Definitions

Implementation Model - The implementation model is the method by which the projects are technically and operationally implemented in the field, most often by using contractors or subcontractors. Typical implementation models are Energy Performance Contracting, Energy Supply Contracting and Separate Contractor Based.

• Energy Performance Contracting (EPC)  is a method to implement energy efficiency projects, by which an ESCO (Energy Services Company) acts as a unique contractor and assures all of the steps of a project, from audit through installation up to operations and maintenance. Under an EPC arrangement ESCO implements a project to deliver energy efficiency, or a renewable energy project, and uses the stream of income from the cost savings, or the renewable energy produced, to repay the costs of the project, including the costs of the investment. 
• Energy Supply Contracting  is a method to implement local energy production projects, by which an ESCO (Energy Services Company) acts as unique contractor and by which « useful » energy (e.g. heat, cold, steam, electricity) is delivered to the customer at a contractually agreed price per kWh.
• Separate Contracting Based is a method to implement multi-technique energy efficiency projects, by which each step of the process is dealt with by a separate party (energy auditor, engineering company, installer or contractor, maintenance company) and by which individual projects (e.g. boiler replacement, relighting, isolation, etc.) are executed by separate contractors for each technique. This method is typically time consuming and requires a project coordinator to manage the process of getting all of the individual projects executed in a timely manner. For a public authority to use this method requires separate public tenders for each individual projects. The method is therefore relatively resource intensive. It can be useful to have a Program Delivery Unit or other organization to act as an “integrator” of this method to ensure an end-to-end delivery of the energy efficiency program and provide a consistent level of service from the different contractors.

   

Operating services

• Marketing covers the commercialization of the services of energy efficiency to the beneficiaries. This covers the whole range of communication and commercial development services that are necessary to inform the beneficiaries of the types of offerings that are available to them. It also covers the pricing policy and product/services development.
• Aggregation means that the Program Delivery Unit (PDU) bundles the projects of multiple “internal” customers by acting on behalf of them and by making them available to the market. A more advanced form of aggregation includes the bundling or pooling of buildings of various internal customers into one single project to increase the size of the project. Aggregation is done to create economies of scale both operationally and financially.
• Facilitation means that the Program Delivery Unit (PDU) does not sign the contract with the beneficiary, but coordinates or “facilitates” the whole process of project delivery on behalf of the beneficiary. The contracts are signed directly between the beneficiary and the contractors.
• Integration means that the Programme Delivery Unit acts as an intermediary between the beneficiary on one hand and the contractors or subcontractors on the other hand. This means that the contract for the delivery of the energy efficiency is signed between the integrator and the beneficiary and that the integrator signs contracts with the (sub)contractors.
• Financial Advisory means that the Programme Delivery Unit provides guidance and consultancy to the beneficiary on available funding for his project. This may include financial engineering and assistance in the negotiation of the best available financing or even arrange for the financing to be put in place. This can also include help in obtaining grants or technical assistance subsidies.
• Financing means that the Programme Delivery Unit will itself provide financing, either through an own fund or by packaging external financing solutions into an integrated financing service. In this case the PDU takes on the financial risk of the project. This option is typically used where a dedicated fund is created as part of the energy efficiency program.
• Assessment is the role by which the Programme Delivery Unit evaluates the technical and financial viability of an energy efficiency project and decides whether or not the project gets implemented and/or financed. The PDU will typically use a number of criteria to judge whether the project is acceptable or not.

Funding vehicles

• Energy Services Company (ESCO) is a business providing a broad range of energy solutions including designs and implementation of energy savings projects, retrofitting, energy conservation, energy infrastructure outsourcing, power generation and energy supply, and risk management.
• Utility Fund invests primarily in the securities (equity, bonds,…) of gas, water and electric companies (utility companies) that supply water and power to cities and municipalities. They may also invest in firms that supply equipment or services for utility companies.

Financial Instruments  is the financing technique that is being used to fund the projects. It can be equity, loans, grants, bonds (public or private), operational leasing, utility incentives (green or white certificates), on bill or on tax financing, EPC or ESC financing, MESA financing and/or a risk sharing facility.

• Equity is mostly used when referring to an ownership interest in a business, especially when considered as the right to share in future profits or in appreciation in value of the business. Is also used to indicate funds contributed by the owners or stockholders of a business compared to funds borrowed from third parties (e.g. banks, investment funds,…).
• Bonds are debt investments in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are issued by companies, municipalities, states and sovereign governments to raise money and finance their projects and activities.
• Utility incentives are federal, state, and local subsidies, which have been allocated to specific energy conservation programs (efforts directed toward electrical, water, and gas efficiency). White certificates are a typical example of a utility incentive.
• EPC financing is a financial instrument in which an ESCO finances an energy efficiency project through an Energy Performance Contracting (EPC) model and by which the initial investment is partially or totally reimbursed from the guaranteed energy savings.
• ESC financing is a financial instrument in which an ESCO finances a local energy production project through an Energy Supply Contracting (ESC) model and by which the price of the delivered usefull energy is composed of 2 components: a fixed fee that corresponds to the reimbursement of the initial hard ware investment by the ESCO and a variable fee that depends on the price of the fuel that is being used and delivered by the ESCO.
• Risk sharing facility is an agreement between guarantors and lending institutions designed to share with the lending institutions some of the risk of loss associated with the lending institutions’ extension of credit to borrowers. A Risk sharing facility typically reimburses a lending institution for a fixed percentage of incurred losses that exceed a predefined threshold (also called a first loss). Risk sharing facilities are often offered to lending institutions requiring credit risk protection but not funding.

Scalability of the Model is a qualitative measure for whether the model can be more or less scaled-up, with or without having to increase accordingly the amount of financial or human resources.

Increase in public debt and debt deconsolidation - The impact on public sheet is a measure for whether the financing solutions that are implemented in the model generate more or less increase in public debt and allow or not public debt deconsolidation. This refers to ESA (European System of National and Regional Accounts) neutrality.

For further definitions, please refer to the CITYnvest glossary.