List of Acronyms - Department of the Premier and Cabinetdpc.sa.gov.au/__data/assets/word_doc/0020/17066/... · Web viewList of Acronyms. ACCUAustralian ... DPTIDepartment of Planning,

Government Building Energy Efficiency Investment Program

Guidelines for cost-effective energy efficiency investments in South Australian Government buildings

2016

Administered by the Department of State Development (A743631)

Issued June 2016

Version 1.0

Guidelines for cost-effective energy efficiency investments in SA Government buildings

Table of ContentsList of Acronyms...................................................................................................................21. Background................................................................................................................32. Introduction...................................................................................................................3

2.1 Energy Performance Contracting (EPC).................................................................62.2 Facilitation Service..................................................................................................62.3 The Pre-Qualified ESCO List..................................................................................72.4 Standard Templates................................................................................................7

3. Managing Energy Efficiency Investments – Using a Project Approach.........................84. Stage One – Project Plan............................................................................................10

4.1 Project Team......................................................................................................104.2 Stakeholder Analysis and Communication Plan................................................104.3 Site Selection.....................................................................................................104.4 In-scope Project Solutions.................................................................................12

5. Stage Two – Request for Proposal (RFP)...................................................................135.1 Expression of Interest (EoI) by invitation...........................................................135.2 EoI Response....................................................................................................135.3 Request for Proposal (RFP)...............................................................................135.4 Tender Evaluation..............................................................................................14

6. Stage Three – Detailed Facility Study (DFS)..............................................................156.1 DFS Agreement.................................................................................................156.2 Commencement of DFS....................................................................................156.3 Completion of DFS.............................................................................................16

7. Stage Four – Business Case and Application for Funding..........................................167.1 Preliminary Project Costs...................................................................................177.2 Budget Evaluation..............................................................................................177.3 Evaluation Concepts..........................................................................................177.4 Financial Evaluation...........................................................................................177.5 Transaction/Contingency Costs.........................................................................197.6 Environmental, Social, Economic Evaluation.....................................................197.7 Other Considerations.........................................................................................19

8. Stage Five – Energy Performance Contract (EPC).....................................................199. Stage Six – Implementation........................................................................................20

9.1 Design Finalisation.............................................................................................209.2 Project Delivery Plan..........................................................................................20

SA Guidelines for Cost-effective Energy Efficiency Investments in Government Buildings Page 1 of 29

9.3 Project Delivery/Implementation........................................................................209.4 Commissioning..................................................................................................21

10. Stage Seven – Measurement & Verification and Reporting of Savings....................2110.1 Equipment Maintenance.................................................................................2210.2 M&V Options..................................................................................................2310.3 Baseline Adjustment.......................................................................................2310.4 Frequency of M&V..........................................................................................2310.5 Savings Guarantee.........................................................................................23

Appendix A – Example Stakeholders and Communication Plan........................................24Table A.1 Example Key Stakeholders.........................................................................24Table A.2 Example Communication Media.................................................................24Table A.3 Example Activity Log..................................................................................25

Appendix B – Measurement & Verification Options............................................................26Table B.1 Measurement and Verification Options in IPMVP.......................................26Selecting an Option.....................................................................................................26

Appendix C – Baseline Adjustment....................................................................................28Appendix D – Sensitivity Analysis Example.......................................................................29

Table D.1 NPV............................................................................................................29Table D.2 NPV............................................................................................................29

Appendix E – Budget Impact Statement Template.............................................................30

List of Acronyms

ACCU Australian Carbon Credit Unit

CNA Carbon Neutral Adelaide

CO2-e Carbon dioxide equivalent

DFS Detailed Facility Study

DPTI Department of Planning, Transport and Infrastructure

DSD Department of State Development

DTF Department of Treasury and Finance

ECM Energy Conservation Measure

EoI Expression of Interest

EPC Energy Performance Contracting

ERF Emissions Reduction Fund

ESCO Energy Services Company

GBEEI SA Government Building Energy Efficient Investment program

IPMVP International Performance Measurement and Verification Protocol

IPP SA Industry Participation Policy

M&V Measurement and Verification


PPA Power Purchase Agreements

PPP Public Private Partnership

RFP Request for Proposal

STC Small-scale Technology Certificate


1. Background

The purpose of these Guidelines is to provide a framework for developing energy efficiency investment projects in government buildings under a mandate endorsed by the Government of South Australia in November 2015. The Guidelines are based on the DTF Guidelines for the Evaluation of Public Sector Initiatives1 which form part of Treasurer’s Instruction TI-172. The Guidelines also provide a framework for Energy Performance Contracting, which is the nominated method for cost-effective energy efficiency investment in SA Government buildings.

The DTF Guidelines are targeted at projects with an investment value in excess of $1M (ex GST) and therefore beyond the expenditure limits of Department Chief Executives. This set of Guidelines is intended to assist agencies understand the process of using Energy Performance Contracting as a cost-effective way to implement energy efficiency investments that fulfil the conditions of the mandate and the requirements of the Treasurer’s Instruction TI-17. The term “agency” is used throughout this document, and refers to a statutory corporation or government department as listed on the sa.gov.au website whose energy use is included in data used for the government’s Annual Energy Efficiency Report.

The Government of South Australia thanks the state governments of Victoria and New South Wales for allowing the use of their working documents in the production of this set of Energy Efficiency Investment Guidelines and associated templates.

2. IntroductionThe Government Building Energy Efficiency Investment (GBEEI) program administered by the Department of State Development (DSD) aims to reduce Government’s energy use and operational costs by improving the energy efficiency of existing government buildings. The program, under a mandate approved by the Cabinet on 23 rd November 2015, requires that:

1. by 30 June 2016, all agencies must have identified all energy efficiency upgrade opportunities with an average simple payback of seven (7) years or less, at government-owned sites accounting for at least 30 per cent of the agency’s total energy consumption.

2. by 30 June 2017, all agencies must have identified all energy efficiency upgrade opportunities with an average simple payback of seven (7) years or less, at government-owned sites accounting for 100 per cent of the agency’s total energy consumption.

Funding is available from the Department of Treasury and Finance (DTF) to implement the identified energy efficiency upgrade opportunities that fulfil the above payback requirement subject to the final approval of the Treasurer.

The payback period of a project is the point at which accumulated annual savings have recouped the initial capital costs in full.

Savings achieved through the implementation of projects will be returned to the State’s budget until the funded amount has been repaid in full. Upon repayment of the funded capital costs, agencies can retain the ongoing energy cost savings achieved from implementing the projects.

1 http://www.treasury.sa.gov.au/public-sector-operations/compliance-and-resources/treasurers-instructions 2 Treasurer’s Instruction 17: http://www.treasury.sa.gov.au/__data/assets/pdf_file/0009/2898/ti17-guidelines-part-b.pdf


http://www.sa.gov.au/directories/government

http://www.treasury.sa.gov.au/__data/assets/pdf_file/0009/2898/ti17-guidelines-part-b.pdf

http://www.treasury.sa.gov.au/public-sector-operations/compliance-and-resources/treasurers-instructions

The processes in the GBEEI program are illustrated below in Figure 2.1 - Government Building Energy Efficiency Investment - Process and Roles.


Figure 2.1 - Government Building Energy Efficiency Investment – Process and Roles


Agencies progress priorityinvestment proposals

Opportunity 1

Opportunity 2

Opportunity 3

Agencies use DPTI pre-qualified list of energy services companies to identify investment opportunities, using template ‘Request for Proposal’ documents provided by Facilitation Service

Facilitation Service reviews and prioritises upgrade opportunities in consultation with Government Buildings Energy Group

Opportunity 2

e.g. Health

Opportunity 3

e.g. Education

Investment Business

Case

Investment Business

Case

Agencies prepare business cases using the South Australian Government’s ‘Guidelines for Cost Effective Energy Efficiency Investment in SA Government Buildings’, and template Detailed Facility Study or specification for works documents provided by Facilitation Service

$

Investments considered on merit

$

Treasurer considers Business Cases outside of annual budget process

Agencies implement projects

Treasurer approves funding for energy efficiency upgrade opportunities with simple payback of less than seven years

Facilitation Service provides template Energy Performance Contract documentation or project tender documentation including monitoring and verification requirements

2.1 Energy Performance Contracting (EPC)Energy Performance Contracting (EPC) involves engaging an Energy Service Company (ESCO) to improve the energy efficiency of a facility, with the energy savings guaranteed by the ESCO over an agreed amount of time. These savings in turn pay for the capital investment required.

An ESCO’s service typically includes:

Performing a detailed energy audit, also known as a Detailed Facility Study (DFS); Establishing baseline energy use for specific equipment, systems, or the facility as a

whole; Designing solutions also known as Energy Conservation Measures (ECMs), to

achieve required energy savings; Managing supply, installation, and commissioning of equipment; Training or briefing end-user (agency) personnel; Operating and maintaining the equipment for the life of the contract; Conducting measurement and verification (M&V) to determine actual energy savings

against designed values; and Providing savings and equipment performance guarantees.

The provision of this total package of services from a single company is the key difference between performance contracting and the more traditional project implementation and funding. Different ESCOs may use different designs and technologies and often provide divergent solutions. Energy Performance Contracting allows the ESCO to provide quality product and services over the lifetime of a project.

The project timeframe must be long enough to allow energy costs to cover the capital repayment, with ongoing savings past the payback period ensuring a positive cash flow for the agency. Once the energy efficiency upgrade opportunities are identified and supported by a good financial case, agencies are able to seek funding from DTF and engage the ESCO to implement those measures as a complete process.

An Energy Performance Contract (EPC) typically involves a performance guarantee of energy and cost savings upon implementation of an energy-efficiency upgrade project. For over fifteen years in the US, Canada and Europe, and more recently in NSW and Victoria, EPCs have successfully provided a quantifiable, low-risk method of implementing and funding energy efficiency projects, minimising impact on departmental cash flows and budgets3. As such, for large or complex sites, the preferred project implementation approach is to use an EPC.

For smaller sites, simple energy efficiency upgrade opportunities may either be aggregated as one larger EPC project, or use an alternative Measurement and Verification (M&V) method as defined in Appendix B - Measurement and Verification Options.

2.2 Facilitation ServiceAgencies will be supported by a central Facilitation Service, led by DSD, and including representatives from DTF and the Department of Planning, Transport and Infrastructure (DPTI). Specialist external advice from the State Procurement Board (SPB) and others may also be sought. The Facilitation Service will assist agencies to develop business cases of an appropriate standard using this set of Guidelines in order to manage and implement the projects.

3 A Best Practice Guide to Energy Performance Contracts; The Australasian Energy Performance Contracting Association : http://www.industry.gov.au/energy/Documents/best-practice-guides/energy_bpg_ energy_performance_contracts .pdf


http://www.industry.gov.au/energy/Documents/best-practice-guides/energy_bpg_%20energy_performance_contracts%20.pdf

http://www.industry.gov.au/energy/Documents/best-practice-guides/energy_bpg_%20energy_performance_contracts%20.pdf

http://www.industry.gov.au/energy/Documents/best-practice-guides/energy_bpg_energy_performance_contracts.pdf

The Facilitation Service provides the following:

access to standard tender documentation and contracts scoping of potential options for tendering of projects review and prioritisation of identified upgrade opportunities advice and support in the management of tender processes advice and support to determine appropriate funding arrangement through DTF advice and support in the implementation of projects engagement of third party aggregators to analyse and facilitate potential Emissions

Reduction Fund (ERF) bid participation access to technical and legal advice if required access to monitoring and verification advice if required; and co-ordination of program results.

The Facilitation Service can be contacted via email at [email protected]

2.3 The Pre-Qualified ESCO ListThe Facilitation Service team will establish and maintain a list of pre-qualified Energy Services Companies (ESCOs) for the GBEEI program. Members of the list will have demonstrated required competencies, previous experience in delivering EPC projects, and/or attained Energy Efficiency Certification Scheme accreditation. Members will also demonstrate compliance with the South Australian Government Industry Participation Policy.

The pre-qualified list will streamline the tender process and reduce the administrative burden, bypassing a formal external Expression of Interest process for each individual energy efficiency investment project. Agencies can tender selectively from the pre-qualified list using a Request for Proposal (RFP) process.The pre-qualified ESCO list will be published and maintained on www.statedevelopment.sa.gov.au

2.4 Standard TemplatesIn addition to this set of guidelines, the following templates are available to assist agencies through each stage of the GBEEI project:

Project Plan

Request for Proposal and RFP Evaluation Criteria

Detailed Facility Study Agreement

Budget Impact Statement

Standard Energy Performance Contract

Measurement & Verification Plan Template

The documents can be accessed at www.statedevelopment.sa.gov.au/resources/energy-management-within-government-buildings


http://www.statedevelopment.sa.gov.au/resources/energy-management-within-government-buildings



mailto:[email protected]

3. Managing Energy Efficiency Investments – Using a Project ApproachA standard energy efficiency upgrade project carried out under an Energy Performance Contract (EPC) consists of 7 main stages as shown in Figure 3.1 below.

The agency is responsible for developing the Project Plan. The Request for Proposal at Step 2 engages three ESCOs to carry out a Level 2 Energy Audit (“desktop audit”) to identify areas of large energy use. One winning proposal will proceed on to Step 3 - Detailed Facility Study - to verify and clarify the findings at Step 2, refine financial calculations ready for Step 4, and undertake preliminary planning and design for Step 5.

Figure 3.1 - Project Steps - Managing the upgrade

Upon Implementation of the project, the agency can conduct Stage 7 (Measurement & Verification) either internally using a recognised method agreed to by the Facilitation Service, or engage the Energy Performance Contract provider or another third party expert to undertake this.

In the case of a smaller, simpler project, the ESCO and agency may agree to skip Stage 5 (Energy Performance Contract) and instead provide a justified M&V Plan at either Stage 2 in the RFP response or at Stage 3 as part of the Detailed Facility Study.

A recommended project timeline is shown in Table 3.2 - Recommended Project Timeline.


7. Measurement & Verification (M&V)

6. Implementation

5. Energy Performance Contract (EPC)

4. Application for Funding

3. Detailed Facility Study (DFS)

2. Request for Proposal (RFP)

1. Project Plan

Table 3.2 Recommended Project Timeline

Activity Suggested Timeframe

Complete Project Plan May 2016

Issue RFP Allow 4 weeks from Project Plan completion

RFP CLOSE Allow up to 12 weeks from briefing date

Evaluation of Tenders Allow 2 to 3 weeks from close

Formal notification of successful Tenderer Typically a week after evaluation

Negotiation of Detailed Facility Study (DFS) Agreement with successful Tenderer Depending on RFP response and size of project

DFS report submission Allow at least 3-12 months from DFS Agreement execution, depending on project type and size

Agency review of DFS report Allow 3 weeks

Application for project funding Allow 4 weeks from submission to DTF

Negotiation & signing of Energy Performance Contract(s)

Allow 4-5 weeks for formal negotiation and signing of EPC

Further refinement of design and works specifications by Tenderer Dependant on negotiated EPC

Installation As per the terms of the negotiated EPC

Commissioning and Acceptance As per the terms of the negotiated EPC

Measurement and VerificationAt least one normal operating cycle of the equipment or facility to capture the characteristics of potential saving

End of performance guarantee period As per the terms of the negotiated EPC


4. Stage One – Project Plan4.1 Project TeamA number of decision-makers will normally be involved in a GBEEI project. For the project to develop smoothly with minimum delays, it is important to secure a team with clear agreement on their roles within the project, both within and external to the agency. The most important roles that need defining are:

Project or Contracts Manager, who monitors the progress of the project. The Project Manager will ideally have an understanding of building management, contract management, energy management, economic and financial assessment, and/or experience in the EPC process

Project Sponsors (senior management) who authorise and approve as required at the Project Plan, RFP and funding application stages, plus execute the EPC.

Other team members may include:

Facilities Operations Manager, involved in the technical side of the project development and ensuring that technical and operational risks are appropriately managed

Site Officer or Manager, who facilitates site access to RFP respondents and other Project Team members

Government Building Energy Group representative, if different to the Project Manager of the GBEEI project

Finance Officer, who oversees the business plan and application for funding Legal advisors

In the case of an agency not having appropriate staff to deliver GBEEI, a contractor may be engaged to assist with the EPC process, provided that the agency is able to absorb the cost or include it into the total cost of the project and recoup upon funding approval. Secondment of staff between agencies could be another option.

4.2 Stakeholder Analysis and Communication PlanIt is recommended that the agency undertaking the project actively engage all stakeholders from project inception to ensure all relevant project issues and risks are identified and addressed.

More broadly this project demonstrates leadership in action on climate change and environmental sustainability within and external to Government, thus presents outstanding opportunities for all stakeholders to further communicate the wider social, environmental and economic benefits arising from the project. See Appendix A for examples.

4.3 Site SelectionGovernment-owned buildings that are currently reported in the SA Government Buildings Annual Energy Efficiency Report are considered to be ‘Government-owned sites’ fit for the purpose of the mandate. Government-owned sites are buildings owned by government in which public sector employees work, or where government administered services and activities are carried out, and where government is responsible for the energy cost.

Government-owned buildings which are leased to a separate departmental tenant need to be considered by the owner and tenants that incur energy costs. For example, in a multi-storey office block owned by DPTI and leased by four other agencies, DPTI are


responsible for the energy efficiency upgrades for common equipment and base building energy consumption, while the other four agencies are responsible for investigating opportunities relating to their respective floors’ tenancy. In this case, all agencies may wish to collaborate and initiate a single project for the building.

Site selection should also consider the distances between buildings if they are to be aggregated (further apart suggesting higher travel costs), age of a building, age of assets and equipment, current maintenance plans (any upcoming major overhauls or replacements), and energy consumption data split by fuel type. Any likely risks or barriers to long term project success should be also considered.

For an EPC project, it is often simplest to include all areas and systems, in other words, all opportunities that can be found within the building. There may be certain scenarios however, where exclusions are appropriate, for example, at sites that agencies deem to have a practical life of less than seven years. This might be a building planned for future sale or demolition, in which case it may be possible to either define ECMs with a shorter payback period when tendering, or remove the building from the scope of the tender altogether.

It is recommended in these cases;

If the building is likely to be demolished or vastly altered in its functionality following sale, then the upgrade works are not likely to add capital value to the saleable asset. In this case, works should have a payback period well short of the planned disposal date of the asset, or the building should be removed from an EPC project consideration altogether.

If capital works undertaken are likely to add value to the asset at the point of sale, such as the installation of solar PV on an office building, then the building should be included as a potential project site.

It is recommended that as a first step all government-owned sites that are reported in the Annual Energy Efficiency Report are ranked from the highest energy consumption. The highest consuming buildings can then be selected until the cumulative total reaches 30% of overall government-owned building energy consumption for the agency.

When nominating the first round of buildings to meet 2016 mandate, it is recommended departments not select:

Sites slated for closure or disposal by 2020 Sites undergoing redevelopment currently or by 2020 Sites under Public-Private Partnership arrangements Sites where construction was completed after 30 June 2014 Sites in remote regions

These may be investigated in more detail during the second round in the determination of the 100% mandate.

A project can be either delivered as an EPC or any other M&V method from the International Performance Measurement and Verification Protocol (IPMVP). An EPC is generally suitable for single facilities with high energy consumption (over 1 GWh of electricity consumption per annum or an equivalent mix of electricity and gas). Alternatively, smaller facilities may be grouped together to achieve a sufficiently large scale to be viable as an EPC project. There is no definitive size threshold for facilities to be included into a potential project; the only limitation is the simple payback period. Once ESCOs nominate their project delivery method in the RFP response, agencies can assess these to determine which path to take.

A simplified method used to estimate the value of a potential project is to take the total annual energy cost of the sites selected, multiply by 30% (an assumed energy saving),


and then multiply by 7 years (payback). If this value is close to or above $1 M then there is sufficient scale for the selected sites to be a standalone GBEEI project and budget bid.

Metrics used for calculations and target setting are MJ or GJ, to incorporate gas and electricity. Note that 1 kWh equates to 3.6 MJ, or 1 MJ=0.278 kWh. Greenhouse gas emissions for all energy sources will be measured in tonnes of CO2-equivalent.

4.4 In-scope Project SolutionsAs part of a potential EPC project, ESCOs are responsible for identifying, designing, validating, installing, commissioning and guaranteeing the performance of all technologies implemented. As such, there is no requirement for the agency to perform audits and design solutions.

ESCOs will propose an overall solution set with an average payback period of up to seven years; that is, the project may include measures with individual payback periods of for example 12 years, and others with perhaps three years. As long as the overall aggregated project payback period is seven years or less, it will be deemed compliant.

This methodology can increase the project scope by enabling the inclusion of solutions that may otherwise fall outside the required payback period, such as cogeneration and renewable technologies. It is recommended that agencies use this opportunity to look beyond the repetition and familiarity of previous maintenance schedules and existing systems, and consider unique, custom ECMs, allowing innovative and non-conventional solutions to be considered.

The following initiatives often fall within the project scope of an EPC:

lighting and lighting control systems; heating, ventilation and air-conditioning systems; heated water systems; building automation systems; voltage regulation or optimisation; power factor correction opportunities; renewable energy and cogeneration; and demand-side response opportunities, giving agencies the capability to respond to

price signals during periods of peak demand in the National Electricity Market.

Water conservation measures that result in energy cost savings, such as efficient showerheads or heated water systems, are in scope. Water conservation measures that do not result on energy cost savings were not included in the Cabinet mandate, however agencies can elect to broaden the scope to include water if there is a significant cost saving opportunity. Solar PV Power Purchase Agreements (PPA) are in scope, however, since government has access to relatively low cost finance, it may be financially less attractive when compared to government’s outright purchase of solar PV.

It is useful to commence collating data and information regarding the above systems as soon as possible in order to determine the scope of a proposed project. A Project Plan template is available to assist with documenting the information available. Once completed, the Project Plan can be used to consult with the Facilitation Service team to move to Stage Two, Request for Proposal.

It is highly recommended that the Project Plan is signed off by the Project Sponsor at this stage.


5. Stage Two – Request for Proposal (RFP)5.1 Expression of Interest (EoI) by invitation Upon receipt of the agency’s Project Plan, the Facilitation Service team will ascertain the initial method of contact with potential ESCOs. This may be done in one of two ways:

circulating a Notice of Opportunity email to all pre-qualified ESCOs to request specific project experience summary, prior to inviting 3 ESCOs via Tender SA;

directly approaching 3 selected ESCOs via Tender SA.

In either case, ESCOs will be provided with a brief description of the project scope as outlined in the Project Plan, including:

location and size of sites associated utility consumption relevant existing infrastructure an indicative timeline for the project

This is to ensure that the invited ESCOs will have sufficient knowledge of the scope before committing to a tender process.

5.2 EoI ResponseThe response to the EoI will need to include information on three key issues:

Willingness to participate Previous experience in similar project scope at similar facilities Suitability in conducting the project outlined

From the responses received the agency now selects three ESCOs to proceed to the RFP stage. For very large or complex sites, it may be appropriate to invite more than three providers to respond, in order to secure the required level of expertise and ensure multiple ECM options are explored. The ESCOs may provide some feedback on the project scope in order to match their specific needs. The agency and/or Facilitation Service can decide whether the alteration is suitable.

5.3 Request for Proposal (RFP)An RFP document will be prepared by the agency with assistance from the Facilitation Service, describing the project requirements and how the tender will be conducted and assessed. The agency should provide the majority of the information in the Project Plan for the ESCOs to conduct a preliminary study of the suggested facilities. Note that owing to contract confidentiality agreements held with Whole of Government energy providers, the energy pricing disclosure must use values provided by the Facilitation Service. An RFP template is available at www.statedevelopment.sa.gov.au .

The number of sites audited at the RFP stage will depend on the size of the overall portfolio of buildings considered in the GBEEI project. For similarly large or complex projects involving multiple or geographically distant facilities, it is often beneficial to simplify this step and limit the RFP to a reduced scale, with the understanding that the full scope of opportunity can be reinstated at the next step (the DFS). In these instances it will be important for the agency to select a sample that is closely representative of the project in its entirety. For example, if the greater project involves two types of facilities such as hospitals and office buildings, at least one of each type of these buildings should be included in the RFP stage.

Typically the RFP will include information on:



All facilities under investigation – identifying those selected for the RFP stage, and those to be added for the DFS if not all sites are to be considered in the RFP

Asset management issues for the facilities in question Projects already identified and proposed phases of work Maximum contract duration Maintenance and operational requirements Selection criteria and financial targets (more details in Stage 4 Business Case &

Funding Application)

In the RFP response, ESCOs will be required to prepare a document which contains the proposed energy solutions, including general costs and savings estimates, based on the facility information the agency has provided. The proposal will not be a detailed specification of works. The main focus will be to state the ESCOs’ understanding of the current state of the facilities, a set of probable solutions, and the basic methodology for guaranteeing savings. This process will involve the ESCOs to competitively audit the buildings to identify Energy Conservation Measures (ECMs) equivalent to the standard of a Type 2 energy audit (AS/NZS 3598:2014). ESCOs typically take around two to three months to assess the current energy use in the sites selected and provide a response. Agencies will need to provide as much data as possible to the responding ESCOs and allow for site access where practicable. It is reasonable to coordinate a single site visit at which all ESCOs attend.

Upon forwarding the RFP response to the Facilitation Service, the agency has met the initial cabinet mandate of the program, by having identified a preliminary set of ECMs.

5.4 Tender EvaluationIn tender evaluation, agencies should look for proposals that maximise the scope of energy and cost savings within an overall average seven year simple payback period or less. To maximise savings, agencies should ensure that tenderers offering lower payback periods are not given advantage over tenderers with longer (but still compliant) payback periods.

To illustrate, please consider the following example scenario.

For to a tender specifying a seven year payback period:

Tenderer A proposes a project costing $7 million, with guaranteed annual savings of $1 million, 30 per cent energy saving, and seven year overall project payback; and

Tenderer B proposes a project costing $4 million, with guaranteed annual savings of $600 000, 20 per cent energy saving, and 6.7 year overall project payback.

Despite Tenderer A having a longer payback period than Tenderer B (seven years compared to 6.7), Tenderer A’s proposal should be selected, as the larger project with higher savings will deliver greater outcomes. The annual and total project life savings are $1m and $7m respectively versus $600k and $4.02m.

Evaluation criteria should include those that target the quality of delivery, service, and performance of installations, such as:

Compliance with specifications and proposed contracts DFS (Stage 3) offering Operations, maintenance and training offering Methodology of analysis and calculations Expertise in electrical, mechanical, and other technical discipline Measurement and verification plan/proposal.


While a standard RFP Evaluation Criteria is included in the RFP document template, the Facilitation Service can also provide additional advice on the evaluation and selection process for more complex proposals.

6. Stage Three – Detailed Facility Study (DFS)While the ESCOs are preparing their responses to the RFP, the agency can commence preparation of the DFS Agreement.

The general purpose of a DFS is to give the agency an indication of the possible extent of savings that may be achieved in an EPC, and what level of savings the EPC service provider is prepared to guarantee. The DFS essentially consists of an energy audit of the facilities similar to a Type 3 energy audit (AS/NZS 3598:2014). In order to achieve the maximum benefit from a DFS, the agency is encouraged to work collaboratively to build a long term partnership with the EPC service provider, providing any reasonable information where required and ensuring that this is accurate.

It is important that a Facilities Management team member - DPTI Project Delivery (PD) or AGFMA - is consulted in the preparation of the DFS Agreement, particularly when identified ECMs are numerous or complex, as they will provide information on any site and equipment details and limitations, which are required to inform upgrade decisions. Further detail on Facilities Management can be found on DPTI’s Maintenance and Minor Works page at www.dpti.sa.gov.au/facilities_management

6.1 DFS AgreementAfter assessing the RFP responses, the preferred service provider will be notified of their success, and a DFS Agreement is negotiated. The DFS Agreement outlines that the ESCO will perform a DFS, which will typically include proposals to:

Identify current baseline energy consumption and demand profile Identify Energy Conservation Measures (ECM) Define the scope of work to be undertaken, and the associated ESCO fees Identify the costs, to investment grade level, for the implementation of the scope Identify performance levels (including estimated savings levels) and guarantees by

the ESCO Identify Measurement & Verification (M&V) methods to ensure savings are

demonstrated over the life of the project.

The aim of the DFS Agreement is to establish the conditions of the project to ensure flexibility as well as scope. It is important for the DFS and each subsequent stage of the project that the ESCO is given reasonable access to the facilities. What constitutes reasonable access should be agreed to in advance, to satisfy the requirements of both parties.

For a large project where the full completion of DFS and reporting can take up to 2 years, the ESCO can request payment across the duration of a DFS (such as at 30%, 80% and 100% completion stages). This amount will need to be covered firstly by the agency, and subsequently rolled into project costs upon the approval of funding application. A Standard DFS Agreement is available at www.statedevelopment.sa.gov.au

6.2 Commencement of DFSCareful consideration should be afforded to each of the proposed works as outlined by the ESCO, ensuring that they pass a ‘fit for purpose’ test for the requirements of each site. For example, while light fittings installed with timer controls may guarantee an amount of



http://www.dpti.sa.gov.au/facilities_management

annual savings, it may be appropriate only for a site that has constant occupancy times such as a library, and is not fit for the purposes of a facility such as an operating theatre with varied occupancy.

Project management and communication between the agency’s Project Team and the ESCO is vital throughout the DFS process.

6.3 Completion of DFSAt the conclusion of the DFS, the ESCO will provide a final report. The DFS report will form a part of the funding application to DTF and must include the full business case taking into account the financial conditions provided by this Guideline. This includes an M&V plan as per International Performance Measurement and Verification Protocol (IPMVP), to ensure the quality and performance of the design and subsequent installations.

The agency’s Project Team can assess the recommendations, negotiate any changes, and decide whether to implement the proposed works (subject to project funding approval by the Treasurer). One of the following scenarios may apply;

If the decision is to implement the works, the DFS fee may be rolled into the overall project cost and included as part of the Energy Performance Contract to seek funding from DTF as a complete energy efficiency project. Continue on to Stage Four—Funding Application.

If the decision is to not implement the works even when significant savings are found, the agency will be liable to pay the ESCO’s cost of conducting the DFS from within existing resources.

In the unlikely event that the ESCO does not find significant savings that meet the minimum level specified in the RFP/DFS Agreement, then the agency is not liable for the cost of the DFS.

It is in the ESCO’s best interest to make a sound business case to maximise the chance of project implementation. The conditions of payment to the ESCO will depend on whether the criteria of the study are met. If the DFS does not meet the pre-determined criteria within range as stated in the RFP and subsequent Agreement, then the agency is not obligated to pay anything.

The ESCO may request an instalment payment during or after conducting the DFS. This is reasonable for long DFS periods, and should be determined in the Agreement.

7. Stage Four – Business Case and Application for FundingThe decision to proceed will be influenced by budget capacity and the quality of the business case. Funding applications will encompass projects with an investment value of over $1 million (excl. GST). For smaller projects, several projects can be rolled into one funding application.

All financial conditions for the financial evaluation will be provided to the ESCO in the DFS Agreement such that the ESCO can provide the business case needed by the agency to apply for funding in a standard format. The intention is to minimise time and effort required in the funding application and evaluation process.

Applications confirmed by the Facilitation Service to have followed this set of Guidelines will be submitted to the Treasurer for the purpose of seeking funding approval. Agencies should note that a review by the Public Works Committee (PWC) may be required if the project value exceeds $4 million (and considered as public works), and a PWC report would be required, as stipulated in the Premier and Cabinet Circular PC015.


7.1 Preliminary Project CostsAgencies will be required to pay for any preliminary project and consultancy costs. If the project is to progress to the funding stage, preliminary project costs can be built in to the business case and budget funding application. It should be noted that standard practice in the industry is not to invoice for works undertaken until the conclusion of the DFS unless agreed otherwise (eg. due to long DFS periods). Costs associated with any unsuccessful business cases are to be met by the Agencies from within existing resources.

7.2 Budget EvaluationThe agency’s budgetary evaluation in the business case should meet the requirement that:

operating expenditure savings achieved from lower energy costs arising from the implementation of projects are to be returned to the State’s budget until the expenditure incurred by the agency in implementing the energy efficiency measure is repaid in full; and

following repayment of the cost, in full, of the energy efficiency projects, agencies will be permitted to retain the expenditure savings (and associated expenditure authority) achieved from lower energy costs arising from implementing the projects (as outlined in project business cases).

Repayment of the project funding will be achieved through an adjustment to the agency’s operating expenditure budget for the payback period (up to 7 years).

Refer to Appendix E - Table E.1 Budget Impact for Agency.

7.3 Evaluation ConceptsIt is recommended that investments only be pursued based on financial and budgetary analysis. The focus of the evaluation should be on ensuring that good energy efficiency projects ‘stack up’ in their own right and it is these investments that will be prioritised for government.

The costs and benefits can be objectively measured in financial terms, account for a vast majority of the costs and benefits of the project and where one of the major objectives of the project is to create a financial return.

7.4 Financial Evaluation1. Relevant Cash Flows

It is recommended that consideration be given to only the following cash flows for the calculation of the simple payback:

Energy (electricity, gas, fuel) expenditure Maintenance costs Refurbishment costs (where identifiable) Any outgoings related to the EPC Measurement & Verification/project evaluation costs An amount to cover an agency’s project identification, establishment, management

and other transaction costs (an amount of up to 10% of the project value is recommended)


Note that avoided capital costs can be included for the calculation of the simple payback period where a benefit is foreseeable.

2. Evaluation Period

The evaluation period should be set to the same timeframe for all GBEEI projects. The DTF Guidelines (p19) recommend a maximum of 10 years for equipment initiatives. As such a fixed evaluation period of 10 years is to be adopted for all proposals.

3. Net Financial Benefits

Constant price (ie. real price) is to be used. Discount rate should be based on the DTF Guidelines’ 3 broad risk categories—low, medium and high risk with real rates (ie above inflation), as per Table 1 below.

Table 1 Discount Rates for Financial Calculations

Market Risk

CAPM Calculation

Discount Rate (Nominal)

CAPM Nominal Rate converted to Real using Fisher’s Equation

Discount Rate (Real)

Low 3.4% + 0.5*6% 6.4% (1+ 6.4%)/(1+2.5%) -1 3.8%

Medium 3.4% + 0.7*6% 7.6% (1+ 7.6%)/(1+2.5%) -1 5.0%

High 3.45 + 1*6% 9.4% (1+ 9.4%)/(1+2.5%) -1 6.7%

4. Risk Assessment via Sensitivity Analysis

Projects should be evaluated based on Net Present Value (NPV) being positive over the ten year project life for a range of key variables including the high, medium and low energy price paths and the high, medium and low discount rates.

If the project NPV is negative under any of these combinations of scenarios then it would be the role of the agency to demonstrate other non-quantifiable benefits that would justify proceeding with the project.

Key sensitivities that accommodate risk and uncertainty inherent in the estimated cash flows are to be represented in a three-by-three matrix, showing the NPV for each of the nine combinations of discount rate and energy price escalation rates.

Refer to Appendix D - Sensitivity Analysis Example for further information.

Regardless of the amount of funding being sought, the business case should be robust. Decisions must be based on the following information which is to be submitted as part of the DFS report:

A financial evaluation showing the budget impact on the agency completed (Appendix F- Table 5 Budget Impact for Agency), over the evaluation period as defined in this Guidelines’ 7.4.2 Evaluation Period

Projects which achieve a maximum seven year simple payback and achieve the greatest reduction in energy use and associated costs over the evaluation period

A positive Net Present Value (NPV) calculated on the basis of all costs and benefits over a reasonable project time frame, using risk-adjusted discount rates

Internal Rate of Return (IRR) calculations A summary of the outcomes of sensitivity analyses


A summary report of all task to date is to be prepared by the agency in conjunction with the Facilitation Service

7.5 Transaction/Contingency CostsAgencies should be aware that business cases will typically need to set aside an amount of up to 10 per cent for transaction costs as deemed necessary. Such allowances mitigate risks for ESCOs participating in an EPC, and are a legitimate project cost.

The business case should not include any government employee costs. The identification of upgrade opportunities, development of business cases and budget bids, and the management of the upgrade projects will be met from within agency resources.

7.6 Environmental, Social, Economic EvaluationThe focus of the business case should be on the financial and budgetary analysis. However it should also discuss the project in the context of whole of government economic strategies and priorities. It should also identify any potentially stimulating impacts the proposal will have on industry. The economic evaluation should be proportionate to the value and/or risk of the investment proposal.

7.7 Other ConsiderationsThe contribution of the GBEEI projects toward achievement of the Carbon Neutral Adelaide will be quantified in the business case. Projects outside the Adelaide City Council area can be aggregated as potential carbon offsets.

Where third party funding options are confirmed to be available for energy efficiency investments in State Government assets, these funding options should be evaluated in the business case. The potential impact of known national trends in energy-related carbon reduction policy and regulation should be considered. This includes the federal Emissions Reduction Fund (ERF), where significant amount of aggregated emissions saved could potentially be converted into Australian Carbon Credit Units (ACCUs) and be sold on the secondary carbon market, or, benefit from self-purchase to offset other remaining emissions. Financial incentives from national Renewable Energy Target (RET) may also be considered for smaller projects. The Facilitation Service team can assist Agencies with small projects to contract a third party consultant in submitting a joint auction bid to the ERF.

The business case must address how implementation will ensure compliance with the South Australian Industry Participation Policy, with the RFP, DFS and EPC selection criteria all include a 30% weighting for the uptake and engagement of local goods and services. The Industry Participation Plan must be robust and may be assessed by both the Facilitation Service as well as the Office of Industry Advocacy.

8. Stage Five – Energy Performance Contract (EPC)Once funding is approved by DTF, the next stage is to establish the contract conditions for carrying out the ECMs recommended and agreed in the DFS. The DFS forms a technical basis on which an EPC is negotiated. Negotiations will address issues such as:

The scope of Energy Conservation Measures (ECMs) described and analysed in the DFS

Any scope exclusions, or inclusions not specified in the DFS Changes to work as described or analysed in the DFS


If there is additional work not described or analysed in the DFS Changes to the Measurement & Verification plan (M&VP) Maintenance issues (e.g. who will take responsibility, level of service, timing) Commissioning issues and performance criteria for ECM acceptance certificates Training requirements and schedule The estimated budget and installation timing implications of the above decisions.

In order to streamline the process, the scope of works included in the EPC should remain reasonably consistent with that which was agreed in the DFS. If the scope of works changes from the final DFS, details of the proposed changes should be to a level of detail consistent with a DFS. The agency will need to carefully review any new documents produced, including:

ECM capital cost and disbursement plan Equipment specifications such as plans, engineering designs and drawings Equipment performance requirement.

From this point onwards either DPTI Project Delivery or AGFMA will represent the agency as part of the agency’s Project Team to conduct project management with a fee. It is important that the agency is aware of all processes and maintains documentation on the progress by the Project Team or by the ESCO.

The Facilitation Service can provide additional advice regarding the negotiation process in establishing the project scope, guaranteed savings, project timeline and costs associated with the entire project. Once the terms and conditions have been negotiated and agreed on, the EPC will be executed, and implementation of the proposed works may begin.

A Standard EPC document is available at www.statedevelopment.sa.gov.au

9. Stage Six – Implementation9.1 Design FinalisationMost ESCOs will not have finalised the engineering designs and the conclusion of the DFS and prior to signing an EPC. This is to avoid unnecessary up-front cost and reduce the commercial risk for the ESCO should the project not proceed. Once an EPC is signed the ESCO progresses to finalise design details and confirm the scope of work specifications so a detailed equipment list can be prepared to commence procurement.

The ESCO proceeds with hiring sub-contractors and organises the site for works. These activities will need coordination with the agency’s Project Team.

9.2 Project Delivery PlanThe project delivery will be dependent on the outcomes of the RFP and the DFS. A works plan is required to be developed by the ESCO within 30 days of the execution of the EPC. This works plan will provide all required details on scheduling of installation works, commissioning, communications and other relevant procedures.

9.3 Project Delivery/ImplementationThe ESCO may either install the ECMS, or engage subcontractors to undertake the works.

It is important for the agency’s project manager to take reasonable steps to minimise the impact of any works to normal operations within the facility, including:

Arranging works to be implemented outside of normal operating hours wherever possible



Ensuring all contractors are inducted and follow processes required Ensuring the Head Contractor addresses any major issues within an appropriate

timeframe.

9.4 CommissioningCommissioning process is one often of ‘fine-tuning’ until the ECMs deliver the expected energy savings proposed by the ESCO. The process should be well-documented and scheduled by the ESCO, and ideally by the agency’s Project Team also. The process is an opportunity for training the operations staff on the details of each ECMs and the agency’s Project Team should discuss the opportunity to get involved.

The Project Team should ensure that any equipment delivered and installed matches the specifications set out in the final design. The settings of the equipment which signifies the completion of this stage will need to be clear.

10. Stage Seven – Measurement & Verification and Reporting of SavingsMeasurement & Verification (M&V) of each ECM’s performance is an important step in maximising savings returns on the investment.

M&V involves utilising a set of methods and processes, defined as part of the IPMVP, to quantify real energy savings from installed ECMs, which can then be compared to the EPC service provider’s savings guarantee. M&V procedures are additional to the existing functions of facility and energy managers in energy monitoring and reporting, and are focused on the impacts of distinct ECMs. In an EPC project, the detailed M&V Plan is proposed at DFS, and negotiated at the EPC stage to be carried out after the installation of ECMs. In smaller projects, an M&V Plan can be used instead of an entire EPC process. The different options are detailed in Appendix A.

An M&V Plan should include the following in detail:

Baseline energy consumption and operation conditions of existing systems prior to introduction of ECMs. This is an important step to identify and evaluate change in any baseline adjustments at a later date

A tracking and reporting method to capture the changes to the assumed post-installation conditions

Typical method of calculating energy savings:

Energy Savings = BaseYear EnergyConsumption ±Baseline Adjustment −Annual EnergyConsumption following ECM implementation

Details of key assumptions for determining baseline, including consideration of significant variables and current and future contingencies such as weather or occupancy levels

Description of ECMs and intended results Formulae and procedures for determining post ECM installation energy

consumption Procedures for performing the statistical validation and the level of accuracy of

results to be achieved for either the entire analysis or the key components Specification of equipment and procedures used to collect, measure or obtain

results Method, format and frequency of reporting results to the agency Process and conditions under which the agency must notify the ESCO of changes

to the facility such as occupancy or equipment


Agreement on a representative and accurate method in baseline adjustment to capture changes to the facility.

M&V is typically performed by the ESCO according to the terms laid out in the EPC. Savings reconciliation will typically be performed at a minimum of once per year, during the first 1-2 years after commissioning. The ESCO will undertake more frequent M&V for its own purpose of fine-tuning savings from the ECMs, although this may not be included in the report to Agencies. Savings reconciliation in the reporting process will identify if any payment should be made to the agency if the savings fall below the minimum guaranteed amount, or to the ESCO if there are excess savings during the project period. If savings fell short of the guaranteed amount during the project period, ESCOs have a right to implement additional ECMs to those covered in the scope of works in order to maintain their guarantee. These will normally be at the ESCO’s own cost, and the agency’s Project Team must therefore accommodate any reasonable request from the ESCO allowing them to conduct any necessary alterations to achieve the guaranteed values.

Agencies should engage with the ESCO closely in monitoring the actual levels of energy saving achieved and compare with the forecast levels set out in the proposals. The agency is to provide, where necessary, data such as:

monthly energy bills, occupancy information such as average daily admittance, occupied bed days for

hospitals, or occupied days for schools, occupied area (floor space), production data and changes in use etc

to assist the ESCO in the M&V process. The agency should also examine the method of calculating those savings to ensure that it complies with that agreed to in the EPC.

Reference M&V Plan templates can be found in the Victorian or NSW Government websites:

Vic Government Measurement and Verification Plan

NSW Government Measurement and Verification Plan

10.1 Equipment MaintenanceA maintenance obligation is typically included in the EPC. Where the agency is able to include the maintenance and servicing into its existing facility operations then this may be undertaken by the agency to achieve faster payback.

Where a whole-of-government maintenance contract is in place, for example through AGFMA, the agreed maintenance schedule must be maintained regardless of whether the responsibility lies with the ESCO, AGFMA or the agency. Generally during the project period or guarantee period (until the end of M&V), maintenance responsibility lies with the ESCO. After the guarantee period, the responsibilities of operation and maintenance return to AGFMA or the agency.

Training of operations staff (whether the agency’s own or AGFMA personnel) is important in achieving the predicted savings and maintenance schedules. Both the ESCO and the agency benefit from ensuring that adequate operation training is carried out.

10.2 M&V OptionsThere are four standard options set out in IPMVP and recognised by the Energy Efficiency Council to measure and verify the actual performance of installed ECMs (see Appendix A).


http://www.environment.nsw.gov.au/energyefficiencyindustry/confirm-energy-savings.htm

http://www.procurement.vic.gov.au/files/58c021b4-2c31-43a0-8c4d-a406009f6d34/Measurement-and-Verification-Plan.docx

It is recommended the most simple, focused, representative and accurate option be chosen to minimise time and cost spent on M&V.

10.3 Baseline AdjustmentEvery facility will undergo numerous changes during the life of an EPC project - approximately seven years. Baseline adjustments correct for any changes in energy use between the base year and the performance periods caused by unexpected material changes to the facility’s use or operation. These adjustments then form a new baseline to which the actual performance after installation may be compared.

See Appendix C for more information.

10.4 Frequency of M&VM&V is an active and ongoing process, typically occurring on an annual basis for the term of the contract, which is generally equivalent in length to the payback period for the project

However, the balance between a need for performance verification and ongoing cost may vary over time depending on the level of realised savings and the agency’s confidence in the ECM’s ongoing performance. The agency has the option to notify the EPC service provider to discontinue M&V of an installed ECM if it is deemed that the ongoing reporting costs outweigh the benefits of continued M&V. Such a decision on the part of the agency should only follow a risk management analysis, as once M&V is discontinued, the EPC service provider will no longer be obligated under the EPC agreement to guarantee a level of savings to the agency.

10.5 Savings GuaranteeEvery year during the guarantee period, an M&V report is submitted by the ESCO to the agency, quantifying actual savings achieved. If savings in any year fail to meet the guaranteed savings as stated in the EPC, the ESCO may negotiate to change, replace, remove, alter or add to any equipment or procedures introduced as part of the project in order to achieve its guaranteed savings commitment. Alternatively, the ESCO is required to reimburse the agency to the degree of the shortfall. This will be in the form of a security which the agency can use to pay itself if savings are deemed to have not been achieved.


Appendix A – Example Stakeholders and Communication Plan

Table A.1 Example Key Stakeholders

Stakeholder

Current Snapshot(Needs,

expectations, issues)

Role and Desired Mindset

Communications Approach

Principal Contact

Senior Management

Project Control Board

Building Occupants

Facility Managers

On-site Maintenance Contractor

Department (which oversees the agency undertaking the project)

Department of State Development

Administrator of the GBEEI program

Responsible for managing and reporting whole of government targets and providing facilitation and administration support to all projects.

Invited to project meetings and utilised as required

Table A.2 Example Communication Media

Medium Activity Target Stakeholder Strategic Intent(H/M/L)

Meeting, forums and events – keep informed, engaged and test strategy direction

Web – keep informed and updated

Publications – keep informed and updated

Ministerial and executive communications – keep informed


Table A.3 Example Activity Log

Timeline/Key Date Activity Stake-

holders Details Responsibilities Status

Approval of Project Plan

Including approval to tender and delegation to sign DFS agreement

Approval from financial delegate (e.g. board, CEO, Minister) based on forecast contract size.

Request for Proposal Project Manager

+ 8 to 12 weeks Proposal Submitted ESCO

+ 3 weeks DFS Agreement signed

[Agency delegate] / ESCO / Board

+ 12 to 20 weeks DFS Submitted ESCO

+ 2 weeksProject Implementation Approval

Project Control Board / Board

+ 1 week Funding Application Lodged

Project Manager / Department

+ 6 weeks Funding Approval DTF

+ 2 weeks EPC Signed [Agency delegate] / ESCO

+ 4 weeks Works Specification Submitted ESCO

TBA Works Specification Approved Project Manager

TBA Works begin ESCO

+6 months or more

Practical Completion of Works

ESCO / Project Manager

Practical completion

Guarantee Period Commences N/A

Annually Monitoring and Verification Report

ESCO / Project Manager


Appendix B – Measurement & Verification Options

There are four generic M&V options as outlined in the International Performance Measurement & Verification Protocol (IPMVP), and are summarised in the table below:

Table B.1 Measurement and Verification Options in IPMVP

IPMVP How Savings Are Calculated Common UseOption A:Retrofit isolation—Key Parameters

Savings are determined by field measurement of the key performance parameter(s) which define the energy use of the energy conservation measure’s (ECM) affected system(s) and/or the success of the project. Parameters not selected for field measurement are estimated.

Estimates can be based on historical data, manufacturer’s specifications, or engineering judgment. Documentation of the source or justification of the estimated parameter is required.

For a single ECM where the performance of the ECM can be measured but it may be best to estimate its operation.

Typical applications may include a lighting retrofit, where the power drawn is monitored and hours of operation are estimated.

Option B:Retrofit Isolation—All Parameters

Savings are determined by field measurement of all key performance parameters which define the energy use of the ECM-related system.

For a single ECM where both the performance and operations of the ECM should be measured.

Typical applications may include a lighting retrofit, where both power drawn and hours of operation are measured and recorded.

Option C:Whole Facility (Building)

Savings are determined by measuring energy use at the whole facility or sub-facility level before and after the installation.

This approach is likely to require a regression analysis or similar to account for independent variables such as outdoor air temperature.

Suitable where a high degree of interaction between the ECMs occurs, deeming retrofit isolation methods difficult.

Energy use is measured by utility meters for at least 12 months of the base year and continuously throughout the post-retrofit period.

Option D:Calibrated Simulation

Savings are determined through simulation/modelling of the actual energy use of the whole facility, or of a sub-facility.

This Option usually requires considerable skill in calibrated simulation.

Typical applications may include facilities where historical energy data or baseline data is not available.

Post-retrofit measurements are used to calibrate the simulation model. Base year energy use and demand are generated by the simulations model.

Note: Adaptation of Table on page 22 of the IPMVP Vol. 1, “Overview of M&V Options”


Selecting an OptionAs the agency is required to pay for the costs for M&V, there needs to be consideration of a number of factors when selecting the savings determination approach; time, complexity, cost and credibility of the savings outcomes. An underlying goal in M&V planning should therefore be to incur no more cost than necessary to receive performance data from the ESCO with a sufficient level of accuracy, consistency and verifiability.

As a guide, a basic M&V process involves the following steps:

Identify baseline operational pattern Determine impacts of the ECM Identify post-installation operational pattern Select M&V option with appropriate equations and define analysis procedures Determine relationship between load, hour of use, and other parameters Collect baseline and post-installation data Calculate savings

It is recommended that the ESCO to take a balanced M&V approach, incorporating cost benefit considerations with minimal complexity and effort, while ensuring the accuracy and validity of data, leaving flexibility for changes in the facility. By selecting a retrofit isolation method, using one or a combination of Options A, B or D to analyse each installed ECM, the ongoing M&V analysis may target each ECM individually and is thus independent of the changes around it.

For example, if following installation of a new lighting ECM at a hospital, new energy intensive medical equipment is installed, performance measurement of the ECM using Option A will not be affected by the change. Using Option C however will require further analysis and cost to isolate the change from the ECM’s performance.

Option C is the most complex and costly of the four options, and so it is recommended that agencies carefully assess other options prior to conducting an Option C M&V. Where it is not feasible or practical to isolate the effects of each individual ECM, Options C and/or D may be used.

As a general rule of thumb, both the IPMVP 1997 and IPMVP 2001 (March 2002) Volume 1 quote that typically: It would be expected that the average annual savings determination costs do not exceed more than about 10 per cent of the average annual savings being assessed.


Appendix C – Baseline AdjustmentEvery facility will over the performance period of an EPC experience some level of unforeseeable, routine and non-routine change in its operation compared to the base year (the year in which the baseline energy consumption is taken). Baseline adjustments correct for any changes in energy use between the base year and the performance periods caused by unexpected material changes to the facility’s use or operation.

Baseline adjustment is available to the ESCO so that they are not disadvantaged in achieving their savings guarantee by any unforeseen changes outside their control. It also increases the acceptability and correctness of reported savings by incorporating baseline changes.

It is important for the agency to regularly check energy records for any irregularities and keep the ESCO informed about any planned or unplanned changes to the facility that may cause a baseline adjustment. This may include changes in:

usage, occupancy, hours of operation, or building activity the amount of space being heated or air-conditioned energy subsystems and end-use equipment or appliances the amount or use of equipment environmental conditions such as lighting or ventilation levels, set-point temperatures, or

seasonal weather changes the facility itself such as from renovations, extensions, additions, or decommissioning production throughput, schedules or product mix maintenance practices

Example 1: Weather changesWhen considering ECMs related to a building’s HVAC system, changes in atmospheric temperature and humidity will affect the system’s energy consumption. ESCOs should use weather information from the Bureau of Meteorology to make adjustments to the baseline and subsequent years’ consumption data to reflect the actual weather patterns.

Example 2: Agency initiated changesAn ESCO implements Lighting ECMs to an office facility. After installation the agency informs the ESCO that the occupancy levels have changed from 12 hours to 24 hours. A baseline adjustment calculation to capture the extra energy consumption as a baseline should be done by the ESCO, along with new savings calculations and forwarded to the agency for verification.

Example 3: Tariff changesThe ESCO’s savings guarantee is essentially guaranteeing the energy consumption savings, generally not based on a value of money, and thus tariff changes will not require baseline adjustments by the ESCO. If savings guaranteed are based on monetary savings, then tariffs are usually fixed at the time of negotiation. In this case, if the tariff changes, the nominated tariff is used to determine energy cost savings.

More information can be found at: IPMVP Concepts and Options - NREL NSW OEH M&V Operational Guide - Best practice M&V processesNSW OEH M&V Operational Guide - Suggested M&V Planning Process

For application-specific information on M&Vs:NSW OEH M&V Operational Guide - Application-specific guidebooks


http://www.environment.nsw.gov.au/energyefficiencyindustry/confirm-energy-savings.htm

http://www.environment.nsw.gov.au/resources/energyefficiencyindustry/120991planningprocess.pdf

http://www.environment.nsw.gov.au/resources/energyefficiencyindustry/120990bestpractice.pdf

http://www.nrel.gov/docs/fy02osti/31505.pdf

Appendix D – Sensitivity Analysis Example

For the purposes of illustration (do not use the discount rate in the example, but in Table 1), the following assumptions have been made for a generic energy project with a notional simple payback of seven years:

An electricity only project No benefits other than the value of energy savings Base date value of electricity = $0.15 per kWh Low energy price escalation = CPI only Mid escalation = CPI + 2% High Escalation = CPI +4%

For a total investment of $4m, a plausible quantum of energy savings would be 3.7 million kWh (this generates a ‘simple payback’ of seven years at the assumed electricity prices). This generates the following NPV matrix as shown in Table D.1 (green cells are NPV positive over ten years, red cells are NPV negative):Table D.1 NPV

Project NPVLow Mid High

6% 84,848$ 519,175$ 1,005,459$ 8% 275,905-$ 107,713$ 536,222$

10% 589,765-$ 249,411-$ 129,883$ Disc

ount

/ R

isk

Power Price Path

What this suggests is that the project is NPV positive under most (but not all) scenarios. If the details of the project are considered to be medium or low risk then, as long as electricity prices rise annually at an average of two per cent above inflation, the project represents a good investment.

For a technically mature project such as a lighting upgrade, an assessment as low-medium risk is quite justifiable.

For a project that relies heavily on human intervention or on less mature technology, an assessment of medium to high risk may be justified. If this was the case for the example above, a high level of power price escalation is required for the project to be viable.

It may be appropriate to perform the same analysis on different quantities of projected energy saving (although this is already reflected somewhat in the consideration of higher discount rates). This would accommodate any uncertainty in other parameters such as equipment operating hours. For example, the following matrix results from achieving 5% more savings as shown in Table D.2 below:Table D.2 NPV

Project NPVLow Mid High

6% 289,091$ 745,133$ 1,255,732$ 8% 89,700-$ 313,099$ 763,033$

10% 419,254-$ 61,882-$ 336,377$ Disc

ount

/ R

isk

Power Price Path


Appendix E – Budget Impact Statement Template

Table E.1 Budget Impact for Agency

Budget Impact for Agency

Agency:

Project:

2016-17$000

2017-18$000

2018-19$000

2019-20$000

2020-21$000

2021-22$000

2022-23$000

2023-24$000

2024-25$000

2025-26$000

Project Expenditure*Investing expenditureOperating expenditure (excluding depreciation)Total project cost — — — — — — — — — —

Operating Expenditure*Savings contributing to the payback #

Reduction in energy consumption costsReduction in associated costs (ie maintenance)

— — — — — — — — — —DepreciationDepreciationNet Operating Expenditure — — — — — — — — — —

Operating expenditure required to pay back project costs(reflect as a positive number)

2016-17$000

2017-18$000

2018-19$000

2019-20$000

2020-21$000

2021-22$000

2022-23$000

2023-24$000

2024-25$000

2025-26$000

Budget ImpactsNet Operating Balance — — — — — — — — — —Net Lending — — — — — — — — — —Net Debt — — — — — — — — — —

* Negatives indicate increases in expenditure or reductions in revenues. Positives indicate savings or increases in revenue.# Any saving fol lowing the repayment of the project cost, in full, can be retained by the agency (along with the associated expenditure authority).

See Budget Impact Template 1.docx
