 2005 revised the definition of energy savings in federal ESPCs to include water conservation measures. The national EISA of 2007 extended the federal ESPC authority indefinitely. FEMP promotes the use of ESCOs and EPC by facilitating the navigation of procurement processes and maintaining lists of approved ESCOs. Starting in 1998, FEMP also developed Super Energy Savings Performance Contracts (Super ESPCs) for use by federal agencies to implement comprehensive energy saving projects. Through a competitive process, FEMP selects a limited number of ESCOs (currently 16) to be eligible for Super ESPCs. The contracts—indefinite-delivery, indefinite-quantity (IDIQ) contracts, with a maximum ceiling of US$5 billion each—are awarded to the ESCOs, based on their ability to serve federal agencies under terms and conditions outlined in the IDIQ. The Super ESPCs concept allows federal agencies to bypass procurement procedures, skip time-consuming full competition, and deal directly with a pre-selected ESCO to design and implement energy efficiency projects. Projects must save money from energy or water bills, or energy-related operation and maintenance. The procedures for ESPCs have been subject to change. Until 2007, a pre-selected ESCO could initiate a proposal based on a preliminary audit of a facility. After receiving from the agency a notice of intent to award the contract, the ESCO conducted an Investment Grade Audit (IGA), identified measures, arranged financing, guaranteed a level of annual cost savings to the agency, and implemented the agreed measures. The agency paid for the measures through a portion of the guaranteed savings, usually 100% minus US$1. ESPCs allow the agency to revise, within scope, IDIQ terms in task orders. In 2007 and again in 2011 the procedures for ESPCs changed. The 2007 NDAA tried to introduce more competition, including price competition, into the contracting process for federal agencies involving task/delivery orders above US$5 million. In addition, task orders above US$10 million became protestable. For the ESPCs this meant that the government had to initiate a project and sent notices to each of the 16 pre-selected ESCOs; the ESCOs then had to conduct preliminary assessments and make their bids, which were evaluated according to past performance, adequacy of the proposal, and price factors. However, the winner would not be able to change the proposal, even if the IGA resulted in different measures. As a result, ESCOs were very reluctant to participate, and federal agencies received very few comprehensive proposals. Instead, many agencies preferred to carry out projects by sole-sourcing them under the Utility Energy Services Contracts (UESCs) (see Singh et al. 2010 and DOE webinar ESPC Contracting and Negotiations - A Short Course). The 2011 NDAA changed ESPC procedures again, making the process more similar to the pre-2007 requirements. While the government still needs to issue notices, it has to select, based on qualifications and discussions, at least two ESCOs to prepare preliminary proposals. The change in procedures has again encouraged the use of ESPC in federal government agencies. Currently, the process to initiate an ESPC can be initiated by either the ESCO contractor or the government agency. An overview is presented in the table below. 77 China: Improving Energy Efficiency in Public Institutions Table B4.1.1: ESCO Selection Options (post 2010) Contractor-initiated method Government-initiated option • The ESCO alerts the agency of its desire • The agency sends notice to all 16 ESCOs to submit a proposal: with requirements and selection criteria: – If the project’s estimated value – Requirements: e.g., buildings, EE is below US$5M, an agency can measures to include proceed with the ESCO as sole – Selection criteria: e.g., price source (required), technical approach, past – If the project value is above US$5M, performance the agency must notify other Super – Agency may host site visits for ESCOs and identify requirements, interested ESCOs such as desired EE measures or • One or more ESCOs submit a preliminary buildings to include assessment • Other ESCOs can then also submit • The agency, using “fair consideration,” Preliminary Assessments (about 20 pages) issues a statement selecting one ESCO • The agency, using “fair consideration,” based on best value issues a statement selecting one ESCO • Agency organizes a post-selection de- based on best value briefing; protests are allowed if the project • The agency organizes a post-selection value exceeds US$10M. de-briefing; protests are allowed if the project value exceeds US$10M. Support of the ESPC process. FEMP actively supports the ESPC process by providing technical assistance, guidance documents, workshops, contracting arrangements, and project facilitation services to federal agencies. This for example includes: • General supervision by FEMP Federal Financing Specialists (1 specialist for each of 4 U.S. regions) • Availability of project facilitators to accompany each project from initial notice through construction/commissioning and the first year of M&V • Review of the preliminary assessments and the final proposals by a core team from the national laboratories • Provision of model contracts and standardized terms and conditions. Financing. ESCOs are responsible for financing projects under ESPCs. They generally secure third party financing, rather than using their own funds. Since 2004, ESCOs are required to receive at least three competitive offers of financing. The host agency reviews the written offers and discusses the recommendation with the ESCO. The offer with the lowest interest rate does not need to be the final choice as other considerations can have an important impact such as cancellation charges, and others. To protect the financier’s interest, the contractor may be required to assign to its lenders some or all of its rights to payments from the public client under the ESPC. EISA (2007) introduced the possibility of combining appropriations with private sector funds for DOE, but not for the Department of Defense (DOD). Accordingly, federal agencies are starting to co-finance projects, contributing up to 25% of total costs. Measurement and verification. The federal ESPC authority requires the contractor to undertake M&V activities and provide documentation to demonstrate that the guarantee has been met. The DOE Super ESPCs specifically require ESCOs to comply with the FEMP M&V Guide 3.0 (2008), which is a specific application of the International Performance Measurement and Verification Protocol (IPMVP) for federal projects (see paras. 4.57- 78 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions 4.58). It contains procedures and guidelines for quantifying the savings resulting from energy efficiency equipment, water conservation, improved O&M, renewable energy, and cogeneration projects implemented through ESPCs. For Super ESPC projects, the average annual M&V costs are 3.3% of annual project cost savings, based on cost schedules from 166 Super ESPC projects (see FEMP, M&V Guidelines: Measurement and Verification for Federal Energy Projects Version 3.0, p. 5-2). Results. Between 1998 and May 2011, the Super ESPC concept has resulted in US$2.4 billion of project investment by 25 agencies in 49 states, with a total contract price of US$6.4 billion (in addition to investments, this includes ESCO fees, financing cost, and M&V); energy cost savings of US$6.6 billion and net savings of US$220 million; and annual energy savings of almost 18 trillion British thermal unit (Btu) (or 637 million tce). Source: U.S. DOE Renewable Energy & Energy Efficiency, FEMP, Energy Savings Performance Contracts. Motivating Public Agencies to Engage in Energy Performance Contracting 4.16. International experience shows that even when regulations are in place to allow for the effective implementation of energy performance contracts, public entities will not automatically start using them and may be reluctant to try the new mechanism. When the EPC business was just starting in other countries, most public entities were reluctant to try it. Many preferred to wait to see if they could obtain government funds to directly finance their projects, and others did not understand how to proceed with EPC projects and were wary of the ESCOs involved. In China, a similar situation exists. As in other countries, an active effort is required to increase incentives for public entities to try out the mechanism, and to make it as easy as possible for them, especially in the early stages. While this may initially require a major government effort, it is important and can yield big benefits over the longer term. As discussed in Chapter 3, direct government funding for public institutional energy efficiency projects is greatly insufficient and alternatives, such as financing through energy performance contracts, are necessary to realize meaningful energy savings. EPC projects also can provide technically strong solutions. As shown in particular in the United States, government efforts to effectively launch the EPC business can lay the foundation for a balanced and strong public institutional energy efficiency program for the long term. 4.17. To accelerate the use of EPC among reluctant agencies, federal and state governments in the United States have made great use of both endorsements and mandates. Such policies were preceded by actual changes in the budgeting and accounting rules, as well as the procurement and contracting rules, and supported by technical assistance to the agencies for development and implementation (see paras. 4.19-4.21). Today, federal government agencies are strongly encouraged to use alternative financing for energy efficiency projects, provided either through ESCOs or utilities (see paras. 3.86-3.88). Many state governments have issued even stronger directives, for example.99 • The governor of Pennsylvania emphasized to agencies that EPC was the option of first resort for capital improvement projects. 99.See Bharvirkar et al. 2008, Performance Contracting and Energy Efficiency in the State Government Market. 79 China: Improving Energy Efficiency in Public Institutions • The EPC authorizing legislation in Washington State directs all state agencies to implement cost-effective energy conservation improvements. It requires that each state agency undertake an energy audit and implement energy projects using EPC as the preferred method for completing audits and implementing projects. • The governor of Kansas ordered that any state building construction project with a value of more than US$100,000 be analyzed to determine if it can use an energy performance contract to reduce the need for state budget or capital expenditures. • The governor of Massachusetts’ executive order 2007-484 directs that recommendations be submitted by the “lead by example” program’s lead agencies how to finance energy projects in state facilities without requiring significant infusion of state funding. The order further directs that the Division of Capital Asset Management (the lead agency for EPC in state facilities in Massachusetts) should seek to implement EPC projects at all applicable state facilities with a floor area greater than 100,000 square feet. • The governor of Colorado endorsed the use of EPC to facilitate energy demand reduction. Executive Directors of all state agencies and departments responsible for state-owned facilities were required to (i) investigate the feasibility for an energy performance contract and submit a final feasibility study to the Department of Personnel & Administration’s (DPA) Office of the State Architect, which sets EPC project implementation rules and procedures; (ii) issue a request for proposal (RfP) for an energy performance contract for all buildings for which is determined that an energy performance contract is feasible, viable, and economically sound; and (iii) follow energy performance contract procedures and requirements as set by the DPA. 4.18. Study recommendations. Given the early stages of EPC market development in public institutions in China, mandating the use of EPC in public institutions appears to the study team as premature and possibly counterproductive. Steady government support at all levels, however, is important. To motivate public entities at the current stage, it is essential to reinforce the benefits they can directly receive by engaging in EPC. This can be done in two concrete ways. First, regulations can be issued to clarify that public entities hosting EPC projects can retain their share of energy savings they achieve and use those funds for their own purposes. (The November 2010 Beijing Municipality regulation provides an example (see para. 3.31)). Second, a conscious effort can be made to facilitate implementation of EPC projects involving equipment or other facility upgrades that would both be popular with host public entities and save energy. Projects like this were key to raising public entity interest in North America and Europe (see paras. 3.37-3.38). If several such projects can be successfully implemented in a given jurisdiction, the results can be broadly shared among other public entities, helping to spark their interest as well. Providing Assistance to Public Entities to Engage in Energy Performance Contracting 4.19. In addition to budgeting and accounting rules supportive of EPC and endorsements to use EPC, another critical aspect of a successful launching of EPC in the public sector is the 80 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions availability of government-provided, active, hands-on assistance to the public entities in all aspects of development and implementation of EPC projects, especially in the early stages. EPC is a new concept and especially in the public sector it is necessary to find solutions to budgeting and procurement problems that are not always resolved only through laws and regulations. In addition, the processes of selecting ESCOs, ensuring sound contracting, and defining and supervising energy savings monitoring and verification, is likely to be difficult for many who are new to the business. Governments of many countries, states, and municipalities that have succeeded in launching strong public sector EPC programs often had specific staff available in the government energy office (or a similar institution) to provide the needed support. Some also contracted experts from research laboratories and universities to help facilitate projects. For example, in the state of Pennsylvania in the United States, the Department of General Services (DGS), as lead agency for promoting EPC in public institutions in the state, has hired dedicated staff to run the EPC program. This staff assumes primary responsibility for administrative matters, with additional technical support provided by consultants and engineers from the Facilities Engineering Institute at Pennsylvania State University. In U.S. FEMP, federal agencies are required to engage project facilitators who support them in the development and implementation of Super ESPC projects (see Box 4.1). In Germany, in Berlin and other states and municipalities, state and municipal energy agencies and other organizations are actively involved in the project bundling process (see Box 4.4) and other EPC contracting issues. 4.20. Study team recommendations. The study team recommends that Chinese government jurisdictions interested in aggressively promoting the use of EPC in public institutions assign a specific government unit to be responsible for providing all support to public entities in that jurisdiction for the implementation of EPC projects. The assignment of such institutional responsibility may be especially important at provincial levels, but serious efforts to promote EPC in central government facilities or at prefecture level also could benefit from this approach. The objective of the designated unit’s EPC development effort should be to promote the adoption of EPC projects in all relevant public entities, and to provide a full range of services to interested public entities to help them overcome any problems. Based on experience elsewhere, it is advisable to set up one unit that can provide a “one-stop” service. The unit should have staff specifically dedicated to this work, but would most likely also need to contract specific experts from outside institutions to help with the various details. Specific key tasks for which such units can provide valuable support include: • Educating and creating awareness among government agency officials at all levels on the needs for public institutional energy efficiency improvements, ways to achieve those improvements, the potential role of EPC, and specific actions required to use EPC to establish energy efficiency improvements. The unit could also highlight examples of successful applications of EPC. Experience elsewhere shows that only a systematic and steady effort can engage all key entities required to make EPC work effectively. This includes focused education or training for higher-level decision makers, including comptrollers and other fiscal agency personnel,100 who might otherwise be likely to object to an unfamiliar project implementation and financing mechanism such as EPC. 100.See Donahue & Associates 2006. A Review of Maryland’s Energy Performance Contracting Program, prepared for Maryland Energy Administration; http://energy.maryland.gov/incentives/allprograms/epc/epc_report.pdf. 81 China: Improving Energy Efficiency in Public Institutions • Developing information brochures and detailed reference materials on EPC as a project implementation method in the public sector, as well as organizing training for a wide range of public entity staff in the given jurisdiction. • Maintaining an information database—or linkages to other databases—on public institution energy consumption statistics within the given jurisdiction, on targets assigned to different entities, implemented projects, and the energy saving results of EPC projects. Analysis of this data can help determine priority areas for new EPC projects and staff training. • Providing guidance to public entities on ESCO selection, including, if desired, completion of ESCO Qualification Requirements, as suggested in para. 4.31. • Preparing model EPC contracts and contract templates for public entities to consider, and providing guidance on how to use them. These model contracts are best used as guidance only, allowing the contracts to be adapted to the particular needs of each agency and project, thereby leaving flexibility for experimentation and new approaches. • Providing hands-on assistance to guide projects through the various stages of preparation, approval, and disbursement, especially when the EPC business is just beginning. • Preparing guidance on monitoring and verification methods applicable to public facility EPC (see paras. 4.59-4.61). • Guiding agencies and ESPC contractors through various government incentive programs is also an important role that can be played. • Preparing and disseminating case study examples of successful EPC projects in the public sector. 4.21. Over time, the work scope and sophistication of such EPC support units may develop further. Additional activities could include the development of EPC procurement methodologies, standards, and model documents, as well as project guidance and establishing connections to help project financiers. The U.S. State of Massachusetts now operates a quite sophisticated EPC support operation in its Division of Capital Asset Management (DCAM).101 The division provides technical services (including engineering studies and facility assessments), performs and manages EPC procurement and contracting, conducts third party commissioning, provides onsite engineering, oversees construction, establishes baseline M&V and baseline standards, and monitors M&V reporting on EPC projects. As part of the M&V reporting, the ESCOs submit reports to DCAM and the host state agency on a quarterly basis. DCAM also provides standardized procurement and contracting documents that are used by state agencies, as well as a state master list of qualified financing vendors from which public agencies can choose bidders for tax-exempt lease financing. Utility incentives, grants, and sometimes bonds are also combined into project financing. 101.See Bharvirkar et al. 2008, Performance Contracting and Energy Efficiency in the State Government Market. 82 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions 4.22. Financing of technical assistance and other supporting efforts is usually, in the initial stages, provided by the government. However, once an EPC program is fairly well established in a country or region, public entity clients are often expected to help pay for the costs of support services. For example, in the United States in the state of Maryland, energy performance contracts are assessed a fee to cover the costs of post-construction project monitoring and the review of savings M&V reports. In the state of Pennsylvania, plans are being made to charge a program administration fee to EPC projects to cover the program costs of consultant support, which for the first eight years of the program were paid from the state budget.102 In the German capital Berlin, the Berlin Energy Agency provides project management support for state and municipal public agencies. For the costs that agencies incur up to the point of entering into a contract, the state government gives a fixed subsidy; for support during the investment phase, it contributes 50% of the cost.103 Key Issues for Scaling Up the Use of EPC in the Public Sector 4.23. Once the legislation, guidance, and support for EPC are in place, the next step will be scaling up the use of EPC in the public sector. While the measures described in the previous section have been introduced in many countries, only few have succeeded in mainstreaming EPC as a business model to achieve substantial energy savings in the public sector. Several factors contribute to this difficulty; among the most important—and most relevant for China—are the following: • Quality of ESCOs. Many countries do not have a strong ESCO industry and only a limited number of ESCOs skilled enough to provide the wide range of services required by the public sector. Strengthening the quality of ESCOs, perhaps nurturing the industry by initially setting up a public ESCO, and helping potential clients to identify competent ESCOs, are means to strengthen the supply side of the EPC business. However, approaches that crowd out competition should be avoided to attract more companies to the public institution EPC market. • Complexity of public sector procurement. Public sector procurement is quite complex and time consuming, and introducing EPC—a new and fairly complicated business model— creates even more potential complications. There are methods to streamline the process, for example, by prequalifying several bidders, but this could reduce competition, which is an important mechanism by itself to contain costs of energy conservation projects. • Preference for “simple,” high-return projects. The tendency exists to “cherry pick” simple energy conservation projects with very high returns in fairly large facilities. While this minimizes transaction (or project development and supervision) costs, it leaves out many projects in smaller facilities or projects with longer payback periods in the same facilities. Pooling or bundling several facilities in one EPC project or developing comprehensive energy conservation projects in one facility are ways to aggregate projects and enable the inclusion of a broader range of projects into energy conservation programs. 102.See Bharvirkar et al. 2008, Performance Contracting and Energy Efficiency in the State Government Market. 103.Personal communication with U. Schlopsnies, Berlin Energy Agency, April 2011. 83 China: Improving Energy Efficiency in Public Institutions 4.24. The following sections discuss and present possible solutions to address these key issues and enhance the quality of ESCOs, strengthen and streamline procurement, bundle projects, move towards more comprehensive projects, and measure and verify energy savings. Quality of ESCOs 4.25. Ideally, ESCOs provide a wide range of services, combining many different goods, works, and services together in one turnkey contract, while assuming various associated risks. As part of their many tasks, for example, ESCOs need to identify and evaluate project opportunities; design, install, commission, and manage projects; provide or help arrange for financing; guarantee savings; measure and verify savings; train client staff; provide ongoing maintenance services; and guarantee that savings will cover all project costs. In the real world, however, not all ESCOs will be able to provide this full range of services. ESCOs come in a wide range—from technical consultants with fixed fees to full-service ESCO with payments based on performance—and may provide only one or a few or all of the above services.104 4.26. ESCOs also vary in the range of technologies and energy conservation measures they implement. Many ESCOs in China have proprietary technology, such as energy controls or high- efficiency boilers, and concentrate on implementing energy performance contracts with just this type of equipment. In China, and to some extent also in other countries, few ESCOs are able to evaluate a facility comprehensively, considering a wide range of measures. 4.27. Because many ESCOs come from a technical background,105 their management capacities and business and legal skills are also often deficient. This makes different ESCOs poorly equipped for the complexities of EPC, which requires the ESCO to be able to satisfy not only clients, but also financiers, subcontractors, auditors, tax collectors, and others. 4.28. Thus, not every company that calls itself “ESCO” may be able to carry out an energy performance service to the satisfaction of its client. In fact, during both the early development and growth phases of an EPC market—when some of the initial ESCOs are doing well and many new companies are entering the market—some EPC projects can and will have disappointing results. In recent years, and especially since early 2010, many companies have registered as ESCOs in China (see para. 4.30), but so far many have a limited track record. While quite a few strong, stable, and experienced companies are active in the Chinese market, it is difficult for clients to judge who is most competent. For the EPC business to truly take off, potential clients will need some support in screening ESCOs for competence and reliability. At the same time, however, it is very important to not create any barriers for companies to enter the EPC business, which would stifle growth and destroy the creativity of the industry in terms of its ability to develop new ideas and approaches. 4.29. Other countries have had similar issues with unclear ESCO competence and quality in the development of their ESCO industry. Possible solutions to support potential clients in the identification of experienced, qualified ESCOs include the following: 104.Singh et al. 2010, Public Procurement of Energy Efficiency Services - Lessons from International Experience. 105.Recently in China some ESCOs also come from a financial background. 84 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions • Accreditation of ESCOs. In several countries,106 ESCOs can undergo an accreditation process to improve their credibility and increase confidence among potential clients and other parties, such as commercial banks. In the United States, ESCOs go through an examination of their core competencies and business practices. In India, the examination involves an assessment of their success in implementing energy efficiency projects, their technical manpower, and their financial strength to invest in such projects. Accreditation may be undertaken by an independent committee of industry experts, as is the practice in the United States, or by credit rating agencies, as is done in India. In the United States, the national ESCO association awards the accreditation in three categories, with a total of just over 20 companies now fully accredited. There is a significant overlap between this list and the list of “Super-ESCOs” prequalified as eligible to carry out ESPCs under FEMP. In India, where the ESCO industry is still in its initial growth phase, thirty-seven companies sought a rating in 2009 and twenty-five companies received a ranking of “good.” When implementing accreditation, two key issues that must be addressed are (i) the risk that accreditation becomes perfunctory if enforcement is weak and (ii) the problem that accredited companies release qualified experts after accreditation. • Prequalification of ESCOs. In the United States, the federal Department of Energy (DOE) and many state energy offices or similar agencies maintain lists of pre-qualified or pre-approved ESCOs. These lists are usually the result of a competitive procurement, based on ESCOs’ experience with EPC projects. This pre-approval of ESCOs, however, restricts the public clients’ choice to a limited number of ESCOs. While this is useful for the public entities because it gives them some assurance of the quality and experience of the pre-approved ESCOs and allows them to not have to undergo a regular public procurement process, it also limits competition and runs the risk of restricting the growth of new ESCOs (see para. 4.40). • Quasi-certification of ESCOs by national associations or trade groups. Associations and trade groups can also help indicate the quality of member companies. As long as the association has clear and credible quality and competence requirements for membership and itself has a strong reputation, such “self-regulated” systems can provide indications to market players on the track record of member companies. Many ESCO associations provide their members with training and capacity building and some act as a “watchdog/better business bureau.” It also is possible to have different tiers of membership (for example, principal member, associate member, and so forth) based on how companies comply with clearly defined track-record and competency criteria. • List of qualified ESCOs. In the United States, DOE also maintains a list of ESCOs that have been screened by a DOE Qualification Review Board based on qualifications and client feedback. About 90 ESCOs are on this list, which is published on the Internet.107 A public 106.In the United States, see National Association of Energy Service Companies, NAESCO Accreditation Programs; in India, see Government of India, Ministry of Power, Bureau of Energy Efficiency, Accredited Energy Service Companies (ESCOs) and Delio 2009, Accreditation to Increase the Credibility of Energy Service Companies in India. Singapore also has an accreditation scheme for ESCOs, but it is for energy auditing services at different levels; see Singapore Government, ESCO Accreditation Scheme. In the Philippines, four ESCOs have been accredited by the Philippine DOE; see Energy Service Companies (ESCOs) Accreditation. 107. In the United States, FEMP established the Qualified List of Energy Service Companies (DOE Qualified List) in accordance with the EPAct 1992 and 10 CFR 436. In Canada, the Natural Resources Canada’s Office of Energy Efficiency maintains a directory of energy management service providers and provides a summary list of the acceptable qualifications for individuals who can perform a pre-project energy audit for its program, ecoENERGY Retrofit Incentive for Commercial and Institutional Organizations. 85 China: Improving Energy Efficiency in Public Institutions agency that does not want to undertake an energy savings project under the master DOE ESPC contract with any of the “Super-ESCOs” (see Box 4.1) can carry out regular public procurement with companies from the list of qualified ESCOs. • Standards for ESCOs and ESCO services. The European standardization bodies, the European Committee for Standardization (CEN) and the European Committee for Electrotechnical Standardization (CENELEC) (or “Comité Européen de Normalisation Électrotechnique”), jointly developed a standard for energy efficiency services in 2010, which now will be incorporated into the system of national norms in every country in the European Union.108 Box 4.2 outlines the basic requirements. ESCOs can be certified based on this standard. One of the most important services under EPC with public institutions, especially government buildings, to standardize is measurement and verification (M&V). This is also important for government incentive programs. M&V standardization has been done separately by several industry organizations, for example, through the International Performance Measurement and Verification Protocol (IPMVP) (see paras. 4.57-4.61). In the United States this standardization of M&V has been crucial for increasing the trust of customers and banks in ESCO activities. • Quality labels for ESCO projects. The use of quality labels for projects may be less comprehensive, but probably also less expensive to implement than a national ESCO or ESCO project standard. Such labeling programs can raise awareness of successful EPC transactions. An example of a project quality label is the Austrian Thermoprofit quality label, which sets a series of standards to be met by ESCOs and their projects. The Thermoprofit label may be used only by Thermoprofit partners who, at regular intervals, are assessed by the regional energy agency and an independent commission to confirm they are observing Thermoprofit standards.109 Box 4.2: Energy Efficiency Services - Standard EN 15900: Requirements EN 15900 establishes requirements for Energy Efficiency Services. Key requirements are that the services need to: • Be designed to achieve energy efficiency improvements • Use collected data related to energy consumption • Include an energy audit, actions, and M&V • Work from a documented description of a framework for action and a follow up procedure • Include efforts to measure and verify improvements over a defined period and with agreed methods, which will be reported at agreed intervals • Use a definition of the baseline and adjustment factors • Include a statement on whether a contractual guarantee of energy efficiency improvement is provided or not, and on the level of this guaranteed improvement • Document the responsibilities of all parties involved. Source: Dijkstra 2011, Standardization energymanagement and de standard for energy efficiency services. 108.See EN 15900:2010, Energy efficiency services - Definitions and requirements, and for example, Piantoni 2011, The Energy audit, energy efficiency services and energy efficiency benchmarking. 109.See Energy Cities, Thermoprofit: Marketing Performance Contracting. 86 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions 4.30. Since October 2010, MOF and NDRC have issued four batches of lists of ESCO companies that may submit projects for award of subsidy payments for qualified completed EPC investment projects.110 By early 2012, the combined list—including all four batches —contained over 2000 companies. The list, which includes the location of the companies, contact information, and the general technical areas of their work, is publicly available. To make it onto the list, companies need to demonstrate compliance with a number of basic requirements. However, many of the companies on the list are quite new and not all can demonstrate competence or show a clear track record. Although a good first step, the main purpose of the list, however, is to determine eligibility for certain types of government support and not to provide definitive recommendations on the best choice of companies for clients to engage. 4.31. Study recommendations. Several options for assisting clients to identify good ESCOs to work with are already being discussed in China. For the public institution market, it may be best at the current time for one or more energy efficiency units overseeing specific jurisdictions to pilot the issuance of interim ESCO Qualification Requirements that any ESCO seeking an energy performance contract with any public entity in that jurisdiction must comply with. Examples of such energy efficiency units would be, for example, the national GOA for central government facilities, the MOE for central government supervised universities, and provincial GOAs for provincial government facilities. The compliance of ESCOs with these ESCO Qualification Requirements could be reviewed on a case-by-case basis when ESCOs propose projects. The Qualification Requirements should be stringent enough to ensure that track records, financial standing, staffing, and experience are sufficient. They should be issued on an interim basis so that they can be easily revised based on new experience. Good records should be maintained of all applications, qualification approvals, and project results within the jurisdiction. Over time, such pilot systems may provide the foundation for more sophisticated and sustainable accreditation, pre-qualification, or standard systems, which could involve third parties in ESCO screening or accreditation. 4.32. Model documents and standardized contract provisions. An alternative tool for helping inexperienced clients secure good EPC services is the provision of model documents, including model contracts, and a standardization of key contract provisions. In almost every case of an ESCO business making inroads in the public sector, these kinds of model contracts and documents had been developed. China’s NDRC has issued the basic format for a model shared-savings contract, but it would be useful to develop further details and guidance about available choices, specifically for public institutional energy performance contracts. In Germany for example, several sets of model contracts exist, for both the federal and the non-federal public sector, as well as sets of guidelines.111 Indeed, one of the main reasons given why ESCO projects in the Czech Republic have not become more prevalent is the lack of public support, including the development of such documents.112 4.33. Public ESCOs. Another option to provide ESCO services specifically to the public sector is the introduction of public or publicly owned ESCOs. This has been done in several countries 110.See Sun et al. (2011) for details of this subsidy program for which EPC projects in all sectors are eligible. 111. Singh et al. 2010, Public Procurement of Energy Efficiency Services - Lessons from International Experience (German case study). 112.See Sochor and Valentová 2009, Framework Conditions for Energy Performance Contracting. 87 China: Improving Energy Efficiency in Public Institutions where EPC seemed a valuable business model but where the ESCO industry had been nascent, weak, or with limited access to commercial financing. A key objective in introducing public ESCOs is to help foster the growth of local ESCOs. In Belgium, Ukraine and Croatia, publicly-owned and operated companies have been capitalized with funding from the government or international financial institutions (IFIs). They enter into energy performance contracts with public agencies and subcontract with smaller private ESCOs or contractors. The public ESCO would generally provide financing and be paid from the savings it guarantees to the client. Subcontractors would generally be paid on a fee for service basis. Box 4.3 provides details on Fedesco, the Belgian public ESCO in the federal building sector. A valuable lesson from the Fedesco example is that it is preferable for the entity to have several instruments to pursue its mission. Fedesco enters into energy performance contracts, but it also facilitates and finances so-called transversal measures—simple energy saving measures, such as lighting or controls—in the properties of federal agencies on a fee for service basis. It should also be noted that Fedesco carries out many activities to organize the ESCO industry, to provide capacity building, and to help both ESCOs and their potential clients by developing model documents and contracts. 4.34. In China, the concept of a public ESCO supported by local governments may be useful for both developing the EPC business in the public sector and for helping local ESCOs to develop in situations where the local ESCO industry is weak. The public ESCO should be a commercial entity, but could use a variety of corporate structures. Before embarking on creating a new entity, it should be carefully investigated whether there are alternatives. One idea might be to invite well-known ESCOs from other provinces to carry out closely supervised demonstration projects in public facilities, using local companies as subcontractors. Another could be to create a provincial energy efficiency fund that would introduce the concept of EPC to the local energy efficiency industry by letting contractors design and implement projects in public sector buildings and base part of the contractor’s payment on the performance of the implemented measures. Such an energy efficiency fund promoting a path toward EPC in the public sector is currently being tested in a World Bank project in Armenia.113 Box 4.3: Using a Public ESCO when the ESCO Industry is Weak: Example of the Belgian Fedesco The market for ESCO services was slow to develop in Belgium around the turn of the century. Some international companies were entering the market, but mostly for “ chauffage ” 114 services. To open up the federal public buildings market for ESCO services, the federal government created a public ESCO, Fedesco. It is a limited liability company, owned by the Federal Participation and Investment Company, a government-owned financial holding. It was started with €1.5 million in capital from the Kyoto Fund, which increased to €6.5 million in 2007. Its financing (debt) capacity of € 100 Million is backed by a state guarantee. 113. See The World Bank 2012. Armenia - Energy Efficiency Project. Washington D.C. http://documents.worldbank.org/curated/ en/2012/03/15931877/armenia-energy-efficiency-project. 114.The so-called “Chauffage contract” is a contract which includes operation without explicitly committing to carrying out energy efficiency investment. Under a Chauffage contract, the contractor ensures optimal operation of an already existing system and must provide an agreed comfort level (for instance temperature, humidity) at a lower cost for the client if conditions remain unchanged. The contractor can increase its profits by investing in more energy saving equipment or by procuring cheaper fuel, thus reducing the costs;” Paolo Bertoldi, Benigna Boza-Kiss, Silvia Rezessy (2007). Latest Development of Energy Service Companies across Europe - A European ESCO Update. European Commission, Joint Research Centre, Institute for Environment and Sustainability; http://www.energy.eu/publications/ LBNA22927ENC_002.pdf. 88 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions Fedesco’s mission is to study, realize, and pre-finance energy efficiency and renewable energy projects in federal public buildings. It implements investments through three channels: standard projects, transversal measures, and EPC. Its goal is the reduction of GHG emission in the federal buildings sector by 22% between 2005 and 2016. It is estimated that this would require an investment of €152 million. The federal government owns/occupies 1650 buildings with a surface of 8 million square meters and an annual energy and water bill of more than €100 million. The buildings’ energy consumption of 2 billion kilowatt hours (kWh) per year results in carbon dioxide (CO2) emissions of more than 600,000 tons and is heavily concentrated in the biggest buildings, with 20% of buildings accounting for 80% of energy consumption. Since January 2007, Fedesco has the exclusive right to apply third-party financing to federal buildings. Fedesco manages turn­ k ey energy services projects on behalf of the building occupants and in collaboration with the federal Building Agency. In 2008 it started the development of EPC projects. Fedesco also supported the creation of the ESCO Association, BELESCO, which started its activities in 2008. BELESCO will focus on representing the ESCO industry, disseminating information and providing training to public and private customers, building a database of EPC projects, establishing an accreditation program, and developing a model contract and tendering procedure for the public sector. Fedesco uses an EPC contract based on the one developed by the Berlin Energy Agency but with tendering procedures and contracts specifically adapted to Belgian public tendering law. This contract will be the basis for a common model contract for the public sector that will be developed by BELESCO. One of the biggest barriers to the development of EPC in Belgium has been the lack of awareness and knowledge about the ESCO concept and how to use it, both in the public and private building and industrial sectors. BELESCO will play an important role in that area. Another barrier is the large amount of existing (long-term) maintenance contracts, including a growing number with total guarantee on technical equipment. It is difficult to replace these contracts by EPC contracts. When public sector agencies own buildings, they may prefer alternative renovation projects using their own funds, managing technical measures individually, or using traditional credit funding. At Fedesco, roughly half of its investment plan will not be based on EPC projects, but on so-called Transversal Measures (such as boiler or chiller replacement, building control, isolation, or window films). Although transversal measures use third-party investing principles by Fedesco, full energy service offerings or EPC contracts would not be required. The Belgian ESCO industry has strong support from the federal government. Through Fedesco, the federal government grants ESCOs immediate access to large public sector contracts for its 1,800 buildings. The credit rating of the government as a client makes financing projects easy and the industry is set to grow. Not only does Fedesco have the exclusive right to carry out EPC for federal public buildings with third-party financing, it is also taking the lead in promoting EPC-projects. Fedesco benefits from the fact that public ESCOs can sign contracts with public sector clients without the need for public tendering. For outsourcing contracts, however, the public tendering law has to be applied. Among the many lessons learned is the fact that EPC tendering is perceived as being complex. There is a need for (i) standard tender documents in the public sector (being developed within the Fedesco-affiliated Knowledge Center and BELESCO); (ii) consultants and market facilitators supporting customers; and (iii) proper and good M&V (IPMVP is being adopted). Source: Vanstraelen 2008, Overview Belgian ESCO Market. 89 China: Improving Energy Efficiency in Public Institutions Procurement of ESCOs: Scale and Transaction Efficiency vs. Benefits of Competition 4.35. ESCOs provide a unique mix of services, equipment, and financing, often broken up in different phases and over a period of time. The typical case in China is that a third-party ESCO works with the host entity to develop an energy conservation investment project, including a survey or audit and detailed project design, and—following negotiations with the host entity or a fairly simple bidding procedure—signs an energy performance contract. Under the shared savings type of contract commonly used in China, the ESCO will then pay for the project investment (sometimes using funds it borrows elsewhere), oversee procurement and construction, complete commissioning of the project together with the client, guarantee the energy savings, possibly carry out operations and maintenance, and perform monitoring and evaluation. The phase from initial project idea to contract execution can take many months and contract durations for substantial buildings projects in China typically are at least 3-5 years. 4.36. In recent examples, as reviewed by the study team, of public institutions and ESCOs getting started on an EPC project, the ESCOs had been selected based on negotiations or according to fairly simple bidding procedures. As the market develops, however, and more companies are willing and able to enter into contracts and projects are becoming more complicated, likely more issues will need to be addressed in the procurement of energy performance contracts. In addition, many public entity managers are more likely to consider EPC if established and transparent procurement methods are available, which will reduce the risk of complaints. Experience from other countries indicates it can be difficult to develop procurement methods that conform to public institutional regulations and at the same time efficiently provide cost-effective, quality results, without large transaction costs or delays. 4.37. In most countries, the public sector has to abide by strict rules to procure goods and services competitively to secure better conditions and avoid corruption. Procurement of energy performance contracts is no exception. Procurement of an energy performance contract in the public sector in the United States or Europe is a lengthy and complicated process that involves fairly high costs on both the side of the ESCOs as on the side of the public client. Table 4.1 shows the typical steps (1-7) that commonly need to be taken for a contract to be awarded competitively in North-America or the European Union. In the U.S. federal sector, a time horizon of 1-2 years from project development to contract award is fairly normal, whereas in the state and local government, university, school and hospital sectors 6-9 months is more typical. The difference can be explained in part by the larger size of federal projects, but also is a result of “the number of layers of approval required for awarding a project and the complexity of the contract requirements.”115 4.38. Procurement issues are often the first issues that need to be resolved in a particular country to make EPC work in the public sector. Three key issues are (i) phasing and extent of facility audits and implications for the contract; (ii) competition among ESCOs; and (iii) evaluation of bids that can be dissimilar; discussed below. A more thorough treatment of the procurement issues of the entire project cycle—from project development and contractor selection through implementation 115. See Hopper et al. 2005, Public and Institutional Markets for ESCO Services: Comparing Programs, Practices and Performance. 90 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions and monitoring and verification of results—is provided in the recent World Bank/ESMAP publication by Singh et al. 2010 and the related World Bank Institute e-learning toolkit.116 Table 4.1: Steps in Processing and Implementing Energy Performance Contracts EPC process steps Responsible party 1. Initial data gathering, analysis, and • Host with support from energy agency or definition of project goal and required similar organization measures • Host with support from energy agency or 2. Expression of interest; selection of shortlist similar organization, could be based on model documents • Host with support from energy agency or 3. Request for Proposal (RfP) similar organization, could be based on model documents 4. Bid preparation, including walk-through • Bidder audit, resulting in project design with measures and cost-benefit analysis, • Host with support from energy agency or estimated energy savings similar organization • Host with support from energy agency or 5. Evaluation similar organization • Host with support from energy agency or 6. Negotiation with top bidders similar organization • Host and/or ESCO, depending on RfP 7. Identification of financing sources requirements 8. Contract • Host and ESCO 9. IGA, if required, and detailed project design, determination of baseline, and final energy • ESCO (cost) savings 10. Dealing with deviations / contract void • Host and ESCO • ESCO (not required to abide by public 11. Implementation of investment measures, procurement rules, unless specified in including procurement of goods and works contract) • ESCO, observed by host and possibly 12. Commissioning supervised by energy agency or similar organization 13. Operations and maintenance • ESCO or host, based on contract • ESCO or independent third party, depending 14. M&V on contract Source: Authors. 4.39. Phasing. An important part of successful procurement is the phasing of procurement steps, especially of the facility audit. At what point is the contract awarded? Is a thorough audit (that is, an investment grade audit (IGA)) done before or after a contract is signed; and what are the implications of the timing of the audit for the contract? Bidding documents for public contracts usually require detailed specifications of any item to procure. For existing buildings, this can only 116.See Energy Sector Management Assistance Program, New e-Learning Course: Improving Public Sector Energy Efficiency. 91 China: Improving Energy Efficiency in Public Institutions be done on the basis of audits. So the fact that a bidding document already specifies the exact equipment or measures negates the very essence of EPC, which is to rely on the contractor to find the best solution for improving energy efficiency in a facility. In Brazil and several other countries, bidding documents require such a detailed specification of measures that they result in a formidable barrier for the implementation of EPC. The use of functional specifications would be a better fit for EPC, which could include defining a project's technical, financial, organizational, legal, and economic performance requirements and framework conditions for the implementation of the measures. Short-listed companies responding to a request for proposal (RfP) are usually permitted to do a walk-through audit and develop their proposal on this basis. IGAs are usually not done at this point to reduce the costs of bid preparation and increase the number of competing ESCOs. If the project is fairly simple, consisting of only a few investment components, the public client and the winning bidder sign an energy performance contract and the ESCO may go ahead with procurement without an IGA. If the project is more comprehensive (see para. 4.51), for example in large federal agencies or hospitals, the winning ESCO will need to perform an IGA, on which it will base the detailed project design and specifications, final investment amount, and energy savings estimates. The costs of the IGA become part of the project costs for which the ESCO will be remunerated. If the detailed project design basically conforms to the requirements laid out in the original RfP, the ESCO can proceed with procurement. The detailed investigation of the IGA could also result in the need to substantially deviate from the initial proposal. In this case, negotiations may need to commence. If the deviations exceed a pre-specified limit in the guaranteed savings amount or other important contract parameters, 117 the client can typically withdraw from the contract without reimbursing the ESCO for the IGA costs. To avoid that the ESCO inflates project costs after the IGA, the RfP could require that the ESCO in its initial proposal commit to unit prices for items such as equipment (including a mark-up) and man hours (“open book pricing”).118 4.40. Competition for initial entry rather than for each project. If ESCOs only compete for initial entry into a specific market, but not for each project, this immediately reduces the number of steps in the EPC process. The first seven steps described in Table 4.1 can then be collapsed into far fewer. The advantage of limiting competition is obviously the reduction of transaction costs, because the sub-agencies do not each have to carry out a competitive procurement. It also avoids the need for multiple audits by ESCOs in the competition. The impact on project costs, however, could go both ways. ESCOs may be willing to grant better conditions to the parent agency if it requires open book pricing. Many experts, however, state that competitive procurement by a single agent involving several ESCOs generally leads to lower project costs. Two methods to provide for competition for initial entry rather than competition for each project include: 1. Prequalification of ESCOs. Pre-qualification is the most common method. Lead agencies competitively select a fairly large number of ESCOs—perhaps 8-16—based on their previous experiences and a broad description of the services to be provided. This narrows the field of possible providers, assures their quality, and sets a minimum benchmark of services that must be delivered.119 Public agencies can then choose among those 117. Under previous US FEMP ESPCs this limit was set to 20%, now agencies can specify it (see Singh et al. 2010, p. 114). 118.For a more detailed discussion see Singh et al. 2010, p. 47 and 100/101. 92 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions prequalified ESCOs without any competitive procurement (for example in the FEMP Super ESPC program based on IDIQ; see Box 4.1), or select several of them for a mini- competition.120 2. Central procurement. In this second option, a ministry (or similar agency) carries out a tender for an ESCO to access the entire market of its sub-agencies without any additional public procurement. An interesting example is the “Szemunk Fenye”— Light in Children’s Eyes—program in Hungary, covering about 700 schools with more than 300,000 students. The modernization of the heating and lighting facilities in all schools (later other municipal facilities became eligible as well), funded from the central government budget and operated by municipalities, was centrally tendered by the Ministry of Education (MOE). All major terms and conditions were centrally negotiated, including unit prices for heating and lighting systems.121 4.41. Using competition for initial entry rather than for each project has several disadvantages, including: (i) a constriction of opportunity for many new and emerging ESCOs, who may only be able to participate as sub-contractors to larger ESCOs; (ii) risks of project cost increases due to a lack of competition for projects, and (iii) potential difficulties in finding ESCOs with sufficient resources and manpower to deliver a series of large projects, or large packages of small projects, at the same time. 4.42. Bid evaluation. The evaluation of bids for major EPC projects is complex, as the bids are likely to include a mix of services, equipment, and financing that is different from bidder to bidder. Bids therefore cannot be evaluated on the basis of the lowest price alone. Evaluation criteria need to take into account that the bids of different ESCOs will typically consist of different volumes and types of investment, include different services, and also result in different benefits. Life- cycle costing (LCC)122 needs to be used instead of the lowest price criterion, and benefits have to 119. See for example the sample request for qualification for the Washington State EPC program: http://www.ga.wa.gov/EAS/epc/RFQ- Sample.doc. It is quite similar to the model documents made available by the Energy Services Coalition for use in state programs: http:// www.energyservicescoalition.org/resources/model/index.html - Pre-Qualify. An example of an ESCO submittal to the request for pre- Qualification for future ESPC projects in Washington State is at http://www.ga.wa.gov/eas/epc/soq/Noresco/NORESCO Response to State of Washington Prequalification.pdf. 120.See for example the London Development Agency RE:FIT Program in the Energy Efficiency News, £2.7 million energy makeover for London’s public buildings. 121.The winning consortium consisted of an ESCO, a commercial bank, and three equipment providers. The International Finance Corporation (IFC) provided a 50% risk sharing facility to the bank, which in turn provides a credit line (US$250 million) to the ESCO. The consortium markets the program to the municipalities, enters into service/lease contracts with each municipality, finances and implements the lighting and heating measure, guarantees savings, and receives a fixed fee from the municipality for its services. The approach reduces transaction costs not only for the municipalities, but also for the financial institution, since the ESCO acts as an aggregator. The MOE operates an information technology system through which municipal institutions can apply to participate in the program, essentially undergoing a pre-qualification. Also, MOE is responsible for monitoring overall efficiency and impact of the program. See IFC, OTP Local Institution Energy Conservation Program. Lessons that have been learned from this experience include: (i) Having an entity closer to the end-users be involved in procuring and managing the service provider might be more successful than procurement by the central government; an example would be procurement done by regional government for schools on its budget; (ii) Experience, especially from the United States shows that having a short-list of ESCOs versus a single-selected ESCO benefits clients and increases their ownership of the project as they can choose an ESCO; meanwhile, the competition among ESCOs is important for cost containment; and (iii) the capacity of the ESCO to deliver as well as its presence throughout the country are critical factors; this eventually worked out in Hungary which has only 10 million inhabitants; in larger countries probably several ESCOs would be needed. Source: Personal communication with Martin Dasek, IFC. 122. LCC takes into account the capital cost of the investment and the operating and maintenance costs over the life of the asset. In many countries, LCC is becoming standard in public procurement rules for evaluating both equipment purchases and services, as part of those countries’ sustainability commitments for the public sector. Examples are the U.S. governments at all levels and EU countries, foremost the United Kingdom; see Meyer and Johnson 2008, Energy Efficiency in the Public Sector—A Summary of International Experience with Public Buildings and Its Relevance for Brazil. 93 China: Improving Energy Efficiency in Public Institutions be included in the comparison. The method that most experts feel is best able to identify the best proposal is a calculation of proposed project net present value (NPV), which is the sum of the discounted net savings of the project.123 Most importantly, evaluation criteria need to be transparent to minimize complaints. 4.43. If competitive bidding is not taking place for a project, for example because the ESCOs were already pre-qualified, the host agency should carefully negotiate the contract with the selected ESCO. This negation should follow an in-depth review of all contract clauses, including a verification of prices and mark-ups quoted by the ESCO, preferably with the help of a facilitator or procurement agent. In the United States, it is recommended to check the following contract-related items:124 • The entity implementing the project should completely understand the energy saving measures. • The entity should verify that pricing is fair and reasonable, using RS Means® (http://rsmeans. ReedConstructionData.com/) construction cost data or a similar resource to compare costs. • To verify equipment prices, quotes should be obtained from suppliers. • Are the time and costs for engineering and design reasonable? • Is cost reduction possible without affecting quality or result? • Is the installation schedule reasonable? • Are project management time and cost reasonable? Project Bundling 4.44. Achieving sufficient scale economies for EPC in the public sector is not easy. EPC transaction costs are fairly high, but they increase only slightly with project size. It is therefore recommended to engage ESCOs only for larger projects above a certain building or property size, or a baseline energy consumption or cost. The suggested minimum size for an energy performance contract for a single building ranges from an annual energy bill of at least US$100,000 for Canadian federal buildings125 to €200,000 in German municipalities. In China such a limit might be lower as energy costs may often be lower but project development costs also will likely be lower. Still, EPC would not be an option for many individual buildings in China, especially in cases where neither space heating or air conditioning energy use are large. 123.The NPV expresses the estimated stream of costs and benefits, over a set period in current dollars, by discounting equipment with different life-times appropriately, adjusting for inflation and factoring in such parameters as initial investment, energy saved, contract duration, and life of equipment (Singh et al. 2010, p. 99). 124.See FEMP, Negotiating and Entering into an Energy Savings Performance Contract. 125.See Office of Energy Efficiency, The Federal Buildings Initiative: An Executive Overview. In addition to buildings with large energy bills, buildings with smaller energy footprints have also been considered. For example, in the states of Colorado, Idaho, Montana, Nevada, Oregon, and Wyoming in the United States, small and dispersed Bureau of Land Management facilities with over US$1,000 in electricity charges each year have been included in a Super ESPC. The challenge was organizing the ESCO’s energy audits and minimizing its overhead and engineering costs in many remote locations. Initially, target sites were categorized as either "engineered" or "prescribed." The former received IGAs, the latter only a cursory review of lighting and HVAC controls. When the latter proved too superficial, it was later replaced by a detailed lighting and HVAC control survey. Implemented measures include lighting and associated controls, HVAC controls, digital HVAC control upgrades, new boilers, ground source heat pumps and advanced meter installations (as per EPAct 2005). See FEMP, Bureau of Land Management: A Successful ESPC Across Six States. 94 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions 4.45. Smaller building energy efficiency projects can still be undertaken if a pool of projects can be bundled together and then contracted out to an ESCO. Project bundling makes the most sense for buildings where technical measures are fairly similar. This may make it possible to cut down on audit costs (for example by auditing only one representative building), or to purchase equipment in bulk. Also, it is preferable to combine buildings that are under common management or ownership, since this makes it easier to handle the administrative process and budget implications (see Box 4.4). Accordingly, bundling of properties into one energy performance contract can help achieve economies of scale by reducing the costs of (i) project development (tendering and auditing), (ii) project implementation through bulk purchasing, and (iii) contract management. Bundling also facilitates blending projects with positive NPV but longer payback periods with quick-return projects, to potentially provide an attractive package. In some cases, project bundling can also help smaller ESCOs to grow and gain experience, working as a subcontractor under the overall management of a large ESCO. 4.46. Project bundling has become popular in some European countries. Germany, with key projects in Berlin, is a prime example (see Box 4.4), but examples also exist in Austria, the Czech Republic, Sweden, and other countries.126 Various countries have also bundled energy efficiency projects in schools to implement EPC solutions, for example in several regions in France 127 and in many school districts in the United States (such as in Baltimore, Maryland).128 Most of those projects have been implemented with the support of a facilitator and have benefited from standardized or model contracts and other documents. Box 4.4: Bundling Individual Energy Efficiency Projects into Energy Performance Contracts—Example of the Berlin Energy Saving Partnership Background on the State of Berlin. In the early 1990, Berlin experienced a tight budgetary situation with lack of financial resources and high energy related costs of approximately €255 million. Investigations showed an energy saving potential of about 30% on average in public facilities. The Berlin Senate (State Government) made a decision in 1994 to introduce a target to reduce CO2 emissions by 25% by 2010, compared to 1990. This was updated in the 2020 Climate Protection Concept, targeting a 40% CO2 reduction by 2020, compared to the 1990 baseline. Berlin model of energy saving partnerships. To reduce public sector energy costs, improve public building infrastructure, and contribute to the targeted CO2 emission reductions, starting in 1996 the concept of EPC was developed with support of the Berlin Energy Agency. The Berlin model of Energy Saving Partnerships pools buildings of different sizes with different levels of energy consumption, construction material, fixtures and fittings into one project that can be tendered to a private ESCO for the design, financing, and implementation of energy- saving measures. 126. See http://www.european-energy-service-initiative.net/. 127.See Leroy 2010, Good practice examples High schools in Alsace Region, and footnote 134. 128.In the Baltimore City Public School System the selection of schools was based on a review of their utility bills. 160 schools were included in four energy performance contracts with a total of US$106 million project cost (including for preventive maintenance) and US$4.8 million guaranteed annual energy cost savings; see Maryland Energy Administration, Energy Program for Baltimore City Public Schools. 95 China: Improving Energy Efficiency in Public Institutions EPC for public buildings—Results since 1996: • 25 pools with more than 500 properties (more than 1,300 buildings); a typical pool includes 20 buildings • €51.6 million private ESCO-investment • €11.7 million (26%) guaranteed savings • Annual participation in energy cost savings by the State of Berlin: €2.7 million • Total CO2 reduction (1996-2010): 500,000 tons • Average term of contract: 12 years. Best practice example: District Steglitz-Zehlendorf (Pool 19): • Pool: 69 buildings (schools, kindergarten, sports facilities) owned by the district government • Baseline energy costs: 1.84 million €/year • Guaranteed energy cost savings: 29.4 % = 541,679 €/year • Investment: approx. €2.8 million • CO2-reduction: 3,973 t/year • Duration of contract: 14 years • Energy Saving Measures: New boilers in 11 buildings, fuel switch from coal/heating oil to gas, building automation, modernization of lighting; € 100,000 for renewable energy technologies, e.g., solar thermal systems. The following principles guide the bundling/pooling of buildings in practice: A pool should contain only one contractual object, into which all properties are bundled. Only one energy cost baseline should be relevant, consisting of the total energy costs of all individual properties. Only one contract should be concluded between one client and one contractor/ ESCO. The ESCO provides one overall guarantee for energy cost savings, and one share of savings that goes to the client and is allocated internally among the participating properties. Conditions for properties suitable for EPC/participation in pools include the following: The minimum baseline energy cost for each property should be above €250,000. The building should continue to be in use for at least the term of the contract (i.e., at least 10 years). It should have experienced a fairly constant development of energy use during the past few years. For buildings with mixed uses, non-owned objects should have their own metering. The project should be able to address the central heat supply equipment. These conditions are to be checked before incorporating a property into the pool. Experiences with ESCOs. In general large, national ESCOs or specialized divisions of large national companies are bidding for the EPC projects. So far, 14 ESCOs are responsible for the total of 25 pools (some in joint ventures). A total of 100 subcontractors, consisting of regional small and medium enterprises, are involved in the implementation of measures and O&M. In the past all problem issues were resolved without any need to touch project securities. Lessons Learned: • A reliable legal framework is necessary that provides clarity about the legality of EPC • Sufficient time for adjustment of measures needed • Intensive communication between client and contractor is essential 96 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions • Changes in baseline conditions (for example, use of building) have to be discussed between client and contractor • Additional efficiency measures are possible during the entire contract phase • Achieved savings are usually within the scope of guarantee or higher • Energy savings can be even higher when extending the contract or after re-tendering • Standardized procedures and contracts, developed by the Berlin Energy Agency, contribute to time- and cost-effectiveness of implementation and reliability • Competition and transparency leads to lower costs. Driving forces: • Decision makers who commit to challenging targets and take on the responsibility to implement measures to achieve them • Willingness to develop new concepts for public-private partnerships • Support of project development and implementation by a facilitator, the Berlin Energy Agency. Sources: Geißler 2010, Energy service–Hotspot Berlin as a national and international role model; Schlopsnies 2008, Berlin Energy Saving Partnership - from model to project success ("Berliner Energiesparpartnerschaften – vom Modellprojekt zum Erfolgsmodell”); Schlopsnies 2012, Die Berliner Energiesparpartnerschaften; Singh et al. 2010, Public Procurement of Energy Efficiency Services - Lessons from International Experience. 4.47. Study recommendations. Bundling energy efficiency retrofit projects in different public facilities for implementation using EPC certainly has an important role to play in China. A number of local government agencies have already begun to sign agreements with ESCOs to implement bundled EPC projects in various facilities. The agreements specify integrated packages of energy services, including energy audits, diagnostics, design, implementation, equipment management, and, frequently, the establishment of a monitoring platform. ESCOs are asked to provide the financing. Similar to the international situation, particularly good markets for EPC project bundling in China include provincial and local government facilities and local school districts. Moving toward Integrated and Comprehensive Energy Efficiency Projects 4.48. The involvement of ESCOs in the building sector often starts with single technology projects. In North America and Europe, projects involving lighting improvements, boiler or HVAC replacements, and building control were initially widespread. For example, in the United States in the 1990s, 20% of all ESCO projects in the public sector were focused on lighting-related measures.129 4.49. This international trend also applies to the building EPC business in China. Projects focusing on specific energy systems are fairly straight-forward, have relatively short pay-back times and—especially in the case of projects focused on lighting—can make it easy to determine savings, mostly in the form of stipulated savings.130 These single-technology projects are also easy 129.See Hopper et al. 2005, Public and Institutional Markets for ESCO Services: Comparing Programs, Practices and Performance. 130.For a definition see footnote 140. 97 China: Improving Energy Efficiency in Public Institutions to replicate. Experience in other countries further shows that the technical savings potential of building energy systems, such as lighting and HVAC systems, can range from 10-30%. In China, these high financial paybacks have allowed ESCOs to receive full payment and profits within three years or less, even if 20% or more of the energy cost savings over the contract period is given to the client. Such projects are referred to as “low-hanging fruit,” as investments have fairly high returns and short payback times. 4.50. With increasing experience, many public clients in North America and Europe have become concerned that doing only easy, short-term and high-return investments will prevent the realization of longer-term projects that result in larger energy savings but are less profitable over the short term. This has led to an increased use in those markets of short-term payback measures to leverage measures with longer payback times, creating comprehensive projects that still fit within expectations of overall profitability and contract terms.131 4.51. Unlike projects in China, most ESCO projects of the last 10-15 years in the public sectors in the United States and Western Europe have had terms of 10-25 years, involving millions of dollars or Euros in investments, and resulting in energy (cost) savings of 20-40%. The projects have included a broad range of energy efficiency measures (for example, 120 separate measures in the German hospital project described in Box 4.5), covering most energy-consuming equipment as well as some building shell measures such as window replacement and insulation. More recently, renewable energy applications are also being incorporated into energy performance contracts, particularly in the United States. Public clients are often providing co-financing for investments for some of the required measures with long payback times (such as window replacement) because ESCOs would otherwise be reluctant to enter into contracts that include them. 4.52. Implementation of comprehensive energy efficiency projects using energy performance contracts requires the following three conditions: • Qualified ESCOs able to design, finance, and provide a wide variety of services for complex, long-term projects. To support long-term complex projects, ESCOs in the market place need to have the capacity to (i) design and implement a project with a wide variety of measures, (ii) raise a large amount of financing (either from equity or debt),132 (iii) provide operation and maintenance services or train and supervise existing facility staff, and (iv) carry out sophisticated measurement and verification programs (see paras. 4.59-4.61). In most countries, the number of such companies is limited. In the United States, essentially the same 10-15 companies tend to appear on the lists of ESCOs prequalified to enter into contracts at the federal or state level. In the German State of Berlin, 2-6 ESCOs usually participate in bidding for pools of projects and, so far, 14 ESCOs are implementing energy efficiency projects in the 25 pools tendered between 1996 and 2010 (see Box 4.4). 131. More generally, building sector and climate change experts point out that existing buildings need to achieve about 80% savings by 2050 if they are to deliver the GHG reductions consistent with targets negotiated through the UNFCCC; see for example, IEA World Energy Outlook (http://www.worldenergyoutlook.org). 132. In the United States, ESCO projects in the municipal, university, school and hospital sectors usually are financed by the public clients since they can access funds more cheaply than private sector ESCOs; see Chapter 3. 98 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions • Amenable regulations and a legal and institutional framework favorable for implementation of long-term EPC projects. If a maximum contract term is specified in EPC enabling legislation or administrative rules, this term should be longer than the expected economic lifetime (or the normal payback time) of the energy efficiency technologies required by the public client. In the United States, for example, contract terms in excess of 15 years have been necessary to finance comprehensive energy efficiency projects or projects that involve central HVAC plant replacement.133 For any long-term contract, however, it will be important to consider whether or not the contract can be enforced and whether risks can be properly mitigated by the ESCO and the client over the duration of the contract. • Buildings experiencing high and steady energy consumption. Buildings that are used during most of the day and the year and have high energy consumption and high energy costs, such as hospitals, are better targets for comprehensive energy efficiency projects than smaller buildings with limited use and energy consumption, such as schools.134 Box 4.5 provides an example of a fairly typical ESCO project in a German hospital in Bremerhaven. Yet, schools may also have important public awareness and social benefits that can provide a boost to promoting energy efficiency. 4.53. Study recommendations. In China, implementation of comprehensive energy efficiency projects is a useful direction to support for the future. It will take time, however, for many ESCOs to be able to develop the necessary technical capacity for integrated projects and the financial strength to engage in long-term contracts. Box 4.5: Example of an Integrated EPC Project in a German Hospital The German hospital “Klinikum Bremerhaven-Reinkenheide,“ implemented an integrated EPC project. The hospital is a general hospital, with a status as a private non-profit company (gGmbH). It is 100% owned by the city of Bremerhaven. The hospital has 710 beds and its total annual costs are €80 million, of which 80 percent are personnel costs. Steps in the EPC process The EPC process at the hospital, which took 8 months, included seven major steps: (i) Data gathering and analysis. This first step was carried out by hospital technical staff with support from the Bremen Energy Agency. Energy consumption at the hospital was billed monthly, by the electricity supplier and the supplier of district heating. There was no submetering. The data gathering process also led to a determination of minimal energy cost savings that could be achieved (25%) and measures that would then be required. (ii) Procurement. A Europe-wide procurement process was started, supported by the Berlin Energy Agency. (iii) Expressions of interest. Thirteen expressions of interest were received. 133.See Bharvirkar et al. 2008, Performance Contracting and Energy Efficiency in the State Government Market. 134.Schools nevertheless are often the target of fairly comprehensive energy performance projects, enabling an upgrade of their utility infrastructure and renovation of their building shell. For example, in the French region of Alsace, 14 schools with a total size of 190,000 square meters have received investments of a total of €30 million under one energy performance contract. Included are some of the following measures: wood boilers, heat pumps, new boilers, district heating connection, insulation, windows, and photovoltaic electricity. The region subsidizes the renewable electricity generation. See Leroy 2010, Good practice examples High schools in Alsace Region. 99 China: Improving Energy Efficiency in Public Institutions (iv) Shortlisting. Eleven companies were included in the shortlist. The short-listed companies were invited to do a walk-through audit, which lasted one to several days. (v) Presentation of bids. Four companies presented bids. The main evaluation criteria were savings and overall investment. (vi) Negotiations. A first negotiation was held with two bidders; A second negotiation was held with one bidder. (vii) Contract signed. A contract was signed with the winning ESCO. Specific details of the contract were as follows: Contract term 12 years (2008-2019) Investment (Contractor) €5.2 million Investment for required measures €0.265 million (payment over term of contract) (Hospital) Energy costs 2004 (baseline) €2.065 million (net of VAT) Guaranteed cost savings 25.6% = €0.52 million with additional savings shared 60:40 between host and ESCO Actual savings 35-40% energy costs and 40% energy savings, of which 65% steam, 42% heat energy and 14% electricity CO2 emission reduction 2,635 tons/year (actual 2,950 tons/year = 30%) Examples of technical and soft investment measures (total of 120): • Energy saving measures – HVAC: new air conditioning/ventilation system (with demand-based control), innovative cooling absorption and screw chillers, application of frequency converters, electricity load management system – New building automation system, including peak load management, with automatic data collection and monthly analysis of consumption – Optimization of the heating system (demand-based control), new heat-recovery system – Energy-efficient lighting – Water saving measures (low-flow faucets) – User motivation training for hospital personnel • Upgrades required by the hospital (total investment: €2 million of which contractor finances 2/3) – new low-voltage distribution system – new sterilization system – new central cooling production unit – new dishwashers for main kitchen – separation of medical and technical compressed air production, including new medical compressed air unit O&M is carried out by hospital technical staff, after being trained by the ESCO in the use of new equipment. 100 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions M&V. The contractor is in charge of M&V and has remote access to all data. The hospital employs an external controller. The baseline energy costs are corrected with actual facility use and actual degree days; energy cost increases of 4% annually are assumed (actual increases—and therefore cost savings—are higher). The hospital has to provide information to the contractor about any substantial changes in facility use and energy-consuming equipment. Source: Breuer 2008, Energy Performance Contracting in Hospital Bremerhaven Reinkenheide ("Energiespar- Contracting im Klinikum Bremerhaven Reinkenheide“); personal communication Juergen Breuer, Klinikum Bremerhaven Reinkenheide, April 2011 (http://www.klinikum-bremerhaven.de/). Measurement and Verification (M&V) of Savings 4.54. Energy savings are, by definition, an absence or reduction of energy use and can therefore not be directly “measured.” For a typical energy conservation retrofit project, energy savings are determined by comparing the energy use associated with a facility—or certain systems within a facility—before (“baseline”) and after (“post-retrofit”) the installation of energy conservation measures. If the conditions in a facility change, the monitoring and verification of savings must account for those changes. 4.55. EPC projects are based on the principle of using guaranteed energy savings to offset the cost of financing, installing, operating, and maintaining the energy efficiency measures. While EPC projects should also be based on joint effort, good relationships, and mutual trust between the ESCO and the facility owner, it is not uncommon for those two parties to have conflicting interests, especially if there are material changes or baseline energy use adjustments in the facility.135 4.56. Proper measurement and verification (M&V) of savings for energy conservation projects in public institutions benefits all involved stakeholders: • Government. The government can use M&V results to (i) assess the cost-effectiveness and impacts of energy efficiency and conservation programs in public institutions, (ii) measure the contribution of such programs to the country’s overall commitment to reduce energy consumption and CO2 emissions, and (iii) formulate related policy tools to further improve and promote energy efficiency in public institutions. • Public institutions. Public institutions or public facility owners can use the M&V data to obtain timely and accurate feedback on the performance of their energy conservation projects, improve or adjust the operation of facilities to maximize energy savings, and appropriate energy cost savings for other purposes or budget requirements. • ESCOs. ESCOs can use the M&V process as an acceptable and credible method to prove energy-saving results of EPC projects. M&V results are the basis of the projects’ performance- based payments or shared-savings and promote the transparency, credibility, and viability of the EPC business. 135. A material change may be defined as any structural or operational change in the facility, which could significantly increase or decrease the energy consumption beyond the scope of the EPC project. Adjustments refer to known or agreed changes to the facility, which are not part of or caused by the energy retrofit project, for example, changes in hours of operation or work schedules, building activity, and building size or configuration. 101 China: Improving Energy Efficiency in Public Institutions • Financing institutions. M&V results that confirm the profitability of EPC will increase confidence of financing institutions in the new business model, lower their risk perception, make them more willing to extend loans for such projects, and enhance the security of loans. 4.57. International protocols and guidance. Internationally, three well-established M&V frameworks exist to measure and verify energy savings. An adapted version of these frameworks could be used to measure and verify energy savings in Chinese public institutions.136 The three frameworks are: • International Performance Measurement and Verification Protocol (IPMVP) Volume I: Concepts and Options for Determining Energy and Water Savings.137 • M&V Guidelines: Measurement and Verification for Federal Energy Projects Version 3.0 (U.S. FEMP) 138 • American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) Guideline 14: Measurement of Energy and Demand Savings.139 4.58. The three frameworks complement each other in providing guidance and instructions for how to quantify savings results from energy conservation projects. For example, the IPMVP establishes a general framework and terminology for M&V, while the ASHRAE guideline focuses on the technical level and provides detail on implementing M&V. 4.59. Basic M&V concepts and options. The three international frameworks each recommend the use of four options for M&V. The only exception is ASHRAE, which does not have an equivalent of option A. Each option has its own advantages and disadvantages based on site-specific factors and the needs and expectations of the facility management of the public institutions. Table 4.2 describes the four M&V options. 4.60. Generally, the selection of an M&V option depends on many factors such as project costs, expected savings, contract term, benefit-sharing arrangement, and uncertainty or risk. M&V budgets can range from 2% to 14% of the annual energy cost savings, though a rule-of-thumb guideline is that M&V costs should not exceed 10% of the annual energy cost savings.141 Options A and B are generally less costly than options C and D. In a sample of 128 U.S. federal ESPC projects, option A was by far the most widely used M&V method (80%), followed by option B (13%), option C (2%) and Option D (5%).142 4.61. The four M&V options can be applied to almost any type of retrofit project; however, the rules of thumb listed in Table 4.3 generally indicate the most appropriate M&V approach for an application. 136.More recently, a proposal was submitted to the International Organization for Standardization (ISO) regarding “General technical rules for determination of energy savings in renovation projects, industrial enterprises and regions.” This proposal is under the technical committee (ISO TC 257), with the Standardization Administration of China serving as the Secretariat. 137.See IPMVP Public Library of Documents, Concepts and Options for Determining Energy and Water Savings - Volume I. 138.See FEMP, M&V Guidelines: Measurement and Verification for Federal Energy Projects Version 3.0. 139.See ASHRAE Publications, ASHRAE Guideline 14-2002 Measurement of Energy and Demand Savings. 102 Chapter 4: Energy Performance Contracting — Using Energy Cost Savings to Finance Energy Efficiency Projects in Public Institutions Table 4.2: Description of Four M&V Options M&V option Description Option (A) Savings are determined by partial field measurements of the energy use of the system(s) to which an energy saving measure Retrofit isolation was applied, separate from the energy use of the rest of the facility. (Key parameter Measurements may be either short-term or continuous. Some but measurement) not all parameters may be stipulated.140 Option (B) Savings are determined by field measurement of the energy use Retrofit isolation of the systems to which the ECM was applied, separate from the (All parameter energy use of the rest of the facility. Short-term or continuous measurement) measurements are taken throughout the post-retrofit period. Savings are determined by measuring energy use at the whole Option (C) facility level. Short-term or continuous measurements are taken throughout the post-retrofit period. Energy savings are assessed at Whole facility the whole-facility level by analyzing utility bills before and after the implementation of energy saving measures. Savings are determined through simulation of the energy use of Option (D) components or the whole facility. Simulation routines must be Calibrated simulation demonstrated to adequately model actual energy performance measured in the facility. Source: http://eetd.lbl.gov/newsletter/nl10/eetd-nl10-4-ipmvp.html. Table 4.3: Rules of Thumb for Selection of M&V Options M&V option Typical applications and conditions √ For simple equipment replacement projects with energy savings that are less than 20% of total facility energy use as recorded by the relevant utility meter or sub-meter. √ Energy savings values per individual measure are desired. • Retrofit isolation Interactive effects are to be ignored or are stipulated using estimating methods that do not involve long-term (A or B) measurements. √ The independent variables that affect energy use are neither complex nor excessively difficult or expensive to monitor. √ Sub-meters that record the energy use of subsystems are already present. √ The equipment replacement and controls projects are complex. √ Predicted savings are relatively large (greater than 10% to 20%) as compared to the energy use recorded by the relevant utility meter or sub-meter. • Whole facility (C) √ Energy savings values per individual measure are not desired. √ Interactive effects are to be included. √ Independent variables that affect energy use are not complex and excessively difficult or expensive to monitor. • Calibrated simulation √ New construction projects are involved. (D) √ Energy savings values per measure are desired. Source: Authors, based on FEMP, M&V Guidelines: Measurement and Verification for Federal Energy Projects Version 3.0. 103 China: Improving Energy Efficiency in Public Institutions 4.62. Who should carry out M&V? Ideally, M&V is a joint effort between the ESCO and the public institution (or facility owner). The ESCO usually is well-positioned to carry out the M&V efforts because it already, before the implementation of energy saving measures, has conducted an energy audit of the facility to determine the baseline, economic viability of energy conservation measures, and potential energy savings, which has given the ESCO detailed knowledge of the facility’s operations. The ESCO can also bundle the M&V activities into its package of energy services offerings. The facility owner can support the ESCO in all aspects of M&V by providing pertinent energy or utility data, giving access to the facility or equipment, and properly maintaining and operating the equipment or system covered by the energy performance contract. Both the ESCO and facility owner should keep track of all significant baseline adjustments to account for growth or reduction in energy consumption. If the public institution already has a technical team to assist with defining or reviewing M&V results, a third-party monitoring or savings consultant might not be necessary or practical and only increase costs.143 In case of disagreements on M&V of savings, the EPC should include a process for dispute resolution. 4.63. M&V in China. In China, the lack of metering and sub-metering, especially for heat (see para. 3.57), currently restricts the choice of M&V options. In many past EPC projects in China, stipulated or deemed savings have been the most common M&V method.144 Stipulation, a contractual mechanism in which two parties agree on values regardless of actual measured data, is by far the least expensive method to determine savings. While a useful tool to lower project costs, however, the over-use or misuse of stipulation can increase the uncertainty of savings. Pure stipulation is not a recommended M&V option by any of the three international protocols mentioned previously. As the EPC mechanism matures in China, market players—especially clients in the public sector and their supervising entities—may increasingly demand more advanced M&V methods focusing more on measured savings or determination of savings based on utility bills. 4.64. Study recommendations. The study team recommends keeping M&V protocols simple, practical, and not too costly, while still providing satisfactory assurance to clients that projects have performed successfully. Experts from Chinese supervising entities and ESCOs should consult experience gained elsewhere. 140.Stipulation is a contractual mechanism where two parties agree on values regardless of actual measured data. Energy use, energy costs, run times, and operating schedules are a few items that can be stipulated in a contract. Acceptable forms of stipulation include engineering analysis, measurement-based models, manufacturer’s data, standard tables, and enterprise logs. Unacceptable are undocumented assumptions, proprietary algorithms, unsupported handshake agreements, guesses at parameters, and models based on questionable data. 141.See Jump and Stetz 2000, Initial Application of the FEMP Measurement & Verification Guidelines in Super ESPC Delivery Orders. 142.Shonder et al. 2010, Reported Energy and Cost Savings from the DOE ESPC Program. 143.In the United States, the Association of Energy Engineers (AEE), in cooperation with the Efficiency Valuation Organization (EVO), has established the Certified Measurement and Verification Professional (CMVP) program with the dual purpose of recognizing the most qualified professionals in this growing area of the energy industry, and raising the overall professional standards within the M&V field (http://www.aeecenter.org/). Many ESCOs in North America may have CMVPs in their team, enabling the ESCO to meet third-party requirements and strengthen its own capability to offer M&V services as part of its EPC projects. 144.See Sun et al. 2011. 104 Chapter 5: Next Steps and Priority Actions for Different Jurisdictions Chapter 5: Next Steps and Priority Actions for Different Jurisdictions 5.1. This chapter summarizes the concrete actions recommended by the study team for strengthening energy efficiency in China’s public institutions, for consideration during the implementation of the 12th FYP. Following a section on key efforts on policies, guidance, and government support, recommended actions are grouped by key jurisdiction, each of which is led by a specific responsible agency or type of agency and covers a specific subsector of public institutions. The main responsible agencies and their direct jurisdictions are described in para. 2.20; they can also be inferred from Table 5.1. Key Efforts on Policies, Guidance, and Government Support 5.2. A central task for the government—at central, provincial and local levels—is to complete the working system for promoting public institution energy efficiency. Important areas include provisions relating to the setting and supervision of energy savings targets, measurement of energy use, statistical reporting, and other elements of a public institution energy conservation organization and management system (see para. 3.4.) Many policy and regulation documents remain to be issued to allow work to be organized properly, especially at local levels. While the basic system was established during the 11th FYP, the role of GOA and its working system in energy conservation is relatively new compared with other agencies involved in promoting energy efficiency. Investments to strengthen the technical expertise of staff in energy conservation offices at the national, provincial, and local levels can allow for greater chances of successful delivery. 5.3. As the policy and regulatory framework is further filled out, a large follow-on effort will also be needed to prepare and disseminate detailed technical guidelines, manuals, templates, and other types of instruction materials to show supervising agency and public entity staff how to meet the detailed requirements specified in the policies and regulations. These guidance documents then provide the foundation for the preparation of training materials and implementation of training activities (see para. 5.7). Some of the most important areas for issuance of technical guidelines, manuals, and templates include: • Energy management—Work scope, approaches, and methods for properly pursuing energy management in the various subsectors of public institutions. • Auditors and audits—Guidelines to ensure conformity and minimum quality levels, strongly emphasizing the specific objectives of specific auditing programs. • Basic data collection on facilities and energy use—Central guidance to ensure that data are comparable and reliable, and that a unified methodology and standardized data compilation protocol is used across all subsectors at all different levels. • Energy use measurement—Specific technical guidance for electricity and heat metering of public sector facilities, including sub-metering and smart or time-of-day metering. 105 China: Improving Energy Efficiency in Public Institutions • Benchmarking—Definition of common processes, building classifications, performance indicators, and other metrics, based on ongoing pilots with commercial building monitoring or energy efficiency retrofit programs. • Building energy management—Detailed operation and maintenance of key energy–using systems, such as AC systems, boilers, and heating systems. • Impact evaluation of projects and programs—Systematic and objective evaluation of energy savings and the cost-effectiveness of investment projects and programs to improve and strengthen future work. • Energy Performance Contracting—Guidance on the selection of ESCOs, model EPC contracts, and monitoring and verification methods for energy savings. 5.4. One specific regulatory area that requires immediate attention to help foster greater use of EPC is related to the issuance of regulations allowing individual public entities to retain at least a portion of energy cost budget savings achieved through energy conservation projects, especially those using EPC. The State Council’s 2010 policy statement on EPC specifically allows for this (see para. 2.27 and 4.12), but specific regulations must be issued for this key measure to be achieved. Guidance from relevant central government ministries would be very helpful. Provincial agencies, especially finance bureaus, need to issue specific documents and help interested entities work through implementation. 5.5. Energy savings efforts in public institutions need specific government budget support. Energy conservation special funds have already been established at the central and provincial levels. It would be useful to earmark portions of those funds for public institutions (see para. 3.84). Three areas in particular need budget support: (i) financing for demonstration projects (see Table 3.1); (ii) targeted subsidies to reduce the upfront costs of certain energy-efficient equipment or for entities that commonly have difficulty raising funds such as rural schools; and (iii) budget allocation for a variety of critically needed “soft” costs, including costs for setting up statistical reporting systems, installing meters, training energy managers, energy auditing and preparation of site-specific energy savings plans, and monitoring and supervision. These areas are very important to advance energy efficiency in the public sector, but wouldn’t happen without special funding or special budget allocations. In addition, establishment of revolving funds should be considered for energy efficiency investments at provincial and local jurisdiction levels (see para. 3.96). Recommended Priority Actions by Sectors and Key Jurisdictions 5.6. Many concrete actions need to be organized within specific jurisdictions, for example for central government buildings, local government buildings, universities, schools, and hospitals. While some actions may be taken by all jurisdictions, some are specific to individual jurisdictions. Table 5.1 consolidates the main actions recommended in Chapters 3 and 4. A first section describes actions relevant for all jurisdictions, while subsequent sections describe additional and specific actions for each of the main subsectors. Context and further details are provided in Chapters 3 and 4. 106 Chapter 5: Next Steps and Priority Actions for Different Jurisdictions Table 5.1: Recommended Priority Actions by Jurisdiction Responsible Jurisdictions Actions agencies 1. Providing training and capacity building programs for decision makers, leaders, and specialized staff of four audiences: government officials and entity leaders, facility management units, third party technical and service entities, and occupants/users/ owners. 2. Placing competent facility energy managers (including arranging for appointments, qualifications, and training). This includes reviewing the possible application of broader sustainability managers (to address energy/water, All agencies recycling, and other “green” measures) vs. the use of with direct specific energy managers. All implementation 3. Implementing reputation-based incentive programs responsibilities 4. Improving statistics and metering, completing energy audits and site-specific energy savings project preparation, preparing benchmarks within jurisdictions, and implementing continuous evaluation of results, dissemination, and awareness raising. 5. Implementing key demonstration projects in the main jurisdictions. 6. Expanding information dissemination and exchange through cross-province and international exchanges. 1. Piloting entity consumption quotas tied with energy cost expenditure ceilings 2. Organizing state-of-the-art metering pilot programs in key facilities, including sub-metering 3. Supporting continuing improvement of online data collection, reporting and analysis Central government GOA 4. Disseminating successful case studies, incl. of facilities management and supervision examples, and energy efficiency (EE) technologies. 5. Assisting energy using entities to undertake EPC projects across the project development cycle (auditing, selecting and contracting ESCOs, applying for government and commercial financing/support, disbursement of government funds, M&V). 107 China: Improving Energy Efficiency in Public Institutions Responsible Jurisdictions Actions agencies 1. Completing energy savings plans in line with 12th FYP targets. 2. Piloting energy use quotas tied to energy cost expenditure ceilings. 3. Implementing simple energy audits and site-specific Provincial energy savings action plans, complete with project Provincial and and local proposals. local GOAs or government equivalent 4. Implementing heat metering and consumption-based facilities billing programs in northern regions. 5. Piloting energy performance contracts through the government system. 6. Creating and operating EPC technical assistance units for all public institutions. 1. Developing a “University Energy Efficiency Network” (or Green University Network) of interested universities, with MOE support, and university energy savings commitments as a condition of participation. MOE, provincial 2. Implementing comprehensive metering pilot projects, education including sub-metering. Universities departments, university 3. Piloting award/bonus programs, including, possibly, representatives incentives programs where units receive improved equipment paid through energy cost savings of successful energy efficiency projects. 4. Sponsoring internal competitions and incentives programs. Provincial and 1. Integrating energy efficiency and renewable energy local education opportunities into school renovation projects, especially departments in northern regions where heating is required and in rural Schools (with guidance areas. from MOE), 2. Template project implementation, possibly with EPC school district 3. Incorporating energy efficiency activities and education representatives into a wide range of educational curricula. 1. Implementing state-of-the-art metering pilots to generate data at level of sophistication needed for hospital building energy audits. 2. Implementing carefully monitored pilot energy audits in several hospitals, covering their special and complex MOH, needs, followed by the development of site-specific pilot provincial health projects and monitoring of results. Generate case studies departments, and find effective channels to disseminate experiences. Hospitals hospital associations and 3. Creating a “Hospital Energy Efficiency Network” (or representatives Green Hospital Network) similar to that recommended for universities. 4. Generating case studies of EPC, with concrete examples of technical options available for hospital energy efficiency and of lessons learned for implementing comprehensive EE retrofit projects. 108 Chapter 5: Next Steps and Priority Actions for Different Jurisdictions Actions for All Key Jurisdictions 5.7. Providing training and capacity building. A large training effort will need to be undertaken for staff working in the various jurisdictions at central and especially provincial and local levels. In addition, experience worldwide shows the need for leaders and decision makers to be sensitized to the importance of energy efficiency and the various steps involved in implementing energy conservation projects. Training for responsible staff needs to include technical, financial, regulatory, procedural, and project implementation aspects. Four audiences should be distinguished: (i) government officials and public entity leaders, (ii) facility management departments, (iii) third party technical and service entities, and (iv) occupants, users, and owners, who should be enlisted as part of broad awareness and educational campaigns. 5.8. Placing competent facility energy managers. An important action for all major public sector facilities is to appoint staff responsible for identifying key energy waste problems and actions to address those problems; that is, to appoint energy managers. Given the huge number of facilities and the need to train staff in the basic skills of energy management, a staggered implementation is recommended. The needs of large entities with many facilities and substantial energy use should be addressed first. Training programs for energy managers need to be established and decisions made about how to best confirm that staff meet the required qualifications, for example through accreditation or continuous education requirements with examinations (see para. 3.48-3.49). In some agencies or units, especially smaller ones, it may be best for staff to be responsible for other sustainability issues in addition to energy conservation, such as water conservation, recycling, and other “green” measures (see para. 3.47). 5.9. Implementing reputation-based incentive programs. There is a strong lack of incentives for energy efficiency in public institutions, which this report has discussed in detail. Agencies responsible for oversight of various public institutions should consider establishing reputation- based incentive programs. An example would be a highly visible “model energy efficiency unit” award program for one or more specific categories of public institutions. This could include small monetary awards for units that particularly distinguish themselves. In some pilot agencies the energy savings (and environmental) performance of all entities within a specific category could be rated. Such ratings could be used as a management tool by supervising agencies. Even more noticeable results can be achieved if results are published (see para. 3.25-3.26). 5.10. Improving statistics and metering, completing energy audits and site-specific energy savings project preparation, preparing benchmarks within jurisdictions, and implementing continuous evaluation of program results, dissemination, and awareness raising. Each agency should formulate time-bound programs and plans to achieve their specific targets and implement the required measures for improved statistics, metering of energy use, auditing and preparation of site- specific energy savings plans for facilities, benchmarking, demonstration projects, and evaluation of project results: • Metering. Programs to complete the collection and analysis of facility data and basic metering programs for all larger facilities need to be prepared and implemented in a staggered fashion 109 China: Improving Energy Efficiency in Public Institutions by each agency. Heat metering and sub-metering should be implemented in a more targeted way (compare actions for subsectors below). • Auditing and site-specific project preparation. Audits need to be action-oriented, providing a basis for specific project follow-up. Even so, most entities will need to follow auditing efforts with the preparation of detailed, actionable energy savings plans that include initial preparation of specific projects and recommended energy management changes. Given the huge needs, such programs need to be staggered and actions prioritized. • Benchmarking. Based on improved statistics, energy use metering data, and audit results, agencies can start the benchmarking of important building types in their jurisdictions. This would support the selection of priority investment projects and, when more refined, the establishment of mandatory energy savings targets and energy use quotas. • Evaluation and dissemination. Agencies should carry out systematic and objective evaluation and dissemination of the results of the demonstration projects they implement (see para. 5.11). 5.11. Implementing key demonstration projects in the main jurisdictions. Plans for energy conservation in public institution during the 12th FYP period call for the implementation of a range of demonstration projects to be carried out by different jurisdictions under GOA oversight (see Table 3.1). Special emphasis should be placed on demonstration projects in public buildings that pro-actively seek out opportunities to demonstrate the benefits of heat metering and consumption- based billing in combination with building envelope retrofits. 5.12. Expanding information dissemination and exchange through cross-province and international exchanges. Exchange of information on successful programs and projects as well as on issues to be resolved would be very useful for officials and experts. Exchanges could take place across provinces or through participation in international exchanges. For government staff, possible topics for information exchange could include targets, monitoring, benchmarking, reputation incentives, use of special energy conservation funds, and use of EPC. For third party entities and energy user representatives (for example, representatives of hospitals, schools, and universities), topics of interest could include energy management, metering and sub-metering, auditing, and specific investment studies. In addition, symposia could be used to exchange information on a variety of topics, such as benchmarking, revolving funds and EPC in the public sector, bundling of energy efficiency projects, and comprehensive energy efficiency projects in hospitals. Actions for Central Government Facilities (GOA) 5.13. In addition to implementing its overall coordination and guidance role (see para. 5.2 and 5.3), GOA will also need to initiate action in several areas related to central government facilities. Action areas include: 1. Assisting and guiding the definition and implementation of energy savings plans and targets in all major central government facilities. GOA needs to organize for this task, agree with the 110 Chapter 5: Next Steps and Priority Actions for Different Jurisdictions entities on their savings plans and targets, monitor implementation, and provide necessary technical support. 2. Implementing pilot efforts in facilities where suitable conditions exist to establish energy consumption quotas that are tied to energy cost budget expenditure ceilings (see para. 3.19). 3. Organizing the piloting of state-of-the-art metering programs in a number of key facilities. Where appropriate—for example when different departments or buildings have different energy use patterns—sub-metering should be applied such that each building or department has a separate electricity and heat meter. Before undertaking pilots, specific plans should be agreed with entities on programs to use the data for analysis and evaluation, for use in energy audits, for definition of specific energy saving projects, and for continuous monitoring of energy use performance. 4. Continuing with support for the improvement and expansion of online data collection and reporting systems to monitor and analyze energy use and define energy saving measures in key facilities. 5. Preparing and disseminating case studies with examples of good management and supervision and showing the successful implementation of energy saving technologies such as co- or tri- generation systems, improved lighting systems, automatic controls for heating, cooling and ventilation, and building automation systems. 6. Providing assistance to entities interested in undertaking EPC projects. A special program should be considered, providing support for project preparation, selection and contracting of ESCOs, supervision, disbursement of contracts, and monitoring of energy saving results (see also the task list for similar units at the provincial level in item (6) of para 5.14). Provincial/Local Government Facilities (Provincial/Local GOAs or Equivalent) 5.14. Additional, priority actions to be implemented in provincial and local government facilities guided by provincial and local GOAs or equivalent agencies include the following: 1. Specifying energy savings plans for the remainder of the 12th FYP period, in line with the overall public building sector targets established in the FYP. 2. Piloting the establishment of energy consumption quotas tied to energy cost expenditure ceilings in situations where suitable conditions exist. 3. Implementing simple energy audits and site-specific energy saving action plans (see para. 3.67), complete with project proposals. These should be launched for key entities. 4. Implementing heat metering and consumption-based billing programs in northern regions where at all possible, setting examples for other consumers and supporting heat reform efforts in the relevant municipalities. 111 China: Improving Energy Efficiency in Public Institutions 5. Piloting energy performance contracts in a way that project preparation, contracting with ESCOs, implementation of investment, monitoring of energy saving results, and contract disbursement are all realized within the government system, establishing a path for scaling up EPC projects in the future. 6. Creating and operating EPC technical assistance units for all public institutions at the relevant government level, in cases where provincial or large municipal governments are truly interested in developing EPC. The technical assistance units would need to be formally established and might be entrusted with the following types of tasks (see para. 4.20): • Educating and sensitizing officials in all relevant agencies at that level to the needs for public institutional energy efficiency improvements and the means to achieve those improvements, including the potential role of EPC. • Overseeing the preparation of information brochures and other reference materials on EPC, and organizing training for public entity staff. • Maintaining an information database on public institution energy consumption statistics and on implemented EPC projects and their energy saving results. Data analysis would help assess priority areas for EPC projects, help assess progress to date, and assist the training of staff. • Guiding public entities on selection of ESCOs. • Preparing model EPC contracts for public entities to consider, including guidance on how to use them. • Overseeing the preparation of guidance on M&V methods applicable to public facility EPC, as well as case study examples of applications. • Providing hands-on assistance for guiding projects through the various stages of preparation, application for financial support, approval, and disbursement. • Overseeing the preparation of case study examples of successful EPC projects in the public sector and their broad dissemination. Universities (Ministry of Education, Provincial Education Departments, University Representatives) 5.15. Additional priority actions to be implemented in universities under the supervision and guidance of the Ministry of Education and provincial education departments and with support from university representatives include the following: 1. Considering establishing an “University Energy Efficiency Network” or possibly a “Green University Network” of interested universities with Ministry of Education support. As a condition of membership, universities would pledge serious commitments to energy savings 112 Chapter 5: Next Steps and Priority Actions for Different Jurisdictions and resource sustainability actions and results. Members would gain national publicity and recognition as leading energy-efficiency and sustainability actors, a priority position for certain types of specific government support, and opportunities to exchange experiences with and learn from other similar entities. 2. Implementing comprehensive metering pilot projects, including sub-metering, in interested universities. Electricity and heating sub-metering should be applied to individual buildings and departments to provide a basis for accountability and assessing progress in sub- administrative units, as well as needed data to design good energy conservation projects. Such pilots should only be undertaken if there is a commitment to concrete energy savings project follow-up. 3. Piloting of award and bonus programs, perhaps similar to the well-known EnergyStar programs in the United States. Universities that achieve large energy efficiency gains might receive monetary awards. Student involvement would be very important and curricula should incorporate energy saving and other sustainability topics. 4. Sponsoring internal competitions and incentives programs, for example, between dormitories or departments, aiming specifically to involve faculty and students. Units with the most successful no- or low-cost energy saving results might receive improved equipment paid from energy cost savings. Schools (Provincial and Local Education Departments, Ministry of Education Guidance, School District Representatives) 5.16. Schools—under the supervision of provincial and local education departments, with MOE guidance, and with support from school district representatives—should focus on the following priority actions: 1. Incorporating energy efficiency measures in school renovation programs in northern regions involving heating or building improvement, especially in rural areas. Such projects could be promoted by introducing a widely applicable appraisal method for school renovation proposals to identify energy efficiency and renewable energy opportunities. Although a portion of the costs will still need to be covered with government funds, big improvements in heating service levels can be achieved with a large portion of costs covered by savings in fuel costs. EPC mechanisms could be applied, perhaps using project bundling arrangements (see below). 2. Designing energy efficiency project design templates to be used in situations where school buildings are fairly similar and need similar energy efficiency retrofits. This can lower implementation costs. Within a school district, several typical schools could be audited and various generic energy saving projects sketched out (for example, automatic control of heating systems, windows replacement, or improved lighting). Projects for a larger number of schools could then be put together, based on templates completed by participating schools, possibly on an EPC basis. 113 China: Improving Energy Efficiency in Public Institutions 3. Incorporating energy efficiency activities and education into a wide range of educational curricula. This can bring high value added. Awards programs for the best no- and low-cost energy-efficiency innovations and results could be considered within school districts, similar to those described above for universities. In schools in particular there can be significant spill-over effects from school energy efficiency retrofit projects, despite their relatively low payback and high transaction costs, which should be taken into consideration. The combination of introducing lessons and other pedagogical approaches during the school day (perhaps also special events) about measures taken at the school and the visible benefits of a better functioning and more comfortable facility, raise an awareness of the benefits of energy efficient lifestyles not only among students but also among teachers and parents. Hospitals (Ministry of Health, Provincial Health Departments, Hospital Representatives and Associations) 5.17. In addition, priority actions to be implemented in hospitals under the supervision and guidance of the Ministry of Health and provincial health departments, and with support from hospital associations and representatives, include the following: 1. Implementing state-of-the-art metering pilots in a number of hospitals. This can provide data needed for subsequent sophisticated energy audits and assessment of performance over time. 2. Undertaking energy audits for a number of hospitals, covering their relatively complex facilities in sufficient depth, followed by the development of site-specific energy projects and energy management initiatives. Completion of high-quality diagnostic efforts in several complex facilities, and their dissemination, could provide guidance to many others in methodologies and technical options. 3. Considering the creation of a “Hospital Energy Efficiency Network” or possibly a “Green Hospital Network,” similar to that recommended for universities above, with support from the Ministry of Health. In addition to the benefits of experience exchanges and sensitizing leaders, managers, staff and users to energy efficiency issues, such networks streamline information channels that can be helpful for service and equipment providers to channel information about best-in-class, energy efficient health care equipment, and hospital building energy management best practices. 4. Preparing and disseminating case studies of successful EPC projects. Case studies could include information on the technical scenarios supported (including, for example, solutions for cogeneration, demand-based control of heating, cooling and ventilation systems, and building automation systems), as well as contracting aspects, and lessons learned about implementing comprehensive energy efficiency retrofit projects (see also Box 4.5). 114 References References American Council for an Energy-Efficient Economy (ACEEE). 2010. “The 2010 State Energy Efficiency Scorecard.” By M. Molina, M. Neubauer, M. Sciortino, S. 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Energy Sector Management Assistance Program. http://www. esmap.org/esmap/node/1251. (Accessed August, 2011) Hopper, Nicole, Charles Goldman, Jennifer McWilliams, Dave Birr, and Kate McMordie Stoughton. 2005. "Public and Institutional Markets for ESCO Services: Comparing Programs, Practices and Performance." Lawrence Berkeley National Laboratory - Environmental Energy Technologies Division. http://eetd.lbl.gov/ea/ems/reports/55002.pdf. (Accessed August, 2011) IPMVP Public Library of Documents. "Concepts and Options for Determining Energy and Water Savings - Volume I." Efficiency Valuation Organization (EVO). http://www.evo-world.org/ index.php?option=com_content&view=article&id=272&Itemid=504&lang=en. (Accessed August, 2011) Ries, Charles P., Joseph Jenkins, Oliver Wise. 2009. Improving the Energy Performance of Buildings - Learning from the European Union and Australia. Rand Corporation Technical Report 728. http://www.rand.org/content/dam/rand/pubs/technical_reports/2009/RAND_ TR728.pdf (Accessed August, 2011) Singh, Jas, Dilip R. Limaye, Brian Henderson, and Xiaoyu Shi. 2010. "Public Procurement of Energy Efficiency Services - Lessons from International Experience." Energy Sector Management Assistance Program. http://www.esmap.org/esmap/sites/esmap.org/files/ P112187_GBL_Public Procurement of Energy Efficiency Services_Lessons from International Experience_Singh.pdf. (Accessed August, 2011) Sun, Xiaoliang, Zhu Lin, and Robert P. Taylor. 2011. “China’s ESCO Industry 2010: Saving more Energy Everyday through the Market.” Unpublished report, May 2011, available from EMCA, http://www.emca.cn U.S. Environmental Protection Agency, State and Local Climate and Energy Program. "Energy Efficiency in Local Government Facilities and Operations." http://www.epa.gov/ statelocalclimate/documents/pdf/ee_municipal_operations.pdf. (Accessed August, 2011) 127 China: Improving Energy Efficiency in Public Institutions Appendix B: Additional Information Related to Chapter 3 Box B.1: A Comprehensive Framework for Sustainable Energy Use in U.S. Federal Government Facilities The US Federal Government spends $300 billion annually on goods and services, of which $17 billion is for energy for a total of 1.6 quadrillion (quads) Btu (primary energy), equivalent to 57.6 million tce, and 1.1 quads Btu (39.6 million tce) of delivered energy of which 33% is consumed in “goal”145 buildings. The federal government occupies about three billion square feet (280 million square meters) of space in more than 500,000 buildings, about 370 million square feet of space of which is in leased space. The most recent energy acts and executive orders—EO 3423 and Energy Independence and Security Act (EISA) of 2007 and EO 13514 of 2009—establish a comprehensive framework for planning, implementing and tracking improvements in performance of sustainable energy use in federal facilities. Only minimal budgets are appropriated specifically for implementation of this program; instead, federal agencies are supposed to use direct appropriations, incentives, rebates, retention of funds and alternative financing, either energy savings performance contracts (ESPCs) or utility energy services contracts (UESCs). Targets: • Reduce buildings energy use 3% annually and 30% total by end 2015 (relative to 2003) – for all agencies; agency-specific GHG reduction targets (2008-2020) (plus many more on renewable energy use, water efficiency and fleet energy improvements) • New buildings to be 30% more efficient than current code and achieve net-zero- energy building requirement by 2030 • Increase use of renewable energy to not less than 5% of electricity use in 2010 – 2012 and not less than 7.5% in 2013 and thereafter, at least half from new sources each year, and implement renewables on agency property for agency use as feasible • All buildings to be metered—for electricity by 2012 and for natural gas and steam by 2016 Requirements: • GSA to lease space in buildings that are top EnergyStar achievers146 starting end 2010; • Federal agencies to directly negotiate cost-effective energy efficiency improvements to their space with the landlord; • Each Federal agency to designate an energy manager responsible for implementing the statutory requirements and reducing energy at each covered facility; • Identify those facilities (referred to as "covered facilities") that constitute at least 75% of the total facility energy use for the agency; • For each covered facility perform a comprehensive energy and water audit every four years and report total potential energy and water savings and types of measures; • Implement identified efficiency measures that are life-cycle cost-effective; 145.“Goal” buildings: subject to the energy use reduction requirements specified under federal targets; compare para 3.7. 146.Compare Box 3.5. 128 Appendix • Input covered facilities’ energy use, evaluations, projects and follow-up into a web- based tracking system; • Enter energy use data for each metered building into a benchmarking system, such as the ENERGY STAR® Portfolio Manager. Accountability: • Each agency to designate a senior management official to serve as Senior Sustainability Officer, accountable for agency compliance and performance; • Scorecards: Summaries of agency implementation status to be reported twice per year to the Office of Management and Budget (OMB) and published as scorecards (see Figure 3.2) Results in federal government buildings, FY2007: • Consumption of 353 trillion Btu in “goal” buildings, 29% less than 1985 (delivered energy) • Energy costs in “goal” buildings of $5.8 billion in FY2007 • From 2003 to 2006/07 energy efficiency investments of $2.8 billion, roughly half was from direct appropriations, $1 billion from ESPCs and almost $0.5 billion from UESCs (see Figure 3.4) • From 1985 to 2006/07, $6.3 billion were invested in energy efficiency improvements with estimated savings of $5-8 billion, of which $1-2 billion from ESPCMetering: 11 federal agencies have all of their buildings metered for electricity use with at least standard electricity meters. EPA and HUD (Housing and Urban Development) completed advanced metering in 100 percent of their buildings in 2007. Sources: FEMP, see: http://www1.eere.energy.gov/femp/regulations/requirements_by_reg.html; FEMP 2010 http://www1.eere.energy.gov/femp/pdfs/annrep07.pdf; and http://www.naesco.org/events/meetings/federal/2007/ presentations/Cynthia_Vallina.pdf). Table B.1: Examples for U.S. State* and Local** Government Energy Efficiency Targets State/ local Targeted Targets Source government entities (State) State Reduce energy consumption in 2011/12 by Executive Order Colorado agencies 20% compared to 2005/06 D0011-07, April 16, 2007 (i) decrease GHG emissions 10% by 2012, 25% by 2017, and 40% by 2025 (compared State Executive State to 2007 levels) Order 07- Florida agencies and 126, enacted departments (ii) increase the energy efficiency of state 7/13/2007 buildings. 129 China: Improving Energy Efficiency in Public Institutions State/ local Targeted Targets Source government entities State agencies are required to evaluate the energy efficiency of all existing public buildings (>5,000 square feet or use more than 8,000 kWh annually) by end 2010. Opportunities for increased energy efficiency must be identified by setting energy benchmarks for these buildings using State House Bill State ENERGY STAR Portfolio Manager. Buildings Hawaii 1464, enacted agencies have to be retro-commissioned every five June 2009 years. Results: During FY2009, total state agency electric consumption dropped 5.8% from 2008 and 2.5% from the baseline year of 2005. 2009 reduced consumption is estimated to generate savings of $10 million (Source: ACEEE 2010) Reduce overall energy consumption at state- owned and state-leased buildings by 20% State Executive State by FY 2012 and 35% by FY 2020 (FY 2004 Order 484 government baseline). Reduce state government unadjusted (“Leading buildings GHG emissions 25% by FY 2012, 40% by FY by Example: Massa- 2020, and 80% by 2050 (FY 2002 baseline). under Clean Energy chusetts control of Agencies shall also adopt specific energy and Efficient the executive efficiency measures (e.g. use of programmable Buildings”), office thermostats and the use of motion sensors enacted or timing devices in rooms used only 4/18/2007 intermittently). State agencies, including all public- benefit State Executive Reduce energy consumption by 35% from corporations Order 111, New York 1990 levels by 2010 in buildings that are and public enacted owned/leased/ operated authorities 6/10/2001 whose heads are appointed by the Governor State facilities, Department of Administration to set energy State Executive office efficiency goals that reduce the overall energy Order 145, Wisconsin buildings, use per square foot by 10% by 2008 and enacted complexes 20% by 2010 (FY 2005 baseline, adjusted for 4/11/2006 and weather) campuses 130 Appendix State/ local Targeted Targets Source government entities School districts and certain institutions of State higher education and executive branch state House Bill and local agencies to establish goals of reducing their Texas 3693, signed government annual electricity consumption by 5% for each 6/15/2007 entities of six state fiscal years beginning September 1, 2007 Reduce energy consumption per square foot Fort Wayne, Local Executive Order in local government facilities by 10% by 2010 Indiana Government 2007** and 35% by 2015 (2003 baseline) *The website of the National Conference of State Legislatures Green Building and Energy Efficiency Requirements for Public Buildings, http://www.ncsl.org/default.aspx?tabid=12987, provides a list of the 38 states that have legislation concerning energy efficiency in state-funded building construction, including student housing, as of May 2011. **EPA has published a guidebook Energy Efficiency in Local Government Operations with many examples and case studies on various aspects of designing and implementing an energy efficiency policy at the local level; http://www.epa. gov/statelocalclimate/documents/pdf/ee_municipal_operations.pdf. Box B.2: Examples of State-wide Targets for Public Buildings in Germany Baden-Wuerttemberg. Reduce state-wide CO2 emissions by 30% until 2020 and 80% until 2050 (compared to 1990). The 2020 target is in line with the 40% reduction goal for Germany as a whole (see Box. 3.1). State-owned buildings use slightly more than 2000 GWh energy in 2008; related CO 2 emissions were 25% lower than in 1990. More than 90% of those buildings were built before 1995. CO2 emissions are targeted to be reduced by 35% in 2020 and 43% in 2030 (compared to 1990), with the state and the private sector providing financing of energy-efficient retrofits and of renewable energy to achieve those goals. Alternative financing, particularly EPC, is expected to play a large role. Information and training of staff is another measure. The state will also support municipalities and schools in drawing up climate concepts, including assignment of responsibilities and development of time-bound action plans. Berlin. The Energy Concept 2020 targets a reduction of overall CO2 emissions by 40% by 2020 and 85% by 2050 (1990 baseline). The public sector is expected to reduce energy consumption by 20% by 2020 and CO 2 emissions by 37%, based on increased use of renewable energy and decentralized cogeneration. Data of federal, state and district-owned buildings are still incomplete (square meters, energy consumption and facility status), but the short-term goal is to complete these and collect them in a publicly accessible electronic data-bank. This would be the basis for city-wide improved energy management. In the mid-term, it is considered to require public building owners to check whether EPC is feasible and to extend the existing EPC (see Box 4.4) to include building shell measures (ESPplus). Sources: Baden-Wuerttemberg Klimaschutzkonzept 2020PLUS, http://www.um.baden-wuerttemberg.de/servlet/ is/76162/Klimaschutzkonzept_2020PLUS.pdf?command=downloadContent&filename=Klimaschutzkonzept_ 2020PLUS.pdf; Berlin Energiekonzept 2020, http://www.berlin.de/imperia/md/content/sen-wirtschaft/energie/ energiekonzept.pdf?start&ts=1302593601&file=energiekonzept.pdf. 131 China: Improving Energy Efficiency in Public Institutions Table B.2: Information Tools and Networking Resources for the Municipal, University, School and Hospital Sectors For the building sector in general, Energy Star, a joint program of the U.S. EPA and the U.S. DOE, provides information resources on energy management strategy, a benchmarking and energy performance rating system and an annual recognition147 of top performing buildings. A dedicated buildings webpage provides general and specific information for various subsectors, including government, higher education, schools, and hospitals https://www.energystar.gov/ index.cfm?c=business.bus_index) IT-Toolkit on Energy Efficient Retrofit Measures for Government Buildings (EnERGo) An electronic tool assisting in the decision-making process of energy retrofits of public buildings was developed within the framework of the IEA Annex 46. It is based on the experiences and best practices in the United States, Canada, Finland, Denmark, and Germany and comprises ten different tools for consulting, assessment and information, namely: 1. The assessment of the energy consumption of a specified public building compared to a building with an average national energy requirement (to be selected from almost 20 different types of buildings) 2. An electronic protocol for the detailed collection of building data of an existing building 3. A checklist for the correct operation of technical building systems 4. An energy audit protocol including auxiliary programs 5. More than 70 examples of model building retrofits 6. Descriptions and statistics of various retrofit measures, including building envelope, heating, ventilation and cooling systems, lighting, domestic appliances etc as well as operational and management-related influences 7. A calculation tool based on German standard DIN V 18599 to evaluate the actual condition of buildings and a variety of possible energy retrofit measures 8. A guideline for projects carried out under Public-Private Partnerships (PPPs) EPC: Renovation measures are financed with private funding and investment costs are repaid from the energy savings. 9. A calculation spreadsheet for the financial evaluation of PPP- or EPC-projects 10. Exemplary PPP- or EPC-retrofitting projects Available for download at: http://www.annex46.de/tool_e.html 147.“The EPA provides a variety of opportunities for external recognition. Individual buildings that perform in the top quartile are eligible for the ENERGY STAR label (www.energystar.gov/index.cfm?c=business.bus_bldgs). Organizations that partner with ENERGY STAR and achieve a 10 percent energy reduction across their portfolio can earn recognition as ENERGY STAR Leaders (www.energystar.gov/index. cfm?c=leaders.bus_leaders ). In addition, ENERGY STAR Partners may apply to be recognized as an ENERGY STAR Partner of the Year based on their accomplishments across an entire organization (www.energystar.gov/index.cfm?c=pt_awards.pt_es_awards).” 132 Appendix Hospitals Healthcare Energy Guidebook Results of the Healthcare Energy Project, November 2001 through December 2003 American Society for Healthcare Engineering (ASHE) of the American Hospital Association, 2004. http://www.ashe.org/e2c/resources.html The guidebook “profiles the U.S. healthcare market on size and energy-related characteristics and provides energy benchmarking data that can be used to make meaningful comparisons between healthcare facilities. The intent of the guidebook is to provide assessment of practices, methodologies, and technologies being applied for the purpose of improving energy efficiency in hospitals. This guidebook will enable managers to gain a better understanding of the key characteristics of healthcare facilities that have lower energy usage and those that have higher energy usage. Managers can also look at practices that seem to make little or no difference.” The e2c website also provides case studies—organized by climate zone, annual recognition of outstanding hospitals, and so on. An example of the benefits of introducing energy management, assigning an energy manager, communicating success to staff, and so on, in a large corporate group of hospitals in the US is described in http://www.energystar.gov/index.cfm?c=healthcare.bus_healthcare_providence_ health Universities/Colleges The Association of Higher Education Facilities Officers (APPA) provides information, training, and research on four core areas of competency, including energy, utilities and environmental stewardship. It also offers credentialing and certification programs; see http:// www.appa.org/FourCore/index.cfm The American Colleges and Universities Presidents’ Climate Commitment (ACUPCC) has partnered with the Clinton Climate Initiative (CCI) to exponentially increase the number of large-scale energy saving projects on campuses. ACUPCC signatories are able to take advantage of the benefits of CCI’s Energy Efficiency Building Retrofit Program (EEBRP), including pro bono energy efficiency master planning and project support and access to CCI’s established relationships with leaders in the building energy efficiency industry, including financial firms, project contractors and implementers and manufacturers of energy efficient building technologies. The ACUPCC and CCI have created a best practices toolkit as a resource for signatories interested in learning about and carrying out EPC. Source: http:// www.presidentsclimatecommitment.org/resources/eebrp. Schools National Energy Education Development project: http://www.need.org/. It provides resources for teachers and students Office buildings Building Owners and Managers Association (BOMA): Provides training, resources, awards; links to the GSA sustainability webpage; http://www.boma.org/EverGreen/Pages/default.aspx. In 2010, BOMA received an Energy Star Award. 133 China: Improving Energy Efficiency in Public Institutions The International Facility Management Association (IFMA) provides information, training, and certification of sustainability facility professionals; see http://www.ifma.org/ sustainability/. State and Local Governments Energy Services Coalition (http://www.energyservicescoalition.org/) is a national nonprofit organization composed of a network of experts from a wide range of organizations working together at the state and local level to increase energy efficiency and building upgrades through energy savings performance contracting. It provides a wide range of resources, especially to state and local officials and experts, among others best practice examples, but also training and model documentation. ICLEI-Local Governments for Sustainability (http://www.iclei.org) is an association of over 1200 local government members, committed to sustainable development. Members come from 70 different countries, representing more than 569 million people. Shenyang is the only member so far from China. ICLEI provides networking, training and information resources, including a municipal clean energy toolkit; http://www.icleiusa.org/action-center/tools/ municipal-clean-energy-toolkit/energy-efficiency Energy Cities is the European Association of local authorities inventing their energy future. It was created in 1990 and represents now more than 1,000 towns and cities in 30 countries. It enables the exchange of experiences, the transfer of know-how and the implementation of joint projects; http://www.energy-cities.eu/spip.php?page=index_en The Covenant of Mayors is a movement involving local and regional authorities in EU member states, committed to go beyond the EU’s energy and climate goals and curb their CO2 emissions by at least 20% by 2020 through energy efficiency and renewable energy actions. It has 2665 signatories, representing almost 130 million inhabitants. Covenant signatories undertake to prepare a baseline emission inventory and submit a sustainable energy action plan outlining the key actions they plan to undertake. They can receive promotional, technical and administrative assistance, tools and methodologies. http://www.eumayors.eu/about/ covenant-of-mayors_en.html More than 1.600 cities, municipalities and districts in 17 European countries are members of the Climate Alliance of European Cities with Indigenous Rainforest Peoples, a network of local authorities committed to the protection of the world's climate. Member cities and municipalities aim to reduce greenhouse gas emissions at their source, committing to reduce CO2 emissions by 10% every five years and to halve per capita emissions by 2030 at the latest (from 1990 baseline). The Climate Alliance also runs the Covenant helpdesk of the Covenant of Mayors, facilitating the process of local authorities to join the Covenant, and develops methodological tools. http://www.climatealliance.org/ 134 Appendix Table B.3: Examples of Guidance Materials on Operation of Key Energy-using Equipment • Implementing power management in offices - New York Energy $martSM Offices Project, http://www.nyserda.ny.gov/Publications/NYE$-Program-Reports.aspx. • HVAC Conservation tips and other; http://www.boma.org/Resources/TheGREEN/ EnergyResources/Pages/HVACConservationTips.aspx. • Energy Efficiency Retro-commissioning. Retro-commissioning is the systematic process of verifying that all building systems perform interactively according to design intent, that they meet the operational needs of the owners and occupants, and that staff responsible for operation and maintenance are sufficiently trained. The goal of this service is to improve system performance, operation and maintenance, energy efficiency, occupant comfort, and indoor environmental quality of facilities and equipment that have been in use for some time, for example, at least one year in NYSERDA’s FlexTech Program. Retro-commissioning does not include replacement of significant HVAC or other building components, but rather focuses on the verification and identification of proper control strategies, sequence of operations, operations and maintenance plans, and other building or system optimization strategies. http://www.nyserda.org. • Improve performance of existing boiler/heating system: e.g., http://www.aceee.org/ consumer/heating - improve. • Inspection of Boilers and Air Conditioning. Articles 8 and 9 of the EU’s EPBD require establishment of a system to inspect hot-water boilers used for heating. Member States are permitted to set the inspection interval for 20- to 100-kW boilers. For boilers larger than 100 kW, inspection must be done every other year (every four years for gas boilers). The directive also mandates “one-off” inspections of the whole heating system for boilers larger than 20 kW and more than 15 years old. The EPBD provides EU member states the option to forgo an inspection scheme in favor of a public education and awareness effort that offers advice to building owners about the importance of proper and regular maintenance of boilers and the benefits of ensuring proper boiler size. Member states have been split on their choices. Finland, for example, chose a national information campaign for boiler replacement after determining that the expected savings from inspections was only €7 per year for each system, while the expected cost of an inspection was €50 to €100. The Dutch found evidence that periodic inspections resulted in energy savings of 5-35 percent. Another option some countries have chosen is an inspection program for boilers larger than 100 kW and an information campaign for smaller boilers, which have smaller returns on investment. The inspection of air-conditioning systems larger than 12 kW is also mandated by Article 9. The inspection is intended to verify the operating efficiency of a system and to check that it is appropriately sized for the space it is servicing (see Ries et al. 2009, based on information from Antinucci 2008; http://www.epbd-ca.org/Medias/Pdf/CA_ Annex_2_Inspections.pdf). 135 China: Improving Energy Efficiency in Public Institutions Appendix C: Energy Efficiency Initiatives in the Hospital Sector in Germany Information about the German program to certify energy saving hospitals Germany has about 2000 hospitals with a total of about 500,000 beds. Approximately 35% are hospitals in public ownership, 38% in the ownership of non-profit organizations (churches etc) and 27% in private ownership. The number of hospitals is going down (7.5% between 1999 and 2009), in part due to bankruptcies. (Source: Statistisches Bundesamt). The hospital financing system is a dual system, whereby investments are financed by the relevant State (for those hospitals that are included in the state hospital plan) and operating costs are financed by health insurers (fixed amount per patient, based on diagnosis). Public funding for investments is scarce (the investment bottleneck is estimated at €12.6 billion; Source: Krankenhaus Rating Report 2010), and hospitals are more and more relying on credit financing. In German hospitals, total annual costs are about €70 billion, 60% of which are personnel costs, and energy and water costs amount to about €0.5 billion. Energy alone has a cost share of 2-3 percent on average, 8-9 percent if personnel costs are excluded. (Source: Leittretter, S. (ed) 2004: Energieeffizientes Krankenhaus – für Klimaschutz und Kostensenkung. www.boeckler.de/pdf/p_ edition_hbs_154.pdf). The energy savings potential in the German hospital sector is substantial: Annual energy cost savings are estimated at €600 million and the annual CO2 reduction at 6 million tons (Source: http:// www.energiesparendes-krankenhaus.de/). Table C.1: Benchmarking Hospitals in Germany (VDI 3807) Heating Electricity Mean (or Mean value Mean (or Mean value Number of beds and Sample size median) of lowest median) of lowest type of care value quartile value quartile Number kWh/gross square meter 0-250, basic care 102 24 14 4.4 2.7 251-450, regular care 76 20 14 5.5 3.8 451-650, central care 46 26 17 6.4 4.0 651-1000, maximum 27 26 19 6.5 3.0 care > 1000 31 37 22 14 4.0 Source: Klimaschutz- und Energieagentur Baden-Württemberg GmbH http://www.kea-bw.de/fileadmin/user_upload/pdf/ kem-leitfaden/Energiekennwerte.pdf. 136 Appendix Hospitals are in general good targets for EPC since they have very substantial energy consumption and have incentives to reduce energy costs to reduce overall operating cost without a threat of having their overall budget cut accordingly. Furthermore, EPC contributes to financing older hospital infrastructure which is difficult to finance otherwise (see Bremerhaven experience in Box 4.5). Typically, EPC measures in hospitals are quite comprehensive, covering HVAC, lighting, energy management systems etc. The technical director of the Bremerhaven Hospital (see Box 4.5) is very sceptical of hospital energy benchmarking, since hospitals are very diverse, e.g. regarding outsourcing of various services and implications for energy consumption, or type of building (for example, compact, high- rise buildings requiring substantially more energy for ventilation than spread-out buildings). 30 hospitals received the certification „Energie-saving Hospital“ since 2001 (http://www. energiesparendes-krankenhaus.de/). Certification is valid for 5 years and requires fulfilling two of the following four criteria: • CO2 reduction of at least 25% over five years • Continuous reduction of energy consumption, and consumption is below average benchmark value of comparable hospitals • Long-term optimal energy consumption, and consumption is below the lower quartile benchmark value of comparable hospitals • Facility carries out energy management. One third of the 30 certified hospitals use EPC to achieve savings; in these cases financing is provided mostly by the contractors. In the other cases, investment financing is from own/public funds, with some grants for specific measures such as investment in biomass boilers, or solar- thermal or solar-electric equipment. Typically a wide range of measures is installed, necessary to achieve the criteria. Among the typical measures are decentralized CHP units, solar PV, improvements to ventilation and air conditioning systems, steam, hot water, and compressed air production, heat and steam distribution, use of variable speed pumps, thermal insulation including energy efficient windows, daylighting and energy efficient lighting, energy management system incl. building automation system. The soft measures include training of maintenance personnel, user motivation and similar. Results of the certification program: • Annual savings of more than 32,000 MWh/a electricity and more than 110,000 MWh/a heat, equivalent to electricity consumed by about 20,000 persons in Germany and heat consumed for 910,000 square meters annually • More than 55,000 t CO2 reduction annually 137 China: Improving Energy Efficiency in Public Institutions • Cost reduction in hospitals: o 100,000 Euro - 2,1 million Euro annually o in total €7 million annually Source: A. Dickhoff (2010). Vorstellung der BUND-Auszeichnung für den Klimaschutz im Krankenhaus. Bund für Umwelt und Naturschutz Deutschland (BUND) e.V. Berlin, 13. Dezember 2010 (see http://www.greenit-bb.de/assets/files/GreenIt_ RZ_BM_NEST_13_12_10.pdf). 138 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: (202) 473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org