Financial viability of school retrofit projects for clients and ESCOs

Figures & data

Figure 1 Guaranteed savings structure

Source: Okay et al. (2008).

Figure 2 Typical RE:FIT contractual structure

Table 1 Project details

Details	Project A	Project B	Project C	Project D
Installation cost (£)	340,787	52,793	1,011,921	4,047,686
Number of buildings	10	1	1	4
Type of building	420 place primary school plus nursery (Department for Education, 2014)	As for Project A	800 place secondary school (Department for Education, 2014)	As for Project C
Energy conservation measures (ECMs)	Lighting upgrade (Chantrasrisalai & Fisher, 2007; Philips, 2010). Heating controls (TRVs)	Lighting upgrade as for Project A. Heating controls as for Project A. Boiler renewal (BRECSU, 1996)	Lighting upgrade as for Project A. Heating controls as for Project A. Boiler renewal as for Project B. Roof insulation. Wall insulation. Floor insulation. Replacement glazing	As for Project C
Simple payback (years)	6.7	8.7	21.6	As for Project C
Gas consumption	BRECSU (1996)	As for Project A	Caruana Smith (2009)	As for Project C
Electricity consumption	Philips (2010)	As for Project A	Philips (2010)	As for Project C
Energy prices	Department of Energy and Climate Change (DECC) (2013)	As for Project A	As for Project A	As for Project A
Inflation	2%	As for Project A	As for Project A	As for Project A
Discount rate	3.5%	As for Project A	As for Project A	As for Project A
Guaranteed saving	90% of mean expected saving	As for Project A	As for Project A	As for Project A

Table 2 Variable inputs

Variable	Description and assumptions	Range
Client transaction costs	Client staff and associated costs directly incurred in undertaking the project	±67% based on a range reported in interviews. This was extended to ±77% for projects C and D to reflect the interviewees' lack of experience in procuring these types of projects
Energy service company (ESCO) at-risk costs	ESCO internal and external costs incurred in competing for the project	Lowest and highest figures reported in interviews
ESCO investment-grade proposal costs	ESCO internal and external costs incurred in a period from selection as the preferred bidder to contract signature	Lowest and highest figures reported in interviews
ESCO installation costs	ESCO incurred costs for installation of the energy conservation measures (ECMs)	Lowest and highest figures reported by a quantity surveyor
ESCO margin	Applied to the installation costs charged to the client. Based on the results of interviews, the margin is not applied to the ESCO at-risk or investment grade proposal stage costs	Lowest and highest figures reported in interviews
Gas saving	Expected gas saving (kWh), as detailed in the second section	For projects A and B this is dominated by a ±5% variation in operating hours as reported in interviews. A total of 35% tolerance in saving for projects C and D (BRECSU, 1996)
Electricity saving	Expected electricity saving, as detailed in the second section	Based on a 5% tolerance in operating hours
Guaranteed gas saving	Set at 90% of the median value for expected gas saving to reflect a risk margin for the ESCO	Maximum set to equal the maximum gas saving with a symmetrical minimum
Guaranteed electricity saving	Set at 90% of the median value for the expected electricity saving to reflect a risk margin for the ESCO	Maximum set to equal the maximum gas saving with a symmetrical minimum

Figure 3 Structure of the economic model

Figure 4 Electricity price projections to 2030

Source: Department of Energy and Climate Change (DECC) (2013).

Figure 5 Gas price projections to 2030

Source: Department of Energy and Climate Change (DECC) (2013).

Table 3 NPV results of 10 000 model runs.

	ESCO mean	ESCO standard deviation	Client mean	Client standard deviation
Project A (High)	£4 600	£31 000	£952 000	£99 000
Project A (Low)	£15 000	£18 000	£640 000	£64 000
Project A (Reference)	£10 000	£25 000	£812 000	£81 000
Project B (High)	£1 700	£3 700	£28 000	£24 000
Project B (Low)	£2 900	£2 200	£15 000	£23 000
Project B (Reference)	£2 300	£3 000	£7 900	£24 000
Project C (High)	£37 000	£86 000	£84 000	£145 000
Project C (Low)	£60 000	£47 000	£380 000	£114 000
Project C (Reference)	£48 000	£67 000	£140 000	£128 000
Project D (High)	£147 000	£343 000	£537 000	£572 000
Project D (Low)	£242 000	£188 000	£1 317 000	£446 000
Project D (Reference)	£194 000	£266 000	£358 000	£504 000

Figure 6 Distribution of financial returns: (a) Project A, (b) Project B; (c) Project C and (d) Project D

Figure 7 First-order contributions to output variance of each input factor – reference prices: (a) Project A, (b) Project B; (c) Project C and (d) Project D

Figure 8 Subject projects mapped against Sorrell's (2005) model for successful energy outsourcing

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