High Level Workshop on Effective Energy Policies, New Financing Instruments and ESCOs

STATUS of ESCO MARKET in TURKEY

Ebru ACUNER TÜRET Energy Institute Istanbul Technical University ww.genesys-project.eu

11 November 2015, Varese, ITALY.

Content Current ESCO market ESCO Market Analysis Method Results obtained Scope of the ESCO Projects Types of Contracts Major Energy Efficiency Applications Financing and Alternatives Revenues of ESCOs in the Market and the Future

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Sample Projects from Industry and Building Sectors Future Projections SWOT Analysis of industry and building sectors Major expectations and recommendations Areas that can be improved www.upwork.com

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CURRENT ESCO MARKET

Current ESCO Market – How defined? • In Turkish terminology ESCOs are called as «Energy Efficiency Consulting Company – Enerji Verimililiği Danışmanlık Şirketi (EVD)» defined by Energy Efficiency (EE) Law in 2007. • Major responsibilities of ESCOs: – Training and certification of energy managers, – Through service agreements conducting energy efficiency audit and consulting studies, – Preparing a project including required measures to improve energy efficiency, – Through implementation agreements, guaranteeing the energy saving potential determined after the audit and implementing the required measures,

Current ESCO Market – Responsibilities? • In the legislation, defined industrial and building sub-sectors for ESCO/EVD activities • Industry – – – – – –

Iron and Steel Chemistry and Petrochemistry Stone, Sand and Mining Pulp-paper and Textile Sector Food Transportation

• Building – Residential – Commercial

Industry

Building

At least 10 and 5 years exp. for industry and building sectors Expertise

Number of Expert

At least 5 and 3 years exp. for industry and building sectors

Sub-sector 1

1 Engineer

Number of Certified Employee 3 Engineers

Total

Sub-sector 2

2 Engineers

5 Engineers

7 Engineers

Sub-sector 3

3 Engineers

7 Engineers

10 Engineers

Sub-sector 4

4 Engineers

9 Engineers

13 Engineers

Sub-sector 5

5 Engineers

11 Engineers

16 Engineers

Sub-sector 6

6 Engineers

13 Engineers

19 Engineers

Sub-sector 1

1 Engineer

2 Engineers

3 Engineers

Sub-sector 2

2 Engineers

4 Engineers

6 Engineers

4 Engineers

Current ESCO Market – How certified? • For an ESCO that provides its expertise, it is given as B class certificate and renewed in 3 years period. • If any ESCO could not provide the guaranteed energy saving potential at most 3 times, ESCOs’ certification shall be terminated for 1 year. • For getting A class certificate: – With TS EN 9001 certification – for the industrial sector; in the desired sub-sectors at least 1 project with an agreement of 25 million TL (about 8 333 000 EURO) and totally energy efficiency projects having over 250 million TL (about 83 333 000 EURO) budget and also at least 1project component related to direct improvements of process and/or process instruments – for the building sector; at least one project with an agreement of 10 million TL (3 333 000 EURO) and totally energy efficiency projects having over 100 million TL (33 333 000 EURO) budget

Current ESCO Market – What are numbers? • In November 2015, there are 34 companies certified as ESCOs with B type certificate. – 7 is for industry sector, – 22 is for building sector and – 6 is active for both sectors.

• Majority of ESCOs/EVDs in the buildings prefer to work in commercial and service buildings (22 of them). • For the industry, mostly chosen sub-sector is iron and steel factories (5 ESCOs/EVDs). • 3 professions are in the stone, sand and mining factories. • 1 for the pulp and paper and 1 for the paper and textile industries are observed. • Commercial/service buildings mostly preferred areas to work for ESCOs!

Current ESCO Market – Main missions? • When the major fields of EE applications of ESCOs/EVDs are considered, the most observed ones could be stated as follows: – Energy consulting and management activities – Marketing of their EE products in energy consuming systems (mostly heating-cooling-ventilation) – EE measurements/monitoring and reporting – Electrical/mechanical installation modernization – Automation of energy systems – Carbon management/foot printing – Cogeneration/tri-generation, heat pump as well as solar and wind energy applications + by BEP regulation, authorization for the energy labelling of existing buildings is given to ESCOs

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ESCO MARKET ANALYSıS

Method - The Questionnaire

Method – How could be interviewed? • Literature search. • Analysis of the web sites of current EVDs in Turkey. • The questionnaire was asked to one current and former ESCO/EVD directly via face-to-face interviews. • 2 EVDs were answered the questions through email, in detail. • 9 EVDs were replied, briefly. • From the financing side Turkish Sustainable Energy Efficiency Financing Facility (TURSEEFF), Turkish Industry and Development Bank (TSKB), Fiba Banka and Sekerbank were investigated. • As Turkish Association of Energy Management (EYODER) was also examined for the crucial opinions about the market.

Summary of the Results - 1 • Most of ESCOs/EVDs have been active in the market since the first authorization period meaning that starting from 2009 although they were not certified at the beginning. • additionally 8 out of 13 have been authorized for energy certification of the buildings. • Common comment: “Cost of EE audits in the market are very low. pre-determined base cost levels could be the solution.”

Summary of the Results - 2 Other comments: • The incentives by the government should cover the building sector, especially including the governmental/public buildings. • Energy performance contracting should be considered as a financial alternative for the sake of having a lot of best practices. (Note: It is observed that there are differences between perceptions of EPC structures). • The control/inspection on EE implementation should be strictly applied to be able to get rid of bad examples that can result in not believing EE by the costumers.

Scope of the projects and Types of contracts • In the industry sector, – mainly more energy consuming and ones with well-known processes are preferred – mainly EE audits, EE project development and implementations can be handled together or separately

• In the building sector, – commercial/service buildings (bank offices, shopping mall, etc.) – energy labelling of the existing buildings, – as the same as industry sector EE audits, project development and implementations are usually considered, together or separately

• Contracts, – Majority of ESCOs/EVDs work with standard contracting (self or costumer financing). – If it is also EE technology, product or system provider, it can do sale contracts. – Only 3 of ESCOs/EVDs in the surveying stated that they are doing some modified EPC schemes.

Major EE applications • Renovation or replacement of EE consuming passive (building envelope – insulation) and active (heating-ventilation-cooling, lighting, steam, compressed air, etc) systems • Automation of energy consuming systems • Recovery of waste heat • Application of cogeneration/tri-generation systems • Application of solar and wind energy, heat pumps • Energy certification of buildings and green building studies can be regarded as secondary areas for ESCOs.

Financing alternatives • Self-finance • If they are EE technology/product/system supplier, usually finance themselves through sales of these EE solutions • If customers are in big-scale, costumer financing is another option especially for the big industrial facilities • Credits provided by the local banks; but the conditions of these credits should be re-evaluated for more attractive conditions • If an ESCO/EVD acting in the industry sector, it can prepare an EE project upon the costumer request to apply Energy Efficiency Project (VAP) or Voluntary Agreement incentives by the government • There are few examples using international funds such as EU, development agencies of EE member states (GIZ, KfW, AfD, etc).

Revenues of ESCOs - 1 • From World Bank up to now; – TSKB and Turkish Development Bank (TKB), 1 billion US Dollar from EBRD and 100 million US Dollar from Clean Technology Fund (CTF) were allocated for Turkey. – 20 EE projects and 1 000 MW renewable energy projects with over 200 million US Dollar were realized in cement, metal and chemical sectors.

• From ESCOs/EVDs, replied; – For commercial/service building, energy saving potential that can be technically feasible to recover is in between %10 to %40, meaning that if the annual energy bill of the building costs 1 000 000 TL (333 000 EURO), the saving could be 100 000 TL (33 000 EURO) to 400 000 TL (133 000 EURO)!

Revenues of ESCOs - 2 • Energy Efficiency Project (Verimlilik Arttırıcı Proje) VAP incentive – Started from 2009, no application in 2011. – Each year around 5 000 000 TL (1 666 000 EURO) is allocated. • In 2009 only 1 100 000 TL (366 670 EURO) was spent (due to having short time period to learn and prepare). • But the used amounts has been continuously increasing each year

• New credit lines decleared in 20015 – Şekerbank – 245 000 000 TL (81 670 000 EURO) – Fiba banka - 50 000 000 EURO – TSKB – 50 000 000 EURO

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SAMPLE PROJECTS FROM INDUSTRY AND BUILDING SECTORS

Examples – 1 • EVD is actively working in Antalya province since 2009. • Mainly projects are with regard to hotel buildings. – In Antalya region, as expected, cooling loads are higher than heating loads. – At the beginning, the managers of the hotels would have no interest for EE projects. – EVD started to build 3 MW tri-generation facility for a hotel with its own financing. • The investment cost is about 3 million TL (1 million EURO) • Annual benefit is about 1 million TL (333 000 EURO)

– After this successful investment, 10 hotels are willing to construct cogeneration or tri-generation facilities. Nowadays, projects are on-going. – Applications of heat pumps using the soil for cooling and heating was realized. • passive cooling in the summer, no compressor is utilized • after the application, approximately 75-80% energy saving from electricity used for airconditioning was the case

– Now, the new project will be to construct a sun collector’s farm and providing 1MW electricity to each hotel in the scope.

Examples – 2 Dye house of a textile factory • Application period February 2014 – March 2014 • The measures applied; – Automation of heat exchanger – Inverter usage in circulation pumps – Waste heat recovery from the compressor

•

The cost-benefit analysis

Costs and payback periods Benefit from electricity (TL) 121 071 Benefit from natural gas (TL)

94 248

Investment cost (TL)

193 000

Payback period

10.7 months

• At EE audits the payback period was estimated as 13 months but it was realized as 10.7 months after applications. • Annual decrease in carbon emission: 695.9 ton. • Self-financing. • 5 others are going to be planned for textile sector to implement and will be applied to VAP incentives.

Examples – 3 • Projects have been performed between 2011 and 2012 for different sectors such as tea factories and public buildings like dormitory buildings in different regions of Turkey. • For all tea factories studied: Type of energy Electricity Thermal (natural gas, coal, fuel oil)

Total Investment (TL) 6 170 538 20 741 127

Annual saving (TL/Year) 2 210 334 14 230 820

Payback period (Year) 2.83 1.67

• For public buildings studied: Type of energy Electricity Thermal (natural gas, coal, fuel oil)

Total Investment (TL) 2 930 025 6 911 893

Annual saving (TL/Year) 669 408 2 886 947

Payback period (Year) 4.4 2.5

Examples – 4 • Turkish representatives of one of important company from Germany. • Separates EE measures as gold, silver and bronze according to their payback periods. – Projects with payback periods smaller than 3 years – gold – Between 3-5 years – silver – Bigger than 5 years – bronze

• In Bursa Organisational Industry District (totally 16 facilities: 6 textile (1 is ongoing hence not presented in the results), 10 automotive) – 75% of the investment was from Ministry of Economy – 131 gold measures providing 22% energy recovery – 1.5 year payback period as an average – 5.7 million TL decrease in energy bills per year – 14 500 tons of CO2 was prevented annually

Examples – 4 – In automotive factories • • • • • •

18 compressed air – comprising 11% of energy recovery 10 waste heat recovery – 10% of energy recovery 9 lighting systems + 5 insulation – 18% of energy recovery 3 cooling system – 22% of energy recovery 3 inverter applications – 14% of energy recovery 15 other specific applications – 25% of energy recovery

– In textile facilities • • • • •

17 waste heat recovery – constituting 35% of energy saving 17 insulation – 16% of energy saving 10 steam system – 32% of energy saving 6 compressed air + 5 lighting system – 10% of energy saving 13 other process specific applications – 7% of energy saving

Examples – 4 • Utilize a special type of contract, which is used in Germany for about 1300 EE applications. – a cycle starting feasibility to implementation to financing and ending a performance indication – similar to EPC in which performance is guaranteed. – works in turn-key basis. – measurement-verification-validation is also included by means of third independent body. – Reimbursement of ESCO starts after getting the reduction in energy bills on monthly basis. – After phasing out, the maintenance is also under responsibility of ESCO. – Total contract period is 10 to 15 years.

Examples – 5 • EU project entitled BRICKER, – brings together 18 partners from 5 different EU-countries: • Spain, Belgium, Italy, Germany, Poland, and Turkey

– aims energy reduction in public building stock, together with Ozyegin University from Istanbul and Adnan Menderes University (ADU) from Aydın Province as Turkish team – specific point : suppliers have a chance to test their new EE technologies in the implementations within the project – reputability of the planned project is of concern under project outcomes

Examples – 5 • In ADU, the planned project: – The hospital building at the campus as demonstration building with total area of 19 467 m2 – 600 patient beds and 350 employees – Estimated energy saving potential 51% – Estimated payback period 7 years – The reputability is about 11 920 buildings – EE measures: • 7430 m2 insulation of building envelope • 3360 m2 insulation of the roof • 1300 m2 passive ventilating façade and windows (no any application in Turkey) • 1300 m sun reflecting glass films • Sun collectors – 1 MW • Cogeneration unit – 100 kW electric + thermal • Adsorption chiller • Change in operational procedures

FUTURE PROJECTIONS

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SWOT Analysis STRENGTHS

WEAKNESSES

Presence of legislation

Wide scope legal framework (EE Law) which is very difficult to implement

Transmission phase almost over between 2009 and 2014 In the market, about 30 ESCOs/EVDs continuously acting starting from 2009 meaning sustainability Presence of individual examples by ESCOs/EVDs that can be properly collected, analysed and used as a data bank and reference studies for specific sectors to determine EE measures easily “Learning not only from know-how but also by doing”

Not presence of Energy Agency like institution which can be regarded as independent body Lack of good example of EPC Lack of measurement and verification protocols EE projects are considered «high risk» Long implementation periods of EE projects (10 -15 years) which is unusual for Turkey (i.e. max. 3-5 years in Turkey)

OPPORTUNITIES

THREATS

Variety of international financial institutions allocating funds for Turkish market improvement because turkey is a large country and number of industry facilities and buildings are high

Risks of wrong project design due to lack of control mechanisms

If there are sample projects for the new EE technology applications, there is a big chance to widespread easily in the similar types of projects

Risk of wrong evaluation of EE performance because of inefficient tools,

Major expectations and recommendations - 1 • Need for more effective and/or independent institution needed at the government side – for the sake proper management, control, verification, validation and database formation as well as applying incentives/punishments, effectively • Formation of independent referee/validation and verification institutions – to check the EE projects objectively according to specified international criteria • In the market, need for specific incentives for SMEs and especially building sectors – the incentives from the government has leverage effects meaning that providing 1 unit will result in additional investment of 10 units (comments from EYODER) • For the best practices, more crucial buildings are governmental/public ones – ESCOs/EVDs as being private companies should have a chance to develop and implement projects with the application of real EPC

Major expectations and recommendations - 2 • Need for developing standard EPC scheme and using in demonstration projects – for more proper and result oriented (recovering as much energy saving potential guaranteed as possible) with 10-15 years contract durations

• Need for more active and financially strong umbrella institution like association for ESCOs/EVDs in the market • Developing “National Energy Efficiency Fund” by the government, international funding institutions and local banks – for the effective usage of allocated funds in long terms and low rates

• Developing reference performance indicators by user-friendly, verified tools/programs – publicly available results for comparison within the sectors

• Training of local banks or cooperating with EE experts in terms of EE technology, products, systems evaluations – for evaluating EE projects on the basis of true performance criteria

Areas that can be improved - 1 • For EE audits – The quality and the comparability of the audits should be improved – The new incentives by the government (like VAP comprising mandatory audit applications) should be developed and served for giving a direction to the market. – To be able to standardize the audits, base prices should be determined. By this way, low quality and inefficient studies can be eliminated.

Areas that can be improved - 2 • For the project development and implementation – Control, validation and verification are very important and objective control institutions should be considered like universities. – If the guaranteed energy savings could not be achieved, the punishments should be applied strictly. – Development of a database by analysing the existing data about Turkey (energy consumptions, total investments, implemented EE projects, realized energy savings, etc.) – • If any industry or building have higher values as compared to this reference indicators, required punishments should be applied otherwise some bonuses shall be provided such as private certification, announcing via internet, media, etc. and giving priority for the governmental incentives.

Areas that can be improved - 3 • For the project development and implementation – Providing long term and low interest credits/loans from the banks • in the current situation, EE credits are serving like a normal credit lines

– Both correct understanding the concept of EPC and developing demonstration projects by international donors EPC • To decrease the risks for the costumers and to realize high energy saving potentials and to use new EE

– Wide spreading ESCO concept in Turkey • Specialized ESCOs on targeted sector(s) experiences on energy systems and technologies, energy efficiency projects, feasibility studies, providing financing, project management, reaching any kind of support via service agreements

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