energy
efficiency management, which at the end is linked to a better understanding of
the future development of “Smart Cities” initiatives in EU countries.
Keywords: Smart
Cities, ESCO, collaborative relationship, Spanish ESCO, energy saving in
European Union
1. INTRODUCTION
The
XXI century, among other things, has led to the consolidation of the trend
toward a stronger and faster concentration of the planet's inhabitants in cities.
Suffice it to say that today more than half of the world population lives in
cities and, as example, it is estimated that only in China more than 350
million people will migrate from rural areas to cities in the next 20 years,
this means a higher figure than the current population of the United States of
America.
Specifically
in the European Union (EU), during the last decades of the twentieth century,
the population living in cities has gone from 50 percent of total population in 1950
to over 77 percent in 2010, and last forecasts estimated 85 percent in 2050
(CARAGLIU et al. 2011). In this situation, the highest challenge is to be able
to develop more livable ecosystem than today for such future huge population
concentrated in large cities.
Also
this issue is fully linked to energy consumption, and over three quarters of
the worldwide energy is consumed in cities as they concentrated people and the
main areas of economic development in the planet. Given this situation, there
have been many, but scattered, initiatives all related with the quality and
efficiency of services provided in cities, as the axis on which underpin the
foundations of numerous projects to achieve attractive socioeconomic ecosystem
which has been called as "Smart Cities". In this study authors
analyze "Smart Cities" concept and discuss in greater depth one
aspect thereof which is developing faster: efficiency in energy management as a
basis for environmental, social and economic sustainability.
The
importance of this topic is beyond doubt because although in cities are the
main areas of development of the planet (because of population mobility), is
also where it is consumed three quarters of the world's energy and for
countries, as Spain, with limited conventional energy resources this issue
becomes even more strategic.
In
this context, a significant example is the use of models of integrated energy
management where the supply and consumption of a particular organization is
managed by another organization working to optimize the client energy
efficiency and linking supplier´s company their revenues to real savings
achieved by their client in a given period
Cities
authority vision should move beyond traditional way of managing problems. It is
not enough to regulate traffic, collect garbage or lighting public roads, but
they should be the focus on getting a better citizens life quality. They are
be-coming "socio-economic corporations” managers and they need vision and
long term strategies where relevant issues are not only linked to construct
nice bridges, public offices or rail stations for posterity, but cities where
citizens could live better in terms of environment, safety, mobility, access to
information, ...etc. Based on this, many initiatives -although somehow
scattered- related to service efficiency improvement emerged within cities and
European Union (UE) has included plans in its strategic agenda to promote
actions focused to cities referred as “Smart Cities”. Idea is to turn them into
sustainability platforms in a broad sense (economic, environmental and social)
through plans to achieve higher energy efficiency and extending communication
networks. This study is focus on "Smart Cities" development and a
novel practice in Spain that is rapidly gaining relevance: emergence of new
types of partnerships between organizations to optimize energy management.
2. STUDY METHODOLOGY
The
study seeks to understand to what extent Smart Cities have solid foundations to
support a strong development on efficient use of energy, based of new type of
collaboration models through so called Energy Service Companies (ESCO). To
carry out this prospective study, in an area still no too much developed,
authors have used qualitative research methods (in-depth interviews and study
of good practices), that Eisenhardt (1989), Gummenson (1991) and Yin (1994)
advise as appropriate for the exploration of innovative aspects in
organizational management. In this study a kind of “participatory observation”
in which several participants share information and personal opinion has been
conducted during the field survey, all of them belonging to a group of people
involved in energy saving management area (NANDHAKUMAR; JONES, 2000).
Information
has been obtained mainly by: i) in-depth interviews with senior corporate managers
from four organizations strategically oriented to energy efficiency and
development of new business models in European Smart Cities projects (Philips,
Schneider Group, Endesa and Ingenia) and ii) Analysis of "good
practices" both in “Smart Cities” and “not Smart Cities” based on
information provided by Asociación Española de Empresas de Servicios
Energéticos (ANESE) members. Regarding in-depth
interviews to senior company´s executive, interviews were performed to eight
different executives (two per company) in different meetings (two or three
different meetings per executive) during years 2012 and 2013, using
semi-structured questionnaires and including several open questions in
following areas: i) Smart Cities current development and future vision, ii)
energy efficiency as a potential pillar of Smart Cities development, iii) ESCO
projects market characteristics, iv) their company business in ESCO v)
Opportunities and roadblocks in ESCO projects. Always trying to guarantee that
every relevant subject that appear could be touch in the discussion on top of
issues pre-planned for authors and fully guaranteeing that information would be
used only for academic meaning.
Given
the nature of the topic and the difficulty of accessing the information source,
often considered as highly confidential, companies selection was decided
according to criteria such as: company relevancy within the sector and authors
accessibility to organization´s top management.
3. WHAT IS THE MEANING OF SMART CITY?
The
term “Smart City” has often been used to describe projects related to improving
communications infrastructure and information technology within cities. The
relationship between communication networks development and economic growth
indicators has been studied by authors like Roller and Wavermann (2001) and
other authors, all of them emphasized
high relevance of human capital role and education as levers for cities
development (GLAESER; BERRY, 2006). Some studies have attempted to characterize
Smart Cities as: i) areas for urban and business development and capabilities
to attract new business (HOLLANDS, 2008; SHAPIRO, 2008), ii) place where
community learns, innovates and people use technology to improve their quality
of life (COE et al, 2001; ABREU et al, 2008). Caragliu et al (2011) study
defines "Smart Cities" as those where investments in human and social
capital are managed besides efficient public services (such as transportation,
communication network, etc.) supporting a balanced economic growth through
proper and efficient use of resources both in public administration and private
entities.
Some
authors tried to emphasize the “technological angle” when they talk about Smart
Cities, but this is only a piece of an entire, complex and multi-dimensional
environment. Smart Cities involves many matters and subjects further than
technology and if there is a well-known movement in this area is probably due
to image opportunity given by some technologies start-ups. But cities are more
than future internet accessibility and mobility, as the citizens require simple
and reliable basic services as street lighting, security, health, water supply,
garbage collection and processing and all other minor services than are critic
for city life with a minimum of quality. Smart Cities concept is not only
applicable for brand new cities where government decides to invest toms of
money to build a new way of living, it is also applicable for large old cities
where responsible aim to have a “rather better living environment”. In this
sense it will be more areas than technological ones where initiatives should
influence to turn on the current practices into a fully new strategy and
deployed policies.
Table 1: Different visions regarding Smart Cities
|
A.
Network infrastructure to improve economy and
public general services |
Hollands (2008) |
|
B.
Strong emphasis in urban development and
attractive and nicer cities to attract new businesses |
Hollands (2008) Shapiro (2008) |
|
C.
Strong emphasis to attract high technology
companies to city, creating high
sophisticated environment for business and people |
Florida (2002) Glaeser and Berry (2006) Nijkamp (2008) Hollands (2008) |
|
D.
Attention to relational and social capital
development. A Smart City would be a place where community learn and
innovate. People use technology to improve their quality of life |
Cohen and Levinthal (1990) Coe et al. (2001) Abreu et al. (2008) Caragliu et al. (2011) |
|
E.
Social, environmental and economic
sustainability are the main Smart City strategic component on long term |
Caragliu et al (2011) |
Source: author´s elaboration
Among
all the contributions, Caragliu et al. (2011) has defined as "smart
city" as the one that invests in human and social capital, at the same
time that effectively and efficiently manage public services (such as
transport, communications network, etc.) and support an balanced economic
growth through the proper and sustainable use of their resources, both
applicable in terms of public administrations and private entities.
In
could be point out that a growing number of cities are seeking to be recognized
as Smart Cities and they are working to show above aspects. Rankings are useful
as the one provided by Giffinger and Gudrun (2010), which proposes criteria for
the assessment and classification of cities that claim to be recognized as
Smart cities (Table 2).
As
discussed during this article, study is focused on Environment area (Table 2)
and particularly in the new models being organized around the need to be more
efficient in the use of energy. Today cities planning to get recognition as
Smart Cities, have no other choice that to create an efficient energy
management environment for energy use.
Even
although achieving a "Smart" tag can be an incentive for such
projects, energy efficiency is a must and the quality of life of citizens will
be seriously influenced by this type of project. Growing number of cities want
to be recognized as Smart Cities, so it is necessary to establish assessment
criteria to recognize them as such and, as previously indicated, one of the most accepted classifications was
developed by Giffinger and Gudrun (2010), including criteria as
competitiveness, people capabilities, citizen participation, transports,
communications, environment and quality of life.
Table 2: Criteria to be considered for Smart Cities classification
|
1.
COMPETITIVENESS |
2.
PEOPLE (HUMAN CAPITAL) |
|
Innovation, productivity and labor flexibility |
Qualification level, public life participation and training |
|
3.
CITIZEN PARTICIPATION |
4. TRANSPORT AND COMMUNICATIONS |
|
Public participation, public services and
performance, and participation forums |
Accessibility, infrastructures and public transport |
|
5.
ENVIRONMENT |
6. QUALITY OF LIFE |
|
Energy efficiency, pollution level and waste
recycling |
Health attention level, education and housing quality |
Source: based in Giffinger and
Gudrun (2010)
Many
projects related to cities development have attempted to be classified as
"smart" during last decade and European and Spanish cities are not an
exception in this new city strategic movement to get a kind of “quality
recognition” aiming to capture attention from companies and citizens, despite
some level of “marketing” that often is used by city responsible to increase
their reputation as good administrators beyond typical cities achievement.
Among others, projects listed in Table 3 represent this trend.
Table 3: Smart Cities projects sample
|
Country |
Year |
Objetives |
|
Abu Dhabi (UAE) |
2006 |
30% electricity
saving in University area |
|
Estockhom |
2007 |
Mobility and
energy saving project |
|
Málaga (Spain) |
2009 |
20% energy
saving. Electric vehicle project |
|
Songdo (South Korea) |
2009 |
New city based
on efficient resources use. 75% materials recycling |
|
Valladolid y Palencia (Spain) |
2010 |
Energy, mobility
and recycling projects |
|
Búzios-Rio de Janeiro (Brasil) |
2010 |
City was planned
to be a best practice on electricity consumption |
|
Barcelona (Spain) |
2010 |
Mobility and
communications |
|
Paredes (Portugal) |
2011 |
New Project for
a very efficient new design city |
|
Madrid (Spain) |
2011 |
Mobility,
communication and energy efficiency projects |
|
Proyecto OutSmart (Santander (Spain) and others) |
2011 |
European Union
Project including: waste management, water, transport and lighting |
Source: author´s elaboration
In
Spain, Malaga city has been a pioneer in this movement and put big efforts to
develop projects which have brought a high level of recognition among those
cities considered as Smart Cities. For years this kind of “smart” projects
development was more a result of local initiatives than a country or regional
coordinated strategy, however the European Commission (2012) recently
established these practices should be integrated into EU strategy.
4. EUROPEAN UNION STRATEGY FOR SMART CITIES
European
Union has announced a new European Innovation Partnerships (EIP), with the
intention to mobilize some relevant key innovation stakeholders. To avoid
unsuccessful approaches and efforts strong dispersion this plan is focused on
energy management efficiency and city transport improvement innovation across
cities, so subjects related to energy management and urban energy use, cities
transportation/mobility and communication systems. This plan looks for
encouraging faster partnerships development to catalyze progress through new
practices and models, finding ways to merge into comprehensive and
multidisciplinary solutions to achieve better efficiency and shorter time spam,
better use of resources and obtaining meaningful greenhouse emissions
reduction. Ultimate goal is that European cities would become places with an
advanced social and environmental progress and economic growth engines with a
holistic sustainability (economic, social and environmental) view within 10-20
years.
To
minimize opportunistic behavior risk it have been defined some specific project
rules: i) solutions must be sufficiently robust and flexible enough to integrate
future technologies, ii) It should not be introduced any additional market
barrier from any particular manufacturer, iii) companies willing to work on
these projects must be open to share information with others - even competitors
- during the project development.
EIP
involves "ecosystem test model" generation, where cities and
companies, under sponsorship and supervision of the EC, will test and evaluate
different solutions. This movement is framed within the overall strategy of
European re-industrialization, since industry could be supported by this plan
on their vital fight for global technological leadership. In the initial phase,
initiative seeks to implement and demonstrate existing solutions in energy and
communications areas at certain cities, not only just waiting for disruptive
technology that would need some extra time to get results in field. These pilot
projects should encourage strategic alliances formation by innovative companies
acting in any of the three indicated areas and interested in joining the
European project. These companies should establish partnerships agreements with
interested cities and local companies to implement solutions in a short time
spam.
5. ENERGY AS COMPETITIVENESS FACTOR IN CITIES AND ESCO
FORMATION
Availability
of abundant energy at low prices has fueled global economic growth during last
twentieth and current twenty-first century. But this resource could be in the
coming decades the biggest limiting factor to keep world quality of life, and
this situation is somehow related to Thomas Malthus thoughts (1798) when he
wrote on high risk involved in the population growth within limited land
suitable for cultivation. Industrial Revolution generated in England – and then
in the rest of Europe and America – developed new economic activities that
avoid this potential problem and maybe we need now another revolution in the
energy field.
Today,
the people who live and conduct their activities in cities jointly absorb the
75% of the world's total energy consumption and this volume is accelerating, on
top of that the emergence of new sources of energy, working on profitable
operating conditions is not always be able to follow the growth at a similar
rate that demand, and energy prices tend to rise despite conjectural downs.
In this
situation, the rapid growth of energy consumption in emerging countries create
a particularly serious problem for countries like Spain, with a high
de-dependence on external supply sources. It is therefore not surprising that
the economic viability of companies and municipalities are affected not only by
the way I which energy is produced, but also for the manner in which it is
distributed and used. According to a report by McKinsey (MOHR et al., 2012),
energy accounts for 45% of production costs for TV manufacturers so they are
trying to redefine all product design and production processes, in order to
avoid that the impact of the energy cost seriously impair the competitiveness
of their products. Another example is related to consumer goods packaging in
the United States, which has halved energy consumption in three years (DOBBS et
al., 2012) through collaboration between the different members of the supply
chain in search of materials, technologies and more efficient ways of working.
In
this supply chain collaboration, an ESCO (Energy Service Company) could fit.
ESCO is could be defined as a company that accepts an agreement with an entity
(public or private), considered as the “client”, in order to optimize the
overall - or part- management of their energy. Ensuring a certain service level
with comprehensive cost savings and being able to improve the initial energy
situation far above client could achieve alone will be major ESCO objective.
To
achieve these savings, ESCO invests in more efficient technologies, install
them, even in some cases fund the investments and maintain them for certain
number of years included in the contract, seeking for maximum cost/efficiency
ratio and ensuring service level agreement with the client for the specific project
(Vine, 2005). It should be noted that such partnerships are already in use in
the United States and Europe for over thirty years but only in last decade have
been strongly pushed from governmental institutions within the European Union.
No
doubt as Hartley (2005) points out, that this type of practice is a kind of
horizontal "collaborative innovation", as this new way of working
seeks to simultaneously improve cost and service, through management
information integration and the use of new technologies within a rather new
collaborative model between organizations.
It
should be point out that the basic ESCO model, according with Bertoldi et al.
(2006), is based on a particular system of compensation with combinations
related to the type of contract agreed between the parties and always with a
commitment to compliance with the agreed service level.
In
Spain, the Royal Decree 67-2010 regulates ESCO type companies and state that
"energy service provided by the ESCO will consist of a range of services
including conducting intangible investments, works or supplies necessary to
optimize quality and reducing energy costs. This action may further comprise
the construction, installation or transformation of works, equipment and
systems maintenance, upgrade or renewal, exploitation or management arising
from the incorporation of efficient technologies. The energy service, so
defined, shall be paid based on a contract to be carried associate a
verifiable, measurable or estimable savings"
As
mentioned before, EU major goal is to identify successful business models that
can be adapted to local circumstances, stimulate innovation and create local
jobs. This view fits with models like those developed around ESCO (BERTOLDI et
al., 2006) so they can contribute significantly to Smart City projects
implementation. Also ESCO could capitalize their capabilities for efficient
collaboration with complementary partners to extend their business to other
technologies beyond energy management. Understanding Spanish ESCO opportunities
development and barriers can anticipate implementation ways for faster
development also gaps and be useful for further initiatives developed under
Smart City umbrella.
6. ENERGY SERVICE COMPANIES DEVELOPMENT IN SPAIN
ESCO
organizations operate in Europe to respond to something that is sorely needed:
energy costs reduction based on more efficient use. ESCO are seen as part of
conceptual models of "extended enterprise" where what matters is not
if a specific chain link is very efficient but if whole chain is as efficient
and competitive as possible. Energy consumption fast growth is a serious
problem for countries like Spain with a high dependency on external sources of
supply.
EU
Directive 2006/32/EC on energy services, established framework for this type of
companies within European Union: i) it sets energy efficiency targets for 2016,
ii) it defines ESCO type companies management model, iii) it encourages service
payment should be based on energy efficiency targets achievement, iv) It
promotes financing agreements with financial institutions, v) it recommends to
Public Sector to create best practices. In Spain, Law RD 6/2010 and RD 3/2011,
regulate ESCO company standards and conditions for operation. Final agreements
present several combinations depending on the type of con-tract agreed between
parties. Typically, an ESCO is the main integrator responsible for the
management and coordination of all the elements within energy project.
It
should be told that this business model based on collaboration between organizations
to achieve savings in energy management could be traced in Spain over thirty
years ago when, still without specific legal regulations, it began initial
projects around energy co-generation.
From
cases studied in this research, most frequent services offered in Spain include
lighting, air conditioning, operations and co-generation. Savings will depend
on specific application area (shopping malls, hospitals, hotels, universities,
offices, roads lighting, etc) and also in technology (main savings are expected
in lighting and air conditioning). Potential savings range could be from 15% to
40%, and value will depends both on the baseline and applicable technology.
Currently, most common projects are conducted in urban road lighting, hospitals
and shopping malls. Spanish partners select ESCOs based on proven records in
project experience and appropriate technology
6.1 ESCO
agreement models in Spain
In
Spain, ESCO agreements varied from project to project and it depends on
bilateral negotiation between parties, but they used to be linked to specific
service levels and potential savings that could be achieved by partners.
However, we can distinguish two main types of agreements structures: i) energy
supply agreements, where client pays for the useful consumed energy at certain
agreed price. Energy efficiency measures are usually limited to energy supply
to building or installation and client pays to ESCO a certain value based on
electricity amount minus an agreed percentage of savings, ii) agreement on energy
performance, service payment is based in energy efficiency improvements against objectives set in the
contract, keeping service level.
In
general, ESCO charged an agreed fee which depends on the energy saving
achieved. If ESCO revenue is linked to
“savings”, speaking of "performance" is a more appropriate measure to
establish the success of the operations of the subcontractor, since savings may
depend on the activity of the client or exogenous factors such as the weather.
Inside
cases studied in this research, energy services offered were including:
lighting, HVAC, equipment operations (machines, IT) and also cogeneration
projects. Although in the case of city halls, the priority was lighting on
public roads and major municipal office buildings, because the return on
investment in these applications was relatively short (2-3 years), and these
projects improves sharply the quality of lighting, giving a high visibility of
results to the citizens.
Regarding
the number of ESCO companies operating in Spain, the Instituto para la
Diversificación y Ahorro de la Energía (IDAE), has created a database where
they have registered hundreds of companies, of different size, that declare
they have activities related to energy efficiency. However, taking into account
the capacity to undertake projects of some complexity, both technical and
economical, and also data bases from professional associations real number of
companies able to carry out these projects could be below 60 companies (only 59
companies have over 250 employees (IDAE, 2012)). Other sources, as the
Asociación de Empresas de Servicios Energéticos (ANESE), evaluates at a level
of 130 companies the number of organizations active in its association as
involved in ESCO activities (ANESE, 2012), nevertheless in this figure there
are many different companies from those making real ESCO project integration,
from main subcontractor till mere components supplier which belong to this
professional organization just to be aware of what is happening in this new business
models (i.e.: lighting manufacturers). If we consider another alternative
source of information, such as the amount of the Spanish enterprises dedicated
to the process of large projects installation and maintenance, grouped in the
Asociación de Grandes Empresas Instaladoras, their experts estimate around 30
companies (IDAE, 2012) with current or potential future activity in the market
ESCO, as real ESCO companies in Spain by the end of 2014.
It is
important to note that although this business model based on collaboration
between organizations is relatively new, its origins in Spain could be traced
back to the late 80s of last century, when even without specific legal
regulation the first projects started around energy cogeneration projects (as
known, cogeneration is the process by which electricity and useful thermal
energy is simultaneously obtained (steam and hot water)). In particular it
could be highlight Sinae, a company formed in 1988 and owned by Mapfre, Atisae
and Idae, to carry out this kind of projects so frequent at that time,
implementing cogeneration plants in hospitals, businesses ceramics centers,
shopping malls... etc.
Figure 1: ESCO projects evolution in Spain.
Source: author´s elaboration.
Gradually
energy savings knowledge was spread, and in 2006 began to be applied to common
lighting and climate control projects, while the future trend is to integrate
all these projects to present comprehensive proposals covering energy cost
reduction.
Regarding
agreements formalization, usually it takes shape as a formal contract between
partners in which it will clearly indicated how savings will be distribute
among parties. Generally contracts include client, ESCO and often a financial
institution to support project financing, and two main types of contractors are
distinguished in Spanish practice: a) guaranteed savings contract, in this case
a certain saving amount is guaranteed to client whenever client operations
remain within agreed limits. Investments are usually carried out by the client
and its support financial risk. If the real savings are below guarantee level,
ESCO must pay the difference. There is usually no contractual agreement between
ESCO and financial institution but this entity frequently requires their
technical commitment and economic compliance to guarantee project execution, b)
shared savings contract, in this case real savings are shared between ESCO and
client. Investments, usually, are manage by ESCO and transferred to client at
the end of the contract. It is agreed a fix payment to ESCO including
amortization, maintenance fee and a variable compensation linked to real
savings.
An
aspect quite interesting is to understand where ESCO projects more frequently
happen, in other terms where potential areas of application could bring higher
savings and/or return on investments. From available data (Comunidad de Madrid,
2010), it could be possible to identify main areas in which projects are
bringing higher attention, both for public entities (offices, hospitals and
universities and specially street lighting) and private organizations (industry
equipment, offices, hotels, hospitals and shopping malls). Public entities
focus is turning on street lighting projects which use to get a short term
financial payback and very high citizen´s visibility but there many other areas
where ESCO could fit perfectly as an attractive tool for energy higher
efficiency, while private sector is more focused on areas like equipment in
industry and air conditioning in offices, hotels and hospitals. Lighting used
to be a common technology item for improvement for all kind of areas but direct
expected savings are not as impressive as the others (equipment and air
conditioning), but still interesting.
Table 4: More frequent ESCO applications in Spain
|
Offices |
Hospitals |
Hotels |
|
Areas: lighting, equipment and HVC |
Areas: lighting and HVC |
Areas: lighting and HVC |
|
Consumption/employee: 2.453 kwh |
Consumption/bed: 29.199 kwh |
Consumption/daily guest: 1.920 kwh |
|
Potential saving: 30-40% |
Potential saving: 30-40% |
Potential saving: 20-40% |
|
Universities |
Street lighting |
Shopping Malls |
|
Areas: lighting and HVC |
Areas: lighting |
Areas: lighting, equipment and HVC |
|
Consumption/student: 406 kwh |
Consumption/habitant: 73 kwh |
Consumption/SQM: 350-400 kwh |
|
Potential saving: 25-35% |
Potential saving: 40-60% |
Potential saving: 20-40% |
Source: author´s elaboration
It is
very interesting to measure potential savings achievable from ESCO projects,
that it ranges from 20-40% like in shopping malls (lower level for buildings built within five
years and higher level for oldest than ten years, but also depends on initial
technology applied) to 40-60% in street lighting projects. That is the reason
why city halls are so interested on developing this kind of agreements: high
return on investment, low risk and short implementation timeframe.
6.2. Barriers faced by ESCO organizations in
Spain
At
the same time that ESCO projects are increasing and gaining additional
relevance in Spain, from in-depth interviews to companies operating in the
sector and additional data checked with other participants in the study, it has
been identified following barriers to further ESCO development in Spain:
a)
Financial and economic barriers
Energy
is recognized as an expensive input for companies but probably not enough to
force them to quickly enter into collaborative projects. Since energy price is
still not considered expensive enough by companies, pressure to recover
investment in a short term (2-4 years) gives very limited applicability to ESCO
projects, especially when technological investment are required.
b)
Legal Barriers
There
are important legal difficulties for contracting with public entities, even in
public-private partnerships. RDL 8/2010 law regulated all type of public
obligations to avoid public deficit increase and introduce many regulation in
governmental contract and obligations, in line with Spanish Government
extraordinary measures to reduce public debt. This law is so complex in term of
what could be considered as deficit that is blocking many ESCO projects when
public entities are involved. Accounting treatment of these types of
commitments make these contracts very unclear.
Also,
private sector has serious difficulties to adapt contracts to specific client
requirements. Contracts need to include many clause related to specific
operational details and it is not easy to translate into legal norms. So, there
is a serious difficulty to fit into Spanish legal practices despite it works
extensively in other countries and it should be accommodated Spanish legal
structure.
c)
Clients lack of knowledge. Distrust
As it
happen sometimes to new business model, clients distrust of something they do
not know enough, also it contributes to this situation a limited availability
of successful references. Dissemination of good practice is something that
would help significantly to grow, giving to this collaborative relationships a
high visibility and notoriety.
d)
Opportunistic behavior
In
some projects, collaboration aim was not well understood and some clients
thought these projects will mean just earning some amount of money with low
involvement. Opportunists clients interpret that this business model is was
based on an external organization who will take over energy efficiency
responsibility in their processes - and associated risk - with no
responsibility on their side will remain and this is totally against the
concept since mutual involvement in the collaborative relationships is the base
for energy management improvement and anything is foreseeable within a close
link between partners.
7. CONCLUSIONS
The
growing EU interest for Smart City development clearly indicates a strong path
for the development of different types of ESCO projects, as an innovative model
that links collaborative initiatives between organizations (public and/or
private) to achieve significant savings in energy consumption.
In
the case of Spain the steady increase in energy prices in recent years is an
additional incentive for these projects development, as far as economic impact
of energy savings will compensate price increases. Also, many ESCO projects
could be self-financed for investors, because savings are huge enough to pay
the amortization of the required investments, operating management expenses and
ESCO margin in an affordable timeframe (2-3 years).
Public
institutions, such as city halls, nowadays are searching for cost savings
measures in order to reduce public deficit, and energy management has become a
priority. Agreements with ESCO organizations able to manage and achieve net
savings between 40 and 60 percent of consumption are being implemented, like
for public roads lighting.
In
the private sector important companies, well known for their best practices in
process management, are beginning to realize that further improvements in
operational processes (design, manufacturing, transportation, etc.) may have a
limit, so some of them are applying efficiency practices to other relevant
resources as energy, and ESCO projects perfectly fit in this scenario.
Interest
shown by EU in the development of Smart Cities could be an important lever to
speed up project implementation, since ESCO mean a pillar for energy
efficiency. In fact, it would be very difficult to be a Smart City without
achieving significant savings in energy management area, which are more easily
achievable with ESCOs implementation.
However,
it could concluded Spanish ESCO market is still not getting expected level of
development due to reasons like: i) low energy efficiency permissibility in
organizations is still high, since there is not a broad sense of real impact in
the financial bottom line of the companies, ii) there are limited incentives
for improvements, iii) there is a widespread ignorance of the benefits
achievable through ESCOs, iv) still appear high difficulties in the Public
Administration to find legal ways for public projects if the aim is to afford
them without being counted as additional public debt.
From
this analysis, it can be inferred that ESCO projects are an advisable tool to
achieve energy efficiency goals in line with Smart Cities focus. In Spain, ESCO
projects are being gradually implemented, however its potential applicability
is still very huge and promising, probably much higher than initially
identified and involve important achievable savings based on collaborative
partnerships.
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