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The impact of measurement and verification option choice on financial returns for clients in energy performance contracts
Energy Performance Contracts (EPCs) differ from traditional energy efficiency upgrades due to the degree of performance risk transferred to the supplier (ESCO) for the level of energy savings delivered. While there are many different forms of EPC a fundamental component of all is the need to agree how savings will be measured and verified, in order to determine if the guaranteed level has been achieved. The choice of Measurement and Verification (M&V) strategy is typically approached as a trade-off between the cost and complexity of the measurement method and the need for accuracy. However, different M&V strategies imply different measurement boundaries for energy savings and thus the level of savings covered by the guarantee can vary significantly. While many commentators have pointed to the importance of robust M&V arrangements, there has been almost no discussion of the commercial implications of the choice of strategy. In this study, stochastic modelling is used to take account of the large number of uncertainties inherent in any building retrofit project when exploring the consequences of the choice of measurement boundary for a lighting upgrade project. The results highlight the need for a more sophisticated understanding of the impacts of the trade-off between cost of monitoring and accuracy of results. Without this the ESCO industry risks a loss of trust as a result of a sizeable proportion of clients receiving lower than expected savings with no recourse under the guarantee.
The impact of measurement and verification option choice on financial returns for clients in energy performance contracts
Energy Performance Contracts (EPCs) differ from traditional energy efficiency upgrades due to the degree of performance risk transferred to the supplier (ESCO) for the level of energy savings delivered. While there are many different forms of EPC a fundamental component of all is the need to agree how savings will be measured and verified, in order to determine if the guaranteed level has been achieved. The choice of Measurement and Verification (M&V) strategy is typically approached as a trade-off between the cost and complexity of the measurement method and the need for accuracy. However, different M&V strategies imply different measurement boundaries for energy savings and thus the level of savings covered by the guarantee can vary significantly. While many commentators have pointed to the importance of robust M&V arrangements, there has been almost no discussion of the commercial implications of the choice of strategy. In this study, stochastic modelling is used to take account of the large number of uncertainties inherent in any building retrofit project when exploring the consequences of the choice of measurement boundary for a lighting upgrade project. The results highlight the need for a more sophisticated understanding of the impacts of the trade-off between cost of monitoring and accuracy of results. Without this the ESCO industry risks a loss of trust as a result of a sizeable proportion of clients receiving lower than expected savings with no recourse under the guarantee.
The impact of measurement and verification option choice on financial returns for clients in energy performance contracts
Fennell, PJ (author) / Ruyssevelt, PA (author) / Smith, AZP (author)
2017-11-29
In: Proceedings of the International Symposium to Promote Innovation & Research in Energy Efficiency 2017 (INSPIRE-2017). International Symposium to Promote Innovation & Research in Energy Efficiency (INSPIRE): Jaipur, India. (2017)
Paper
Electronic Resource
English
DDC:
690
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