Investments in buildings are increasingly linked to (energy) performance contracting. So a good question is how much liability shall we engage and which are the management costs of the process.
Also, we should consider that most typically performance contracting is linked to a mixture of (discounted/aggregated) energy supply agreements and investments in (very) energy intensive systems. This is the typical case of replacement of systems in boiler rooms, which end-up with a 10-year heat supply agreement indexed to the wholesale price of natural gas.
But this business model may not be fit to be applied in the residential sector. This sector is characterized by the high cost of the interventions compared to a relatively low return as energy savings. Typically investments are performed not because of performance improvements, but the need to maintain and/or restore the original functionalities of the building.
So, first issue, how much of the value of a building shall be linked to its energy performance? CincoDías performed a decomposition of the price of a building in Spain. The basic components are the following:
- Land: 31%
- Taxes: 27% (VAT is not considered here)
- Commercialization, insurance, legal and financial services: 10%
- Construction: 16%
- Gross margin: 16%
I would say that performance shall be linked only to items under “construction and gross margin” (32%). As other items are not related to performance itself. A further issue is that many of construction costs are not associated to energy. Any building requires foundations, structure, lifts, sewage,… so only a fraction of the aforementioned share is actually linked to energy performance. I would say that something between 5 and 15% (1.6 to 4.8% of the total value). For building value in the range on 178.000€ (National average for Spain) to 250-300.000€ (typical values for expensive areas), this results in ca 15.000€/building unit.
But the actual liability is not only related to the actual investment, but its expected use (as per energy bills). Some references state that the typical natural gas per household in Spain is somewhere between 5.4 and 14.7 MWh. Until recently, to be valued somewhere in the range of 0.05€/kWh. This results in getting yearly energy costs below 1.000€/year.
Typically, M&V cost rates are fixed at <10% of the total liability, 1.500€ or 100€/year.
I would say that it is very difficult to get sensors on-site and consultancy services delivered at these rates. This implies that some of the following needs to be performed:
- Aggregate several building units in the same performance contract. In excess of 20 building units could be a starting point.
- Deliver automated M&V performance processes highly based on smart meters and cloud-based platforms.
- Constrain the professional services to 1-2 verification cycles, i.e. at year 2 and 5. So that engineers and consultants can perform a reasonably correct work but do not need to iterate every year.