Energy Performance Contracting in the Water Sector – A GIZ Innovation

Institutional Concepts and Operation Contracts (EPC-Models)

Demand Side Energy Reduction in the Water Sector

The aim of the IEE Programme is to develop a framework which allows the Jordanian Water Utilities to increase cooperation with the private sector within a clearly defined setting that guarantees and respects WAJ’s responsibilities towards its costumers while establishing a potential for cooperation with the private sector. Our analysis concludes that many of the problems identified in the initial energy audit of the IEE Programme can be tackled with the help and knowledge of the private sector. Cooperation with the private sector, however, needs to  be established within a clear framework of defined responsibilities and tasks. The objective is to create a win – win situation for all project partners of energy efficiency measures.

Tackle Energy Inefficiencies through the Engagement of Private Sector Companies

Different approaches to achieve a reduction in demand side energy consumption were analysed. The installation of new and more efficient pumps and equipment turned out to be the most viable and effective solution to reap the energy saving potential. But in order to achieve sustainable improvements in energy consumption, the procurement of high efficiency equipment is insufficient as a standalone measure. Instead, it is important to support WAJ in the full cycle of pumping infrastructure operations as well as with its organisational processes. The Programme therefore develops performance based institutional concepts and operation contracts to promote public private cooperation within a clearly structured contractual framework conducive to the proper allocation of risks and responsibilities.

Energy Performance Contracting in the Water Sector – A GIZ Innovation

GIZ has introduced a comprehensive optimization process to support WAJ with institutional concepts and operation contracts via a so called “Energy Performance Contracting” (EPC) approach. EPC is a viable way for public utilities to save energy and money by securing private sector financing and expertise for projects aiming to improve energy efficiency because of the energy savings these projects are guaranteed to produce. EPC is known widely in Europe, less so in the Middle East and even less so in the water sector of this region. While the main goal of such a project is clearly defined with the reduction of energy costs for the client, a single method or technical solution for achieving this goal is not predetermined. EPC is a means of implementing energy efficiency projects and reducing operating costs with limited risks for the facility owner and the Energy Service Company (ESCo). EPC stands for a contractual relation between the ESCo (private sector) and a facility owner (in our case the Jordanian Water Utility WAJ). EPC comprises different forms of energy services, addressing energy saving procedures and energy efficient technologies. The ESCo provides a full range of project services, which can include project identification, planning, financing, construction and installation, commissioning and/or operation & maintenance over a defined period of time. Payment to the ESCo is based on the achieved energy cost savings linked to energy efficiency improvements. EPC does include significant project costs like investment costs (e.g. capital expenditures for energy improvement measures, measuring devices) and other costs for operation, maintenance and monitoring, as well as financing charges. In the EPC arrangement, the ESCo bears all project costs defined in the contract. In return, the facility owner makes monthly or quarterly payments to the ESCo that are equivalent in value to the level of energy savings it generates. The payments are based on a contractually fixed baseline, which is defined in the course of an initial energy audit. During the contract period, the quarterly payments to the ESCo and the actual electricity costs shall not exceed the energy bill that would have occurred if no EPC intervention had been implemented. If the predicted savings fall short, the ESCo absorbs the difference. Payments are structured in a way that the facility owner does not to experience any negative financial effects. Most of the technical, financial and maintenance risks stay with the ESCo.

Objective of the EPC Contract:

  1. Reduce energy consumption and costs as part of a comprehensive energy saving strategy with specific measures
  2. Improve pumping, mechanical and electro-technical equipment of the pumping facility
  3. Improve operations management and performance monitoring
  4. Deliver excellent results on repairs and maintenance
  5. Boost staff productivity and energy saving capabilities
  6. Access private sector financing

Energy Performance Contracting in Jordan – A Structured Contractual Intervention

Comparing investment costs for individual projects and prospective energy savings the potential for cooperation with the private sector with regard to energy efficiency projects in Jordan is substantial. The EPC approach developed by GIZ for the Jordanian partner institutions (WAJ, MWI) is a predetermined contractual framework adapted specifically to the needs and requirements of the Jordanian Water Utility. Comprehensive solutions and new relations between the different businesses concerned play an important role. The advantages for EPC include the advanced capabilities of the private sector to find specific high-end solution for achieving the contractually agreed energy savings for a specified pumping location within a performance oriented framework. The private sector is usually very successful in finding the best technical solution for the respective purpose by applying the most appropriate and usually the latest technology available on the market in order to maximize achieved cost savings and therefore his benefits. Because with an EPC approach achieved cost savings are usually shared the private sector is also maximizing the benefits for the water utility both in terms of savings in operation costs due to lower electricity costs and in terms of share of achieved cost savings (eg. ESCo 70%, facility owner 30%). In addition the ESCo is also achieving lower operation and maintenance costs for the facility owner as these services are either performed by the ESCo under its responsibility or they are performed by the ESCo for WAJ within a performance oriented service contract structure.

By implementing Energy Saving Measures (retrofit measures), the ESCo lowers WAJ’s energy costs at its pumping stations according to the amount agreed upon in the EPC contract. In doing so, it assumed the full risk. for the commercial success of the energy saving measures including their operation and maintenance during the contract term.

EPC approach concept

ESPC Energy Saving Measures

Institutional Concepts and Operation Contracts

Since not all water pumping infrastructure is suitable for full scale private sector engagement, GIZ has developed together with its partner institutions, different institutional models and operation contracts. The investment decision is taken based on assessed payback periods and the analysis and insights gained in the energy audit.

Developed institutional concepts and operation contracts can provide a flexible incentive-based framework for the implementation of EPC projects, ranging from (1.) full scale EPCs, (3.) contracting concepts focusing mainly on operation services to (4.) practically fully official development assistance (ODA) financed measure with a private sector service element improving mainly the sustainability of the ODA investment.

Institutional Concepts and Operation Models

 Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit Development Coooperation: Hashimite Kingdom of Jordan -  Feredal Republik of Germany Germany's Clilmate Initiative - Climate protection pays off! Jordan Water Authority Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH