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THIRD PARTY FINANCING
Dr. Kostas KONSTANTINOU
Regional Energy Agency of Central Macedonia Tel
30 2310 463930, Fax [phone], E-mail
reacm_at_anatoliki.gr
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Third Party Financing

• A contractual instrument for the realization of
  an energy investment
• TPF Application Fields 
• Energy Saving Technologies
• Combined Heat Power Systems, District Heating
  Systems
• Environmental Planning (treatment of industrial
  and municipal waste)
• Water Supply management (e.g. desalination)
• Renewable Energy Sources Exploitation (wind
  energy, small hydro, solar, thermal, natural gas)

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Actors Involved in a TPF Scheme-Services

• TPF User the party interested to invest on
  energy saving technologies. Lack of the necessary
  financial resources and available technology
• TPF Provider energy company, producer of energy
  utility systems, private company, consortium of
  institutions (banks, constructive companies,
  insurance companies) (ESCO Energy Service
  Company)

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Services Offered by a TPF Company
TPF Contract
Identification
Controlling
Energy Saving Measures
Planning-Development
Operation-Maintenance
Implementation
Financing
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TPF ContractProject Related Expenses
TPF Providers share
TPF Users share
Reduction of Energy Costs (during term of
Contract)
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Distinction of TPF Contracts
TPF Contract
Heat-Energy Supply Contracts
Energy Performance and Saving Contracts
Energy Measures-Oriented Performance Contracting
Potential Saving-Oriented Performance Contracting
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Different Types of TPF Contracts

• Energy Performance Contracting (EPC)
• Technology Performance Financing (Tech. PF)
• Leasing
• Joint Venture Capital

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Energy Performance Contracting (EPC)

• After the evaluation of the potential savings
  (feasibility study), the ESCO undertakes the
  project realization, i.e. it invests in measures
  in order to reduce the cost of the energy
  services of the TPF user in the building (via
  control systems, efficient boilers, thermal
  insulation, etc.), it undertakes the financing of
  the project, the training, the surveillance of
  the Energy Performance of the Investment as well
  as the operation and maintenance of the
  equipment.

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Energy Performance Contracting (EPC) contd

• An amount of the achieved savings in the energy
  costs is used for the reimbursement of the
  investment of the ESCO.
• After the end of the contractual period, where
  the TPF provider has achieved the amortization of
  its capital and earned the corresponding
  commercial profit, th TPF company backs away and
  the outcome of the refurbishment of the building
  is for the benefit of the building users.

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Technology Performance Financing (Tech.P.F.)

• In this type a financing organization (e.g. a
  bank) sets forward the three-branch scheme
• Bank ESCO (or simply the supplier/
  installer of the equipment) TPF User.
• The financier covers economically the time period
  from the installation until the beginning of the
  equipments return. The period of the
  reimbursement usually ranges between 2-3 years,
  but for cases of large investments a longer
  arrangement is agreed.

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Leasing

• Leasing is a modern mode of mid-term or long-term
  financing for the acquisition of equipment and
  real estate for business use.
• The enterprise or the businessman chooses the
  equipment or real estate that considers
  appropriate for his needs, the leasing company
  buys this equipment from the supplier or the
  realty from its owner and then rents the
  equipment for a period of at least 3 years and
  the realty for at least 10 years.
• At the end of the leasing period, the holder can
  either redeem the capital being (equipment or
  realty), usually in exchange of a symbolic
  amount, or renew the contract

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Joint Venture Capital

• The financing through venture capital is
  accomplished either through the partnership in
  the capital stock of the companies (by expansion
  or rarely by taking over part of the company) or
  by other flexible schemes, such as the
  publication of a new series of preferred stock.
• Moreover, it allows almost always the main
  stockholder to keep control of its company

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Relation Between the Different Factors in the TPF
Mechanism
Equipments supplier (i.e. manufacturer)
Financier (Bank, Leasing company, etc.)
TPF User
ESCO (TPF Provider)
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Advantages and Disadvantages of TPF
Implementation

• The user does not have to be concerned about
  up-front capital and can place its resources in
  other investments.
• The provider assumes all risks inherent to the
  project, both technical and financial.
• The user is not required to have technical
  expertise by its own.
• The user enjoys a set of services with one
  signature (one-stop shopping).
• The user enjoys better prices for the equipment
  (economies of scale).
• The user becomes owner of the equipment at the
  end of the contractual period.
• TPF is compatible with existing legislation.
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• The lack or shortage of capital in general.
• The unwillingness of banks and financing
  institutions.
• The restricted market of innovative technologies
  and the reduced interest to establish ESCOs
  (about 25 in whole Europe).
• The unawareness of users about the possibilities
  offered by TPF.
• The complexity of TPF contracts.
• Administrative and legal barriers.
• The low energy prices of conventional fuels.

Advantages
Disadvantages
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Common Schemes for the Return on the Investment

• The income of the energy saving or energy
  sales is shared (50/50, 80/20) between the
  provider and the user Contracting period 5-10
  years
• The whole amount of the income is granted to
  the provider, until full reimbursement or until
  the end of the contracting period (up to 5 years)
• The user pays regularly a predetermined amount
  to the provider, who guarantees the performance
  of the installation

Shared savings
First out
Guaranteed savings
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Case Studies of TPF Projects in Greece

• Installation of a Solar System in
• Achaia Claus S.A. Winery
• Total Cost 220000 EURO
• Financing 50 CRES and 50 SOLE S.A.
• Reimbursement period 6 years
• Installation of a Solar System
• in MEVGAL S.A. Diary Products Co.
• Total Cost 325000 EURO
• Financing 73,5 CRES, 6,5 ???, 20 MEVGAL
• Reimbursement period 4 years
• Guaranteed Energy Savings

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Case Studies of TPF Projects in other European
Countries
Germany Optimization of the technical
installation of 3 school buildings and the City
Hall of Offenbach. Total Investment Cost
180.000 EURO 15 of the savings goes to the
building(s) authorities

• Portugal Installation of a CHP plant (4190 kWe)
  in a textile industry. The TPF provider (Energy
  Service Company) is responsible for the equipment
  selection and financing, the installation,
  start-up and follow-up of the project.
• Total Cost 350.000 EURO
• Reimbursement period 5 ½ years
• 85 of the profit goes to the TPF Provider
• 15 of the profit goes to the TPF User