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Energy Service Companies
At the heart of innovative financing models for efficiency
Energy service companies (ESCOs) deliver energy efficiency projects that are financed based on energy savings. Given the need to rapidly and significantly increase financing for energy efficiency, interest in ESCO business models is growing.
In Bulgaria there is large energy efficiency potential. However, the ESCO market is at an initial stage of development and is limited mainly to the public buildings. There are about 15 ESCOs capable of executing an EPC. The typical project duration is five to eight years and average project size is 0.3-0.5 million EUR (Transparense 2013).
Average duration of ESCO projects in Bulgaria:
Less than 5 years: 50%
5-10 years: 38%
11-15 years: 12%
Survey Data The Bulgarian Energy Efficiency and Renewable Fund (EERSF) was established through the Energy Efficiency Act in 2004.
This fund was created using grants from; the Global Environment Facility through IBRD (the World Bank) - USD 10 million; the Government of Austria - Euro 1.5 million; the Government of Bulgaria - Euro 1.5 million and several private Bulgarian companies.
The fund is a public-private partnership with independent management and self-sustaining capacity (EERSF, 2013).
Few banks finance EPC and the financing conditions are unfavourable. One of the reasons for this problem is the high amount of required financing – typically from several hundreds of thousands to several million euro. Banks are not prepared to accept repayment of financing via EPC energy savings. This means that only ESCOs able to provide substantial collateral have the capability to raise finance.
The Government institutions that exert influence on the development of the ESCO market in Bulgaria are:
Ministry of Energy (ME) – responsible for the development of the national energy policy, including energy services
Sustainable Energy Development Agency (SEDA) – an executive agency to the Minister of Energy, responsible for the implementation of the national policy in the field of renewable energy, energy end-use efficiency, and energy services.
Ministry of Regional Development and Public Works (MRDPW) – sets the requirements for the energy performance of new and refurbished buildings Other national authorities, local and regional authorities – they play the roles of both policy makers in their domain/territory and owners of facilities (buildings and street lighting systems).
The Energy Efficiency Act (promulgated SG No. 98/14.11.2008 and amended in 2015) is the main legislation regulating the provision of energy services, setting the main provisions about the process of energy service to energy end-users (Ministry of Economy and Energy, 2014).
Public Procurement Act and the Law on Municipal Debt
Law on Municipal Debt (Art. 17b), Art. 32, P.1 of the Law on Public Finances (P. 12 of the Transitional provision of the Law on Municipal Debt), based on which municipalities may undertake new debt under EPCs every budgetary year up to 15% of their average annual capital expenditure for the last 4 years.
The Energy Efficiency Law was also amended so that EPC projects can be signed for up to 10 years, instead of the 5 years before, and this may be further extended.
The methods for the assessment of energy savings from energy services are set out under Article 9(2) of the Energy Efficiency Act and the conditions and procedure for the establishment and payment of the funds planned under EPCs are outlined in the Regulation No RD-16-347 of 2 April 2009.
The QualitEE survey has collected data surrounding the main drivers and barriers of business for ESCOs in Bulgaria. This is an excellent opportunity to compare the structural differences of ESCO markets to identify policies or mechanisms that account for such variance. Policies can then be built to complement existing drivers and overcome identified barriers.
Barriers in Bulgaria include:
Low and unpredictable energy tariffs
Within the public sector, only building renovations are eligible for energy performance contracts.
EPC and ESCO are not eligible for public funding
The existing funds (excl. EERSF) are not open for EPC & ESCOs.
Low capacity in public sector for EPC tenders
Due to the complexity of EPC and lack of experience, it is difficult for public authorities to prepare and evaluate tenders.
Lack of information about EPC.
EPC concept is not well known in the private sector
Lack of trust in ESCOs
Potential clients (especially private) have no trust in ESCOs. Due to the lack of general knowledge about energy savings projects, clients are afraid that the contract and M&V may damage their interests.