Financing the energy renovation of public buildings through Internal Contracting
NEWS FROM EUROPE
18.12.2017
Written by Eurac Research
European goals on Energy Efficiency and Renewable Energy could be very challenging at local level, especially due to the substantial efforts on financing and the limited municipal budgets. Therefore, new and innovative financing solutions are needed.
Within this context, the project INFINITE Solutions, co-financed by the Intelligent Energy Europe programme and coordinated by Energy Cities, aims to spread knowledge about Internal Contracting as a financial tool for energy saving measures among European municipalities.
In External Contracting, the municipality commissions a commercial energy service company (ESCO) to implement energy saving measures for the public building. The ESCO assumes the financing, planning and implementation of the measures, and it is paid by the obtained energy cost savings for a specific period. On the other hand, in the Internal Contracting, the municipality finances multiple investments for energy savings without external figures and for this purpose, a revolving fund is needed.
Core functionality of Internal contracting including a revolving fund
The revolving fund is a pool of capital, which only needs to be supplied once and it is restored by income from its investments, as shown in the picture above. This system allows financing new investments year after year.
Internal Contracting financing scheme
Among the several benefits of the Internal Contracting, it can be highlighted the possibility of fast implementation (e.g. no need of public tender), no need of exact quantification of energy savings, all savings go back to the municipality, it is not subjected to interest rates, supplementary of part-financing is possible, financing of small interventions (e.g. replacement of pumps) are workable, the municipality is the one selecting the measures and the know-how remains in the city departments. Besides, the Internal Contracting overcomes administrative constraints and fixed budgets, and avoids conflicts of interest.
The Infinite Solutions Guidebook elaborated within the project shows 5 case studies of Internal Contracting. The presented case studies are in Stuttgart (Germany), Udine (Italy), Águeda (Portugal), Koprivnica (Croatia) and Almada (Portugal). The pioneer city in implementing the financing tool was Stuttgart, where the approach proved highly successful ant reducing energy and water costs.
The guidebook concludes among other things that Internal Contracting has proven to be reliable and robust, it is also a model for other public authorities, it needs specific adaptations to the local context and it requires a minimum initial budget.
