What can be done to encourage ESCO take-up in an early stage market? ManagEnergy asks Miguel Feliz in the national energy agency ADENE, Portugal.

Miguel Feliz, ADENE

Here in Portugal, the ESCO market in [government owned] public buildings is practically nonexistent. Until recently, the procurement rules for public
authorities were not geared towards these kinds of contracts, which made it difficult. The economic conditions of the last few years don’t help either.

The private sector has a few successful cases, in buildings and industry, namely in the hotel & leisure sector and in partnership with industry

Market size

The private sector has probably around €50 M in actual contracts – mainly in industry.

The public sector has a lot of potential – at least €100M if the current programs can succeed and really lift off.

National strategies and policies to encourage ESCO growth

Back in 2010 the Portuguese Government decided that the ESCO structure was ideal to help the public sector to improve energy efficiency and to save on
energy budgets. This was part of the Eco.AP program.

The structure for a new public contracting scheme was created (Decreto Lei 29/2011), the architecture of the process was defined (RCM 67/2012) and finally
the contract draft to be follow by all public institutions was published very recently (Portaria 60/2013). All the legal tools are now in place, so the
process will now start in a more practical and forward way.

At the same time, the government sought ways to help with the financing of the ESCOs, with European Union funds, as well as through educating the
Portuguese banks to know more about energy performance contracting, with the aim of increasing the flow of funding for energy and ESCO related projects.

To foster market confidence, a new definition of ESCOs was created, underpinning an approval system with strict financial and technical benchmarking. This
pool guarantees that all the companies have the technical quality and financial structure to make a long term energy performance contract.

So, to sum up, in the public sector Portugal has provided a strong regulatory framework for ESCO development.

With this effort based in the public sector there is hope that the private sector can also benefit from the buzz around the ESCO concept.

Barriers to growth

As you know, like many other countries Portugal is facing difficult financial conditions and so here there are challenges in everything that involves money
and investment.

The first barrier is the lack of financing available from banks in Portugal, especially for new projects in the energy sector. In this financial
environment there are a surplus of projects with very good finance indicators and based in known technologies. It’s easy to understand that new contracting
schemes and engineering solutions not yet studied thoroughly by the banks have difficulties in finding the adequate finance.

This is the financial rationale behind the contracts – but the lack of available money to invest is the real problem.

The second barrier is the lack of expertise in the public services, either to launch contracts or to supervise them.

As the second barrier can be overcome with more training and education, the first one cannot easily be overcome.

What targets are you hoping to reach in the next 1-3 years?

There is a Government plan for launching ESCO contracts worth €10M in 2013, €20M in 2014 and €30M in 2015, all of them in the Eco.AP program environment.
Let’s see how it goes and how the market reacts to this new contract scheme and how the economic situation will evolve in the next few years.

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