What encourages local authorities to engage with energy performance contracting for retrofitting? Evidence from German municipalities

Friedemann Polzin,Paschen Von Flotow,Colin Nolden

doi:10.1016/j.enpol.2016.03.049

Friedemann Polzin, Paschen Von Flotow + Show 1 more

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https://doi.org/10.1016/j.enpol.2016.03.049

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Abstract

Municipalities aiming at mitigating climate change by implementing new energy efficiency technologies face budgetary and capacity constraints. Outsourcing through energy service contracting could provide a solution. This paper reports results from a survey of 1298 municipalities concerning barriers to retrofitting public street lighting and the possible role of energy service contracting to overcome these barriers. Using a logistic regression analysis, the authors investigate determinants of opting for energy service contracts in the specific context of LED retrofits. Results point to an advantage of outsourcing in a financially and capacity-constrained environment, which corresponds with the main reasons for engaging in contracting: minimising investments and financial risks. However, municipalities often do not fully grasp the risks associated with retrofitting especially using a novel technology such as LED. In relation to that they underestimate the risk reduction potential of energy performance contracts (EPC). Previous experience with outsourcing increases the probability to engage in servitization although certain existing partnerships, particularly with utilities, prevent municipalities from considering energy performance contracts. Interestingly, engaging an energy consultant has a negative propensity to use energy service contracts, while pre-negotiated standardised contracts for energy performance contracts have a positive influence.

Highlights

Municipalities are required to modernise their aging infrastructure, increase energy and cost effectiveness to tackle climate change and provide public services while facing limited investment budgets (Sorrell, 2015; Sorrell n Corresponding author at: Utrecht University School of Economics (USE), Sustainable Finance Lab, Kriekenpitplein 21-22, 3584 EC Utrecht, The Netherlands.et al, 2004)
This paper focuses on energy performance contracts that include guaranteed savings for the client (EPCs) as a sub-category of energy service contracts (Nolden et al, 2015; Sorrell, 2007)
Among the barriers to retrofitting the lack of funds for adjacent infrastructure and personnel capacity are the most salient. 224 of the municipalities consider engaging in an EPC while 68 local authorities actively employ EPCs for street lighting

Summary

Introduction

Municipalities are required to modernise their aging infrastructure, increase energy and cost effectiveness to tackle climate change and provide public services while facing limited investment budgets (Sorrell, 2015; Sorrell n Corresponding author at: Utrecht University School of Economics (USE), Sustainable Finance Lab, Kriekenpitplein 21-22, 3584 EC Utrecht, The Netherlands.et al, 2004). Municipalities are required to modernise their aging infrastructure, increase energy and cost effectiveness to tackle climate change and provide public services while facing limited investment budgets (Sorrell, 2015; Sorrell n Corresponding author at: Utrecht University School of Economics (USE), Sustainable Finance Lab, Kriekenpitplein 21-22, 3584 EC Utrecht, The Netherlands. Outsourcing services has been highlighted as a possible solution to this dilemma (Roehrich et al, 2014; Bennett, 2006; Sorrell, 2005). Energy service contracting is a means of outsourcing the procurement and delivery of energy services but it may only be appropriate for a subset of energy services in the public sector (Sorrell, 2005; Polzin et al, 2015).

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