Investments in energy saving measures in Italy and UK: the impact of national support schemes on the business strategies of an ESCO

Giuseppe Tiravanti, Imperial College London, Centre for Energy Policy and Technology
Antonio Pantaleo, Progesa Department, University of Bari, Italy and Imperial College London, Centre for Energy Policy and Technology, Prince
Armando Fanelli, Mediterranea Energia Srl, Italy
Chiara Candelise, Imperial College London , Centre for Energy Policy and Technology

Keywords

energy efficiency measures, white certificates, ESCOs, investment

Abstract

Energy efficiency measures can be tailored to suit different customer segments, with a comparatively wide range of returns on investment. ESCOs are thought to be a key player facilitating the practical implementation of energy-efficient measures. However, limited awareness of end-users about the available technologies, as well as concerns on the availability and ease of obtaining funds to finance energy-efficient measures are limiting the diffusion of such technologies. Policymakers in Great Britain (EEC scheme) and Italy (TWC scheme) have addressed energy efficiency issues through the implementation of national policies based on market-based instruments, where energy efficiency measures are linked to tradeable assets. When comparing the two schemes, however, there are significant differences which affect the information and financial incentives available to developers of energy efficiency projects. This paper carries out an empirical analysis of such differences, as seen from the point of view of an ESCO potentially interested in investments in energy efficiency projects. Its first part outlines the regulatory and market framework for energy efficiency measures in Italy and UK, including energy efficiency targets and achieved outcomes to date under the analysed schemes. The key factors affecting business choices for an ESCO aiming to operate in the energy efficiency sector in either country are outlined in a strategic overview. In the second part, further to a survey on relevant costs and prices, we carry out a financial appraisal of investments in selected energy saving measures to be implemented by an ESCO. The financial analysis is carried out in three national scenarios: two are reflective of the existing regulation in Italy and Great Britain, while the third aims to portray the hypothetical situation resulting from the implementation of the Italian TWC scheme in Great Britain. Under all scenarios, the aim is to evaluate the effect of such TWC scheme on the net present value of the investment, calculated before interests and tax. The empirical analysis carried out for selected case studies shows that the financial incentive provided by WhCs may well be sizeable, and is even more important for those projects where the Net Present Value without WhC contribution is a small number.