Energy Efficiency Milan Covenant of Mayors

Program Authority:

Province of Milan

Program Delivery Unit :

Project Implementation Unit

Summary

“Energy Efficiency Milan Covenant of Mayors” is a pilot project implemented by the Province of Milan in 2009 in order to improve the energy performance of a group of public buildings in the province and to achieve significant primary energy use reductions based on the principle of Energy Performance Contracting (EPC). The programme is designed to facilitate and finance energy efficiency retrofits for mainly public school buildings located in selected small municipalities (<30.000 inhabitants) in the province of Milan and the Municipality of Milan participating in the Covenant of Mayors initiative.

The programme found its origin in a big scale energy audit programme, funded by Cariplo -a philanthropic banking foundation-, carried out between 2006 and 2008 in the region of Lombardy with the purpose to stimulate the implementation of energy efficiency measures in smaller municipalities. The foundation concluded afterwards that the energy audits programme had not resulted in a significant uptake of investments in energy efficiency, basically due to constrained budgets, reduced or absence of borrowing capacity and the lack of technical capacity to develop projects.

As a Territorial Coordinator of the Covenant of Mayors, representing many small municipalities, the province of Milan’s ambition with this programme is to meet the energy reduction targets set out by the Covenant, i.e. by 2020 reach 20% reduction in greenhouse gas emissions relative to 1990 levels (reduction of 9.000 tonnes CO2), 20% share of renewable energy generation, and 20% reduction in primary energy use relative to projections.

Besides the significant reduction of final energy consumption of the building stock of small municipalities it wants to foster a mature ESCO (Energy Services Company) market able to offer EPC with guaranteed results and increase the know-how of the municipalities in governance matters related to energy efficiencies.

Based on a joint study with the EIB a potential investment of 90M € in energy efficiency measures was identified and could be realised and to that purpose a Project Implementation Unit (PIU) was set-up in 2009. From the 90M€ the EIB was willing to make 65M € available to the ESCOs in the form of loans through an intermediary commercial bank in the region.

The PIU manages the whole implementation process of the programme, from promotion of the programme and analysis and assessment of the projects to public tendering, contract negotiation, works implementation follow up and results reporting. It acts thus as programme marketer, assessor, aggregator, facilitator and financial advisor.

As of today a total amount of 13M € of investments in energy efficiency measures have been awarded covering 98 buildings in 16 municipalities.

Though the initial investment ambition of 90M€ has not been achieved this programme has had the merit of being the first in Italy covering investments in energy efficiency measures solely based on EPC contracting on regional level. The project has upscaled the dissemination and recognition of EPC models in Italy, providing guidance to other public administrations involved in other ESCO projects.

Documents

Energy Efficiency Milan Covenant of Mayors EN [1]

Eficiencia Energética Pacto de los Alcaldes ES [2]

Енергийна ефективност в Милано BG [3]

Convention des Maires Milan FR [4]

Overview

Ownership:

Public [5]

Implementation Model:

Energy Performance Contracting (EPC) [6]

Operating Services:

Marketing [7]

Aggregation [8]

Facilitation [9]

Financial Advisory [10]

Assessment [11]

Type of Project:

Energy Efficiency (building retrofits) [12]

Ambition/Targets:

Up to 35% reduction of energy consumption [13]

Benificiaries:

Public Sector [14]

Funding Vehicle:

Financial Institutions [15]

ESCOs [16]

Financial Instruments:

EPC financing [17]

Scalability of the Model:

High [18]

Development Maturity:

Mature [19]

Financing Model

Model Description

How does it work?

The Province of Milan has chosen to implement the retrofitting programme on the principle of aggregation or pooling of the selected buildings.
The PDU plays an active role in the promotion and development of the programme. It contacts the municipalities adhering to the Covenant of Mayors to assess their disposition to participate to the programme and helps them to identify and prioritise the buildings for which energy audits will be performed.
Once the buildings have been audited, assessed and have received approval for execution the municipalities must fully mandate the Province of Milan in its capacity as Central Purchasing Body.
After joining the Central Purchasing Body the pooling of the buildings is being done. The PDU develops a feasibility study to support the municipalities through the whole process in its role as assessor, aggregator, facilitator and financial advisor. It also performs the procurement process for the selection of one or more ESCOs.
Standard procurement rules apply in the designation of an ESCO. The Province has chosen for the concession of services-type (also known as restricted procedure) of tender in two steps, pre-qualification and invitation to tender.
Once the contract is awarded a Framework EPC Agreement is being signed between the ESCO and the Province as Central Purchasing Body and an Operating Agreement is signed between the ESCO and the individual municipalities (after individual negotiations with the support of the PDU)
The selected ESCO installs the guaranteed energy efficiency measures and delivers the service during the agreed contract period.
The Province has chosen for a project financing structure based on third party financing and more specifically financing by the ESCO. The idea is that the majority of the guaranteed energy savings is being used for the reimbursement of the investment to the ESCO and that a small portion of the energy savings is being kept by the municipality as immediate savings on its budgets (shared savings).
The ESCO has the liberty to finance the investments based on its own funds or, at its discretion from a financial institution or from the funding possibilities set-up by the EIB through the local intermediary commercial bank Mediocredito Italiano (Banca Intesa SanPaolo group).
PDU was provided to the beneficiaries at no cost as a result of its 1,8M € funding by ELENA (European Local Energy Assistance run by the EIB) and the Province of Milan.

Organization and Partnerships

Province of Milan: Programme owner and political initiator, drives the programme delivery unit and supports part of the operating costs of the delivery unit.

Province of Milan Project Implementation Unit: Is the project delivery vehicle of the energy efficiency programme. It provides staff, procedures, tools and services for the program. It offers program delivery unit services such as marketing and engagement, project assessment, aggregation services, project facilitation and financial advice.

Municipalities: Are the beneficiaries of the programme if adhered to the Covenant of Mayor initiative.

ELENA (European Local Energy Assistance): Is a program funded by the European Commission’s Intelligent Energy-Europe programme and run by the EIB to support local and regional authorities to achieve 20-20-20 targets. It scales up projects and reduces transaction costs and supports project development phases and capacity building

EIB (European Investment Bank): Secured finance to the programme. Acts both as lender for the financing of investments in energy efficiency and as administrator of the ELENA programme. It committed to provide 75% or 65M € of the 90M € investment objective through local financial intermediary Mediocredito Italiano (Intesa Sanpaolo Group).

Financial institutions: Mediocredito Italiano (Intesa SanPaolo Group): Intermediary commercial bank for the EIB.

Fondazione Cariplo: Is a philanthropic banking foundation. It funded a big scale energy audit programme between 2006 and 2008 in the region of Lombardy with the purpose to stimulate the implementation of energy efficiency measures in smaller municipalities.

ESCOs: Energy Services Companies perform the work planned under the program and guarantee agreed savings to the beneficiaries.

Beneficiaries

Beneficiaries:

Municipalities in the province of Milan adhering to the Covenant of Mayors initiative

Operational Support:

Project facilitation through the Programme Delivery Unit

Financial Support:

Project facilitation costs free of charge

Program Delivery Unit

A dedicated Project Implementation Unit (PIU) is the programme delivery vehicle of the Energy Efficiency Milan Covenant of Mayors energy retrofitting programme. It is basically part of the public service structure of the Province of Milan.

The unit operates as programme marketer or promotor, assessor, aggregator, facilitator and financial advisor.

The role of the PIU is to:

promote the programme among the municipalities that have adhered to the Covenant of Mayors
analyse and assess the proposals related to potential investment projects
coordinate and control of the required energy audits and baseline assessment and standardisation
provide technical support for the implementation of the projects including follow up and supervision of the works
Provide legal and administrative support throughout the entire implementation process, including drafting and providing of required documentation related to the tender process, coordination of the tender process, and negotiations with the ESCOs and financial institutions
provide monitoring and audit related to performance and measurement and verification
disseminate findings and results and transfer of knowledge to other public authorities

The PIU is structured in different groups. The core of the PIU is its Management Board (basically consisting of the dedicated project members, mostly process managers). It is supported by a Municipalities Committee (representatives from the municipalities) and by the Support Group. The Support Group consist of members of various departments of the Province of Milan. Three other groups, the Technical Group, the Legal-Administrative Group and the Monitoring and Reporting Group are being supervised by the Management Board though most of the tasks have been outsourced to external specialists and consultants.

Since 2010 the PIU operations have been funded for a total amount of 1,8M €. Of this funding amount some 90% or 1,62M € has been provided by ELENA and some 10% or 0,18M € by the Province of Milan.

The PIU aimed at leveraging the ELENA funding amount by 46 times in delivered capital investment or a minimum of 90Mio € by 2014. In the course of the programme the leverage has been downsized to 20.

Program Delivery Unit Box

Legal Structure:

N/A

Shareholders:

N/A

Staff Requirements:

Less than 10 full time employee [20]

Operational Costs:

Less than 10 million EUR [21]

Impact on Public Balance Sheet:

Low [22]

Financial Details

Funding Mechanism

Delivery Unit Funding:

The dedicated Project Implementation Unit has been funded by ELENA (1,62M € ) and by the Province of Milan (0,18M €)

Projects Funding:

Projects are being funded by the ESCOs

Results

To date the Energy Efficiency Milan Covenant of Mayors programme has put in total three calls for tender in the market, of which two have been awarded: the first one, for an investment amount of 13M €, related to 98 buildings in 16 municipalities, the second one concerns an investment of 5,1M € and it included 38 buildings in the Municipality of Milan. The total amount of the investments are around 18M €.

On the first tender the EIB, through Mediocredito Italiano, provided 5M € funding to some members of the ESCO consortium.

The second tender, though already awarded in August 2014, has been put to hold as it has been assigned through a different procurement process.

Contacts

Province of Milano

E-Mail:

protocollo@pec.cittametropolitana.mi.it [23]

Sources

http://www.cittametropolitana.mi.it/# [24]
http://www.decumanus-fp7.eu/city-show-cases/milan/ [25]
CombinES, “Comprehensive renovation of buildings, Vital facts and selected stories”, brochure published by CombinES (www.combines-ce.eu [26]), November 2014
Coopenergy.eu, “Province of Milan, IT - ELENA funds for the refurbishment of municipal buildings”, published on www.coopenergy.eu [27] (http://coopenergy.eu/good-practice-resources [28]), not dated
Covenant of Mayors, “Energy Performance Contracting: 98 public buildings set to benefit from Covenant of Mayors project in Milan Province” available at eumayors.eu (http://www.eumayors.eu/news_en.html?id_news=396 [29])
European Investment Bank, “Province of Milan” Factsheet, available at (http://www.eib.org/projects/pipeline/2008/20080739.htm26 [30]), October 2010,
Lucia Felice, “How to finance interventions in public assets: The experience of the Province of Milan”, Published on Dailye (http://www.dailyenmoveme.com [31]), 17 July 2013
Maran Pierfrancesco, “The energy retrofit of private and public buildings. City of Milan: Energy and Climate Policies”, 5 November 2014
Micale Valerio, Deason Jeff , and Hervé-Mignucci Morgan, “Early Lessons on Introducing Energy Performance Contracts in Italy: Milan’s Energy Efficiency Program”, available at (http://climatepolicyinitiative.org/our-work/publications/ [32]), September 2014
Province of Milan, “The Province of Milan awards the first Energy Performance Contract of the Energy Efficiency Milan Covenant of Mayors project”, Press release, 7 August 2012
Province of Milan, “Energy Efficiency Milan Covenant of Mayors. Informativa in merito allo stato di
avanzamento complessivo del progetto Europeo e sviluppi anno 2014”. Informativa di giunta ATTI: 80641/9.10/2014/28, 06 May 2014
Zabot Sergio, “Energy Efficiency - Covenant of Mayors (Province of Milan, Italy)”, Public Workshop on Innovative financing for energy efficiency and renewables, 28 April 2015