Subsidy Evaluation Tool supports greener public buildings
Securing funds for renovating hospitals, schools and other large public buildings to reduce their energy consumption is not easy for public authorities in the Mediterranean area. Indeed, public bodies cannot afford the high costs of deep renovation so they need to attract private investors. However, the poor financial prospects of such projects - long payback time and low internal rates of return (IRR) – makes the investment unappealing for the private sector.
To tackle this issue, SISMA project developed the “Subsidy Evaluation Tool” (SET). It provides an accurate calculation of the IRR indicator that offers confidence for private investors on the project performance, acting as a key driver to trigger long-term bankable energy efficiency investments.
Nowadays, one of the best ways to mobilise funds for such renovations is through the Energy service companies (ESCOs). These organisations are providers of energy services or energy efficiency improvement measures in buildings, accepting some degree of financial risk.
To move forward the interested public authority and an ESCO usually agree on an Energy Performance Contract (EPC), under which the ESCO implements an energy renovation project and uses the flow of income from the cost savings to repay the costs of the project, including the costs of the investment.
How does the tool work?
Input data include:
- Building data: year of construction, heated volume, thermal and electrical consumption;
- Necessary interventions – e.g. roof insulation, windows replacement, photovoltaic installation – and related cost estimation;
- Expected energy savings from a detailed energy audit or calculated through a simplified estimation (made by the SET itself);
- Main parameters for economic and financial calculation – duration of the financial plan, inflation rates, internal rate of return (IRR).
From these data, the tool calculates the precise amount of public subsidy needed to make the investment bankable for the ESCO’s, thus providing essential financial information that allows the project to be implemented and, at the same time, optimising the use of public funding.
In addition, the tool helps public authorities to prioritise interventions on several buildings where energy audits are not available. In fact, with few data, it is possible to get a first technical-financial estimation of the desired interventions and to identify the most effective ones.
SISMA’s SET tool was developed considering the legislation, the market needs and barriers of the six partner countries working together on the project: Bosnia, France, Greece, Italy, Slovenia and Spain. Consultation with ESCOs, financial institutions and other stakeholders allowed collecting data on IRR, financing structures and average investment size, showing significant variations, e.g. the minimum internal rate of return ranges from 5% in Italy to 10-15% in Greece.
What are the concrete benefits of SET?
SISMA SET is already delivering its full potential. In Slovenia it has been recognised as a best practice and its application will be promoted in order to assess the energy renovation of public buildings by national authorities.
A dedicated workshop will be held on the 18th of October in Ljubljana, under the event “Building our capacity of influence for an efficient, inclusive and renewable energy for the Mediterranean area”, organised by the thematic communities Efficient Buildings & Renewable Energies.