130527 summary report 1 jalel - e for printing

Summary of International Experience in ESCO Industry

and Recommendations for the Comprehensive Survey

of the ESCO Sector

Assessment of the Status of Emerging Energy Service Industry in Vietnam and

Capacity Building Needs of Key Market Players

Jalel Chabchoub, International Consultant

March, 2013

Assessment of the Status of Emerging Energy Service Industry in Vietnam

and Capacity Building Needs of Key Market Players

ii

ACRONYMS

ABESCO Associação Brasileira das Empresas de Serviços de Conservação de Energia

BOOT Build,Operate,Own and Transfer

CDM Clean Development Mechanism

CCHP Combined Cooling, Heat and Power

CHP Combined heat and power

EBRD European Bank for Reconstruction and Development

ECC Energy Conservation Center

EE Energy efficiency

EEO Energy Efficiency Office

EESP Energy efficiency service provider

EMCA ESCO Committee of China Energy Conservation Association

EPC Energy performance contract

ESC Energy Services Contract

ESCO Energy services company

GEF Global Environment Facility

GS Guaranteed Saving

HCMC Ho Chi Minh City

ICPEEB Indian Council for Promotion of Energy Efficiency Business

IFI International financial institution

JAECSO Japan Association of Energy Services Companies

KAESCO Korean Association for ESCOs

KfW Kreditanstalt für Wiederaufbau

LGF Loan Guarantee Fund

PPN Performance Partners Network

SAAEs South African Association of Energy Services Companies

SS Shared Saving

TPF Third party financing

USAID United States Agency for International Development

WB World Bank



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TABLE OF CONTENTS

1 INTRODUCTION ................................................................................................................... 1

2 BRIEF SUMMARY OF INTERNATIONAL EXPERIENCE ..................................................... 2

3 DESK REVIEW .................................................................................................................... 14

4 ASPECTS TO BE CLARIFIED FURTHER BY THE QUESTIONNAIRE .............................. 17

APPENDIX I : QUESTIONNAIRE OUTLINE ............................................................................... 19

APPENDIX II : LIST OF REPORTS ............................................................................................. 21

LIST OF TABLES

Table 1: ESCO Status in some Developing Countries ..................................................................... 2 Table 2: Most Frequent Barriers and Possible Solutions ................................................................. 4 Table 3: Key Features of EU Member States ESCO Market ........................................................... 8 Table 4: Best Practices for Development of ESCO Industry .......................................................... 10



1

1 INTRODUCTION

The objective of this consultancy assignment is to assess the current status of the emerging

EESP/ESCO in Vietnam and determine the training and capacity-building needs of key players in

this sector.

The assignment will involve a comprehensive assessment of capacities of the existing

EESP/ESCO followed by a thorough assessment of the needs of key market players for training

and capacity building.

This summary report contains two main sections, the first one including a brief summary of relevant

international experience for ESCO market development and the second providing suggestions for

further investigation for data and information collection..



2

2 BRIEF SUMMARY OF INTERNATIONAL EXPERIENCE

The ESCO industry has spread to most developed countries, several countries in transition and the

biggest developing countries with different success levels based on market development

strategies, existing opportunities and barriers that the ESCO industry is facing in each local

context.1

In developing countries, a large number of programs and mechanisms have been developed to

facilitate the growth of ESCOs. Programs by international agencies, notably the World Bank (WB),

the European Bank for Reconstruction and Development (EBRD), the United States Agency for

International Development (USAID) and KfW, helped many countries to develop an ESCO market,

as shown in the following table.

Table 1: ESCO Status in some Developing Countries2

Country Number

of ESCOs

Number of Projects

Total Investment

(USD)

Main Assistance Received

ESCO Association

China Over 400 with 50–60 core

1,426 since 1998

$260 million in 2006 $1 billion in 2007

World Bank GEF Yes/EMCA

Brazil 25–40 - $40 million in 2008

World Bank Three Country Energy Efficiency (3CEE) project, Domestic government

Yes/ABESCO

South Korea 125 519 in 2000 $76 million in 2000 Domestic government

Yes/KAESCO

Thailand 24 - - World Bank GEF, Domestic government

Yes

South Africa 35 - $10 million in 2001 Domestic utility Yes/SAAEs

India 20 - $1 million in 2001

World Bank GEF and 3CEE project, Domestic government and banks, USAID, CDM

Yes/ICPEEB

Mexico 20 - -

US National Renewable Energy Laboratory, Domestic government

-

Kenya 1 - - World Bank GEF No

1 http://www1.ifc.org/wps/wcm/connect/dbaaf8804aabab1c978dd79e0dc67fc6/IFC+EE+ESCOS+Market+Analysis.pdf?MOD=AJPERES

2 www.iisd.org/pdf/2009/bali_2_copenhagen_escos.pdf

http://www1.ifc.org/wps/wcm/connect/dbaaf8804aabab1c978dd79e0dc67fc6/IFC+EE+ESCOS+Market+Analysis.pdf?MOD=AJPERES

http://www.iisd.org/pdf/2009/bali_2_copenhagen_escos.pdf



3

The support provided mainly included funding for ESCO start-up, ESCO project development and

implementation, partnership development, capacity building and loan guarantees. This support was

crucial to initiate ESCO activities and develop an ESCO market in many developing countries

where development banks, commercial financial institutions and utilities have been involved in

ESCO development. Government support was also an important pillar for the market development

through funding, energy policy elaboration and enforcement, and implementation of demonstration

programs.

The focus of ESCOs varies from country to country and covers different sectors although, in

general, the public and the industrial sector are the most important clients and drivers for the

ESCOs, while the residential sector is not presenting a recurrent target for energy performance

contracts (EPCs). In industrialized countries, the ESCO activities portfolio usually focuses on the

public sector, where many ESCOs are created from utilities and large multinational manufacturing

firms, thereby enabling them to receive financing more easily. In developing countries, ESCOs

often target the industrial sector due to limited access to the public sector where usually the main

barriers are circumscribed in the limited funds of public administrations and the inflexible

procurement rules for EPCs.

The international experience3 for program implementation and mechanism development to

facilitate the growth of the ESCOs market demonstrates moderate success in most developing

countries except in China, where the ESCO market realized a significant jump through the

WB/GEF project and EMCA support. The technical assistance services to emerging and potential

ESCOs provided by EMCA combined with loan guarantee facility induced a rapid increase in

ESCOs, where the number increased from 59 in 2003 to 560 in 2010.

However, for many other developing countries, the ESCO markets are still in their infancy stage

where a number of barriers hinder ESCO expansion. Usually barriers are interrelated and often

need mitigation strategies on different levels to overcome barriers that prevent the development of

the ESCO market. The most common barrier is principally administrative for implementing ESCO

projects in the public sector, otherwise a lack of awareness on the demand side, a lack of financing

mechanisms and a lack of legislation to support EPC development and reduce uncertainty and

foreseen risk. The above common barriers are met in many countries, while some others are linked

to country specificities.

The table below summarizes the most important barriers and possible solutions.

3 http://www.giz.de/Themen/en/dokumente/en-International-Experience-Developing-ESCO-Markets.pdf

http://www.giz.de/Themen/en/dokumente/en-International-Experience-Developing-ESCO-Markets.pdf

Assessment of the Status of Emerging Energy Service Industry in Vietnam and Capacity Building Needs of Key Market Players

4

Table 2: Most Frequent Barriers and Possible Solutions4

Barrier Sector Reasons Example Possible Solutions

Insufficient levels of information and awareness of EPCs and their opportunities

All Potential clients and many financial institutions are unfamiliar with the principles of EPCs

All countries Information and demonstration programs, training on financial facilities, model contracts, energy agencies

Low share of energy expenditures in total income, resulting in low interest by customers

All

Low energy prices or low consumption, customers such as companies can implement improvements on their own

All countries Information and demonstration programs, energy efficiency obligation

Several projects compete for scarce capital, therefore low interest in EPC

All, mainly industrial

Higher expected turnover if amount invested in other projects

Many Information and ddemonstration programs, energy efficiency obligation

High pperceived technical and business risk by clients

All and banks

Fear of losing jobs, fear about trade secrets, not understanding/trusting the payback scheme of EE, end-use EE projects often non-asset based, so collateral is hard to obtain

All countries, e.g., Germany

Information and demonstration programs, accreditation system, standardization of contract procedures

Lack of ccredibility of ESCOs All Poor early experiences, many free-riders

E.g., Sweden, Poland, Italy

Accreditation system

Lack of cconfidence and trust in ESCOs

All Customers are suspicious of the “win-win” solution, don’t believe in success of saving measures

All Accreditation system, standardization of contract procedures, M&V protocols

4 An Assessment of on Energy Service Companies (ESCOs) Worldwide, ADME & WEC, 2007


5


Banks not willing to lend for EPCs All

Conservative lending practices and limited experience with EE project financing, asset-based lending practices versus cash-flow-based financing suitable for EE projects, not familiar with EPCs or considered as too risky (credit risk)

Mainly countries with conservative banking system

Demonstration projects, training, grants, concessional loans, credit facilities, guarantee schemes provided by the state or IFIs, technical assistance, guarantee facilities

ESCOs not interested in small projects

Residential, but also other sectors

Transaction costs high (i.e., profit is too low and risky)

Developing countries, residential (most countries)

Guarantee fund, pooling, combination with state support schemes

Principal/agent problem: investor different from beneficiary of savings

Residential, hospitals, schools

Split incentives between landlord and tenant, municipal or institutional budget units, etc.

Germany, Hungary, all

Enabling public procurement legislation, progressive rental and leasing contract arrangements

Financing problem: ESCOs have insufficient internal funds and do not have access to grants

All Especially small new ESCOs Mainly developing countries: China, India

Guarantee fund if high perceived risk, loan schemes, preferential loan schemes

Lack of credit ratings among some consumer groups

SMEs, public institutions

Poor balance sheets of SMEs, cash transactions prevalent in many SMEs, potential clients like public institutions may not be creditworthy

India International support

Unfavorable procurement rules Public

Rules and/or procedures difficult to understand, procurement rules not reflecting the specifics of EE investments (focusing on initial lowest cost rather than lifecycle), no green procurement

Germany, Hungary, India

Change in procurement law/policy

No incentive for EPCs due to subsidized energy prices

All Varied energy mix, political reasons Mainly developing countries

Privatization of energy sector, gradual phase-out of subsidies


6


Short payback times required by customers

Industrial

Germany, USA Mandatory energy audits

High transaction costs relative to profit

Mainly residential

Many Bundling of buildings/similar projects, leveraging the benefits of programmatic CDM

Low level of data collection, no baseline data available

All High transaction costs and long preparation time

Hungary, developing countries

Systematic collection of consumption data (which is useful for many other reasons)

Inadequate energy service levels Residential, public

Comfort standards not met prior to intervention (e.g., under-heated or under-lit rooms), which makes the construction of baselines difficult and inevitably results in some savings being absorbed to reach acceptable comfort levels

Bulgaria, developing countries

Combination of EPCs with other renovation efforts

Lack of government leadership on EE

All Other priorities, possibly conflict with other policies

India Initiate exemplary retrofits in public sector, introduce general EE policies, EN standards, mandatory energy audits

Unfavorable tax regimes All E.g., VAT on investments and equipment is higher than on energy prices

Germany Changes in the tax regimes

Political and economic uncertainty

All Volatile energy prices, ownership structures, unpredictable business environment, changing regulations

Mainly developing countries, countries in transition

Shortage of qualified staff and equipment for ESCOs

All Insufficient high-quality education, highly qualified young people move to other countries

Mainly developing countries, India

Education programs, training, ESCO association


7

It is important to analyze countries' successful experiences with the well-developed ESCOs in the

world and benefit from their experience and lessons learned. However specific country conditions

and specificities should be taken into account to assure a good start for EPCs and test concepts

and solutions through demonstration and pilot projects. A lack of planning and strategy will delay

further market development and induce additional barriers for ESCO establishment.

In the EU5, the development of an ESCO industry is boosted by, among other factors, the climate

and energy policy targets for reduction of energy consumption by 20 percent of the projected 2020

levels through energy efficiency improvements. Also, looking at the well-developed ESCO market

in Europe, notably Germany, France and Austria, the success factors which has been effective for

the development of the EPC market could be summarized as follow:

› Establishment of an ESCO association,

› Establishment of an ESCO accreditation system,

› Standardization of contracts and M&V procedures,

› Creation of a suitable regulatory and policy framework,

› Support for measures by national or local energy agencies.

5 http://publications.jrc.ec.europa.eu/repository/bitstream/111111111/15108/1/jrc59863%20real%20final%20esco%20report%202010.pdf

http://publications.jrc.ec.europa.eu/repository/bitstream/111111111/15108/1/jrc59863%20real%20final%20esco%20report%202010.pdf



8

Table 3: Key Features of EU Member States ESCO Market6

Country Market size (€ turnover/

year)

No. of ESCOs

Types of ESCOs Measures most often

implemented

Contract types

Sectors

Germany 1.7–2.4 billion 250–500 - Heating Insulation CHP

ESC (GS, SS) EPC (GS, SS) BOOT

Public buildings Private buildings

France 4–5 billion

10 big and 100 smaller actors

Facility management and operation companies, manufacturers of building automation & control systems

HVAC Street lighting Compressed air production systems

Heating

Public buildings Private non-residential buildings

UK 400 million 20

Subsidiaries of large international manufacturers of building automation & control systems, and energy service and supply companies

Lighting HVAC Plant Replacement Decentralized boilers and controls CHP

EPC

Industry Commercial and public sector

Italy 387 million (in 2009)

50

Very diverse. Subsidiaries of large international companies and SMEs

CHP Public lighting Control Renewable energy

Heating

Public sector Industry Residential sector

Spain > 100 million > 15

National and international large utilities, construction and multiservice companies

CHP CCHP Street lighting Solar-thermal Wind PV

SS BOOT Chauffage

Public sector Private non-residential buildings Industry

Austria 10–15 million 5–14

Energy service & supply companies, consultancy and engineering firms

Heating Cooling Lighting Water management

SS Public buildings Private buildings

Belgium N.A. 13–17

Large international manufacturers of building automation & control systems (1 public, 7 large and 5-7 small ESCOs)

Insulation Lighting HVAC

Customer financing ESCO-based funding Leasing

Public sector Industry

Sweden 60–80 million 5–10

International medium-sized, manufacturers of building automation & control systems

Improved control systems Ventilation Heat recovery

TPF Receivable Financing

Public buildings

Nether-lands

N.A. 50

Energy services, construction and engineering companies

Street lighting Large building renovations

Grants Preferential loans

Public sector Municipal

6 http://igitur-archive.library.uu.nl/student-theses/2013-0212-200435/Afstudeerscriptie%20definitieve%20versie%20(PUBLIEK)%20-%20Roel%20Vreeken.pdf

http://igitur-archive.library.uu.nl/student-theses/2013-0212-200435/Afstudeerscriptie%20definitieve%20versie%20(PUBLIEK)%20-%20Roel%20Vreeken.pdf



9

Asian ESCO market development varies from country to country. Other than the successful case in

China, ESCO markets have formed to some degree in Japan, India and Thailand. In other

countries, such as Malaysia and the Philippines, the government has introduced an ESCO

concept, but markets have not yet been developed. Initial measures for promoting ESCO concepts

are assumed to be responsible for such differences in the development of an ESCO industry. For

instance, the successful development of the Japanese ESCO industry is due to strong

governmental support, clear regulations for energy efficiency measures and the establishment of

the Japan Association of Energy Services Companies (JAECSO).

Similarly to China, the Korean ESCO market shows a particularly successful evolution in

comparison to other developing countries. This is attributed to the fact that the South Korean

government became one of the biggest customers for ESCO services and has actively supported

the ESCO programs, similarly to U.S. and Canada.

A Survey of the U.S. ESCO Industry: Market Growth and Development from 2008 to 20117 was

completed and shows that the ESCO industry continues to grow, with estimated revenues of

$4.1 billion in 2008, despite a general downturn in the broader economy. Public and institutional

markets—federal, state and local governments; schools; universities and colleges—account for

about 84 percent of ESCO industry revenues in 2008 ($3.4 billion). ESCOs reported that energy

efficiency technologies represent a major share of industry activity, accounting for 75 percent of

ESCO industry revenues, or about $3.0 billion, in 2008. Three-quarters of ESCO projects are

performance-based. About 22 percent of those reported as non-performance-based agreements,

such as design/build and “engineering, procurement and construction services” (EPCS) projects.

The table below summarizes the best practices for ESCO development.

7 http://www.naesco.org/resources/industry/documents/ESCO%20study.pdf

http://www.naesco.org/resources/industry/documents/ESCO%20study.pdf


10

Table 4: Best Practices for Development of ESCO Industry8

Initiative Countries

1

Innovative risk sharing and transfer mechanisms:

Guarantee products – partial loan guarantees

› A guarantee scheme or other risk mitigating tools may be appropriate

when the financing sector perceives high risk of ESCO projects.

› Guarantees are contracts interlocking three parties: lender and

borrower (loan agreement) and guarantor and lender (guarantee

agreement).

› Depending on the degree of the guarantor's involvement in the loan

approval process, there are individual guarantees and portfolio

guarantees.

Preferred drawing rights and Energy Savings Insurance

› A preferred drawing right agreement or provision is included in the loan

documentation whereby the borrower agrees that the lender is paid

automatically at a defined payment date each payment period (monthly,

quarterly), and this amount is automatically withdrawn from the

borrower's primary bank account.

› Energy Savings Insurance (ESI) is a formal insurance contract between

an insurer and either the building owner or the third-party provider of

energy services. The insurer agrees to pay any shortfall in energy

savings below a pre-agreed baseline, less a deductible.

Countries: USA, Canada, China, Brazil, Germany, India

› In Brazil, the National Bank for Economic and Social

Development (BNDES), which is the ultimate source for

almost all medium-term commercial bank debt financing in

Brazil, approved an innovative new line of credit called

PROESCO. It was designed to address the problem of

guarantees for loans for EE projects. BNDES shares 80

percent of the loan risk with the financial institution.

› In India, the Government has set up a Partial Risk

Guarantee Fund (PRGF) that provides commercial banks

with partial coverage of risk exposure for EE projects loans.

› PRGF acts as a first loss, subordinated recovery guarantee

and will be paid out to participating banks in the event of a

loss or default.

› ESI is widely used in Canada and in the U.S.; in Europe, the

global market of risk transfer is slowly growing, but

insurance products such as ESI are still limited.

› In the U.S., several insurance companies already offer ESI,

which traditionally has been used to guarantee power

reductions at retrofitted buildings.

› State governments have led ESI efforts, with several

requiring such insurance from firms that provide energy

management services in state-owned facilities.

2 Establishing bankable ESCO project pipelines / Countries: USA, Canada, India, China, Italy

8 IDC presentation, Feedback to SAAEs, May 2012


11


Demonstration projects

› Targeted communication about the profitability of energy efficiency

investments

› Programs and technical assistance facilities that build the capacities of

market participants to develop and structure finance for projects, most

notably providing training for feasibility study and business plan

preparation across a range of possible project proponents

› In India, the Government is providing resources to prepare

bankable reports studying technical feasibility, project

economics and other critical parameters. Investment-grade

energy audit reports of public buildings, municipalities,

agriculture pumps and SMEs have been prepared using

government grants. The findings of these reports are shared

through various mediums like national workshops and

conference. More than 1,200 projects have been initiated

and are already at various stages of implementation.

3 National ESCO association Countries: USA, Canada, Brazil, China, Japan, UK, Italy

4

Establishment of super ESCOs

› A super ESCO is an entity that is established by the Government and:

- Serves as an ESCO for the large untapped public sector (hospitals,

schools, government buildings and other public facilities);

- Supports capacity development and activities of other ESCOs,

facilitates access to project financing;

- May also act as a leasing or financing company to provide EE

equipment to ESCOs and/or customers;

- Provides consultancy services to the private and public sectors in the

areas of energy efficiency, CDM, etc.;

- Leverages multilateral and bi-lateral financing;

- Enters into partnerships and JVs with other implementing partners

like ESCOs, industry, etc. to promote energy efficiency.

› Recent World Bank study of public procurement of energy efficiency

services has identified the Super ESCO as a potentially viable model.

› Fedesco – Belgium

› HEPESCO – Croatia

› EC2 Corporation – Philippines

› Fakai Company – Hebei, China

› Energy Efficiency Services Limited (EESL) – India

5 Demand Aggregation/Project Bundling Countries: USA, Canada, India, China, Japan, Germany, Italy,


12


› Project bundling allows for the aggregation of individual projects,

technologies, service offers and investments into larger and more

comprehensive lots to achieve sufficient economies of scale. The

literature also suggests that such a framework should be integrated with

mandatory domestic manufacturing for additional cost reductions.

› Some of the main drivers for considering this strategy are as follows:

- Reduced transaction cost; - Avoid adverse effects on the balance sheets of the utility if a single

utility is considered for demand aggregation; - Significant scope for market transformation and capable of high

value demand aggregation; - Highly replicable model for promoting energy efficiency.

Australia, UK, Brazil

› The Berlin Energy Agency (BEA) in Germany has

successfully pooled over 1,000 public buildings and more

than 500 private properties. BEA conducts the initial energy

audits at no cost to the end-user, and this information is

used for the ESCO procurement. BEA used government

grant funds to pay for these services. On average, 20

buildings were being pooled together for procurement.

› The BEA program has been highly successful and is being

replicated in Bulgaria, Romania, Slovenia and Chile. It

demonstrates the power of local government to act as a

market aggregator and procurement agent for EE projects.

6

Accreditation of ESCOs and standardization of services

› The accreditation of ESCOs has been referred to as one of the most

effective tools to increase trust in the quality of ESCO work, however it

is not widely used. Several quality labels have been set up for ESCOs

and ESCO services around the globe.

› The standardization of common core contractual provisions including

clear frameworks, definitions, measurement and verification standards

(such as the International Performance Measurement & Verification

Protocol), and an accreditation system is essential in order to raise

confidence levels in the market.

› Many countries have developed standardized templates for tender

documents and contracts that give a successful procedure protocol for

carrying out parts of or all ESCO operations. Templates and protocols

are usually useful for embryonic markets and for building trust in ESCO

business in general.

Countries: USA, UK, China, Canada

› In India, the Bureau of Energy Efficiency (BEE) has initiated

a credit rating program along with CRISIL (a local credit

rating agency) in order to evaluate ESCO resources and

capabilities for implementing large-scale EPC-based energy

efficiency projects in the country.

› In Germany, standardization is one of the major factors for

the development of the ESCO industry. Procedures and

models such as contracts, the energy performance

retrofitting model and standard procurement procedures

along with contracting guidelines were developed by the

federal states. Presently, there are about 7 different

contracting models.


13


7

EE focused public procurement laws and mandatory EE targets

› Allow the inclusion of energy efficiency in technical tender specifications

and the use of lifecycle costing in public tender specifications.

› Clear, practical and ready-to-use guidelines on how to apply energy

efficiency criteria in public procurement procedures are required in

order to improve the practical implementation of energy-efficient public

procurement.

› Regulatory frameworks with mandatory energy efficiency targets can

create demand for energy audits and energy efficiency investments,

and raise the awareness of energy efficiency measures, thereby

lowering investment risks. Such mandatory targets may also be

accompanied with incentive mechanisms to encourage compliance.

Countries: Italy, Germany and UK

› Italian white certificate scheme. The command and control

component of the scheme was the public service obligation

imposed upon the electricity and natural gas distributors.

Trading of certificates on the secondary market was

encouraged to generate secondary revenues and reduce

the cost of energy conservation measures.


14

3 DESK REVIEW

The latest documents transmitted by the MOIT activities related to ESCO and EPC market

development do not include detailed data and information about the companies' composition,

organization and activities related to energy efficiency project development and implementation.

The review of the documents brought a better understanding of the performed activities related to

energy efficiency projects, the project development status and the implementation by EESP/ESCO

present in the market and also the existing limitations and barriers that need to be mitigated in

order to provide a better environment and conditions for EPC development. Further investigation

need to be undertake based on the identified preliminary indicators to assess more in depth the

status-quo of EESP/ESCO activities. The main conclusions that could be drawn from the review of

main documents could be summarized as follows:

› Report on Lessons Learned from the project Promoting Energy Conservation in Small and

Medium Enterprises (Godefroy Grosjean, 2010). The report does not include specific data

and information about the EESP/ESCO but did mention some recommendations about

further training and capacity building. The main milestones could be summarized as follow:

- Communication and Awareness: better empowering of the EESPs and provision of better

tailored support for the communication campaigns and communication materials might be

needed to strengthen their contribution in the energy efficiency project implementation.

- Technical Capacity Development: financial knowledge and risk assessments for SMEs

and ESSP need to be strengthened.

- EESP Training: EESPs have implemented most of the 500 EE projects implemented in

five industrial sectors with the participation of 25 EESPs. However, it should be noted that

only three projects have been implemented under the EPC concept. No ESCO requested

support from the Loan Guarantee Fund (LGF). The low number of projects implemented

reflects the current ESCO situation in Vietnam and reveals the barriers and challenges

involved in market development.

- Technical support provided helped in developing high-quality and sustainable energy

service providers in Vietnam.

- Needs Assessment: in-depth assessment is needed to provide an accurate trigger to the

EESPs. It is recommended to discuss extensively with the EESPs to identify exactly the

areas where they have knowledge gaps.

- Emphasize on developing financial skills: ensure that EESPs receive the right training to

support clients effectively for investments and financial aspects.

- EC Services Market Transformation: empower EESPs to strengthen their ability to stand

on their own feet at the end of the project.

- New Business Model: develop EPC and the appropriate legal support.

- Only 3 ESSPs have been interviewed.

› Preparation of Strategy and Action Plan for ESCO Industry Development in Vietnam

(Econoler 2011): The report consists in the preparation of a strategic development program

for the ESCO industry in Vietnam with a proposed preliminary action plan. Despite the

emphasis on capacity building and training, the report does not provide specific information

or assessment of the ESCO/EESP capacities and skills. Nevertheless , it proposes an action


15

plan to promote and create a sustainable ESCO market with three main components as

follows:

- The first component recommended the development of a supporting program to provide

necessary support and address all potential barriers to developing the ESCO market. The

program component includes an awareness raising campaign within the public and private

sectors with the development of adequate development funds for EE projects. It includes

notably a capacity building and support sub-components. These components propose

training for MOIT, Energy Efficiency Office (EEO) and Energy Conservation Centers

(ECC); advise private companies on ESCO start up and activities development, support

the development of projects and create success stories through pilot project

implementations. The component also advises on the development of a sustainable

financing mechanism and supports ESCO development by removing barriers and

establishing an ESCO association.

- The second component proposed the development of a sustainable market through public

sector facilities through the building of an energy efficiency promotion plan, the

identification of the energy efficiency potential and pilot project implementation, the

creation of a database on public building energy consumption patterns and select of some

ESCOs for pilot projects implementation.

- The third component suggested the development of an ESCO methodology, EPC

templates and the implementation of an M&V procedure.

› Upgrading the Capacity of Existing Energy Conservation Centers (International Institute for

Energy Conservation, 2009). The report made an assessment of the existing energy

conservation centers in Hanoi and Ho Chi Minh City (HCMC) with regard to their human

resource capability, technical capability, expertise, and experience in providing energy

services to customers and acting as ESCOs. Even though the report focuses on energy

conservation centers, it reflects the current status of knowledge, experience, capacities and

the market's need toward the development of a sustainable ESCO market. The report

identified the technical, organizational and human resources gaps that need to be filled to

bring each of these centers to the level of an independent ESCO. The report states that both

of the ECCs have very good skills and capabilities with respect to understanding energy end

uses, energy audits and detailed energy audits. Also, both have good skills and capabilities

in the economic and financial analysis of EE measures. In order to successfully transition to

a full service ESCO business, the ECCs will need to substantially strengthen their

knowledge, skills and experience in ESCO project development, marketing, sales, financial

and business management systems, customer service, legal and contracting. The major

identified areas for strengthening and upgrading the capacity of the ECCs include notably:

- Building marketing capacity: the ECCs needs to establish a marketing and sales

department that will be responsible for these functions. The staff of this department should

have a formal background in marketing, communication or related fields. In addition, the

ECCs needs to establish a Performance Partners Network (PPN) which is a consortium of

independent companies that help the ESCO offer specialized value-added capabilities

that aid in the delivery of energy services.


16

- Developing a strong sales force and sales process: the ECCs need to establish a sales

department or unit with the appropriate knowledge and skills relevant to energy services.

The sales personnel must be able to work closely with the technical, financial and

administrative/contracting personnel within the ECCs

- Providing and arranging financing: the ECCs need to develop the skills and capabilities to

arrange project financing for energy efficiency projects.

- Measurement and verification: the ECCs need to consider carefully the level of accuracy

of the M&V versus the cost of achieving that accuracy.

- Creating an ESCO business plan: the ECCs should develop a business plan to define the

business purpose, strategy and operational plan that will be adopted by top management

and communicate it to all staff.

- Contracts and agreements: the ECCs should understand specific ESCO operation related

to project development steps, contracts and agreements with consumers.


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4 ASPECTS TO BE CLARIFIED BY FURTHER

INVESTIGATION

The information to be gathered should provide answers about the current status, barriers,

constraints, perspective, needs and priorities of the following:

› Legal status: title, legal status, address and contact, history of development

› Human resource capacity: number of staff, education levels, foreign language capacities,

experience with energy efficiency project implementation, training certificates, energy

auditing certificates, staffs’ detailed experience and professional skills related to energy

efficiency—energy audit, benchmarking, solution design, etc.

› Infrastructure: owned/rented working space, working conditions, availability of measuring

equipment for energy efficiency service

› Organization: ownership management structure, quality certification, project management

structure

› Services and products provided, and customers and markets: quantity of and details about

services and products provided in recent years, number of EPCs done and details, number

of customers overall and by sectors, project management capacity, firm’s assessment on

energy efficiency service market potentials—potential customers, market volume, market

development barriers, etc.

› Business management and development: availability of business/market development

strategy, availability of plan for business trademark/image

› development Organization of the strategy/plan implementation, constraints to business

development, what policies or conditions could help remove the constraints

› Employment: recruitment procedures and regime, forms of labour contracts/regimes,

remuneration and incentives, employee mobility

› EESP trade promotion: desire and willingness to be part of a network whose sole purpose is

to promote the growth of EESPs, what services are expected from such a network-enabling

environment

› Fund arrangement for business: capital from investors, loans, grants, other financial

instruments and sources

To this end, the exploration should lead to a good understanding of the current situation related to

the ESCO business so that the collected information and data permit drawing a complete picture

of ESCO activities and barriers.

It should also be noted that investigation should include EESP/ESCO and other players to assess

all factors related to ESCO operations and EPC projects development and implementation. The

assessment outpt is to provide recommendations on training and capacity-building, and identify the

capacity gaps/barriers to their involvement in EPCs. The proposed training/capacity-building

should answer to the most extent the identified needs and requests.


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In this regard details about the ESCO's technical, financial and background knowledge and

capacities, as well as EPC concept and specificities need to be collected. The emphasis should be

done notably on:

› Revenues related to EE, EPC and others

› Activities related to EE, EPC and others

› Energy efficiency in general and efficient technologies

› Knowledge about ESCO business and ESCO project development

› Investment-grade audit development

› Human resources background and capacities

› Knowledge about EPC and contract negotiation

› Risk assessment

› Project financial analysis

› ESCO business plan

› Opportunities for EE and EPC

› Potential energy efficiency projects by sector

› Available incentives and benefits for EE projects

› Available financing mechanisms for EE projects

Queries should permit to ESCOs to freely express their point of view about market barriers and

needs for support and capacity-building. The expected feedback should cover notably:

› Barriers for project development

› Barriers for project implementation

› Firm's requirement for ESCO knowledge reinforcement

› Financial capacity

› Financial analysis

› Financing mechanisms

› Technical support

› Recommendations for ESCO development

Appendix 1 includes outlines for questionnaire development..


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APPENDIX I :

QUESTIONNAIRE OUTLINE

This outline could be used as guidance to draft a preliminary questionnaire. Each of the sections

need to be developed to include appropriate questions to collected from the EESP/ESCO relevant

information..

Section 1: Organization information

› General information: title, legal status, addresses and contacts, history of development,

capital, ownership/shareholders, number of employees, branches, etc.

Section 2: Activities and revenues

› Activities and revenues by market segments and service/product type (municipal,

government buildings, education, health, commercial, industrial, other)

› Revenues from various types of services (e.g., energy efficiency, renewable energy projects,

CHP, design/build and EPCS, etc.

› Projected growth in annual revenues for each sector/service for the next 5 years

› Etc.

Section 3: Human resources and capacities

› Departments/units, number of staff, education levels, foreign language capacities,

experience with energy efficiency project implementation, experience with EE project

development and implementation.

Section 4: Organization activities

› ESCO services and products provided, targeted customers and markets—quantity of and

details about services and, products provided in recent years, number of EPCs done and

details, number of customers overall and by sectors

› ESCO structure and organization

› ESCO business plan

› Financial instruments and sources

› Project completed / technologies installed by ESCO (energy efficiency, RE, consulting)

› Types of contractual arrangements

- Performance agreement EPCs (GS, SS, chauffage

- Non-performance-based agreements, design/build and EPCS

- Consulting services

› The ESCO's perceived trends in project investment, levels and savings

› Project viability evaluation (simple payback time, IRR, NPV, etc.)

› Risk evaluation

› Interest in developing (more) ESCO business

› Etc.


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ESCO market potential:

› The firm’s assessment on energy efficiency service market potentials: potential sectors,

customers, market volume, technologies, etc.

Section 5: Training and capacity building

› Training strategy, annual budget, number of participants, types of training, number of

certified resources, types of certification, etc.

Section 6: Measurement equipment

› Type of measurement equipment, accuracy, calibration, M&V, certification, dedicated

resources, etc.

Section 7: Firm internal barriers for ESCO project development and implementation

› Constraints to ESCO business development: all limitations and barriers

Section 8: Market barriers for ESCO project development and implementation

› Questions about the business environment policy/regulations on EESP here (tax calculation,

any legal/policy risks related to EPC, for example ownership of EPC assets at factories, and

expectation of EESP regarding these issues/risks.

Section 9: Needs for support and capacity building

› Open section

Section 10: Recommendations for ESCO and EPC development

› Open section


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APPENDIX II :

LIST OF REPORTS

1. IFC Energy Service Company Market Analysis:

http://www1.ifc.org/wps/wcm/connect/dbaaf8804aabab1c978dd79e0dc67fc6/IFC+EE+ESCOS+Ma

rket+Analysis.pdf?MOD=AJPERES

2. Energy Services Companies in Dvelopping Countries:

www.iisd.org/pdf/2009/bali_2_copenhagen_escos.pdf

3. GTZ-International-Experience-Developing-ESCO-Markets:

http://www.giz.de/Themen/en/dokumente/en-International-Experience-Developing-ESCO-

Markets.pdf

4. Latest Development of Energy Service Companies across Europe:

http://bookshop.europa.eu/en/latest-development-of-energy-service-companies-across-europe-

pbLBNA22927/downloads/LB-NA-22927-EN-

C/LBNA22927ENC_002.pdf;pgid=y8dIS7GUWMdSR0EAlMEUUsWb0000rMXCfSeG;sid=B1iEmLy

Gc1uErezknjkaP96jSjua6vHlGSo=?FileName=LBNA22927ENC_002.pdf&SKU=LBNA22927ENC_

PDF&CatalogueNumber=LB-NA-22927-EN-C

5. Energy Service Companies Market in Europe:

http://publications.jrc.ec.europa.eu/repository/bitstream/111111111/15108/1/jrc59863%20real%20fi

nal%20esco%20report%202010.pdf

6. Netherlands ESCO Market:

http://igitur-archive.library.uu.nl/student-theses/2013-0212-

200435/Afstudeerscriptie%20definitieve%20versie%20(PUBLIEK)%20-%20Roel%20Vreeken.pdf

7. A Survey of the U.S. ESCO Industry: Market Growth and Development from 2008 to 2011:




http://www.iisd.org/pdf/2009/bali_2_copenhagen_escos.pdf



http://bookshop.europa.eu/en/latest-development-of-energy-service-companies-across-europe-pbLBNA22927/downloads/LB-NA-22927-EN-C/LBNA22927ENC_002.pdf;pgid=y8dIS7GUWMdSR0EAlMEUUsWb0000rMXCfSeG;sid=B1iEmLyGc1uErezknjkaP96jSjua6vHlGSo=?FileName=LBNA22927ENC_002.pdf&SKU=LBNA22927ENC_PDF&CatalogueNumber=LB-NA-22927-EN-C











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Clean Production and Energy Efficiency Project

Rm. 502, Building A, 54 Hai Ba Trung, Hoan Kiem Dist., Hanoi, Vietnam

Tel/Fax: +84(4) 3938 7835

Email: [email protected]

Website: http://cpee.vn

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