4.0 barriers to energy efficiency in higher education · 4.0 barriers to energy efficiency in...
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4.0 Barriers to energy efficiency in Higher EducationThis section summarises the evidence for barriers to energy efficiency in the higher education(HE) sector. The results from the UK, German and Irish case studies are reported in turn. Fullresults from each country and sector are contained in the relevant case study reports (Annex1).
In each country, 5-6 case studies were conducted of energy management practices withinindividual universities. The first stage was to ask the energy manager or equivalent tocomplete a brief questionnaire. This contained questions on energy consumption, energymanagement practices, the adoption of specific technologies and perceptions of barriers toenergy efficiency. Following this, interviews were conducted on site with one or moremembers of staff from each organisation, including the energy manager. Each interview wassemi-structured and based around detailed protocols derived from the theoretical frameworkfor the BARRIERS project (Sorrell, 1999). Follow up telephone interviews were also used asa means of resolving ambiguities or seeking additional information.
The discussion in each of the following sections is structured as follows:
• Characterising the higher education sector: The key features of the higher educationsector in each country is described, including size, structure, funding, trends, policyinfluences, and patterns of energy use.
• Case studies of energy management: The results from the 5-7 individual case studies in thesector are summarised in a structured way. The organisation of energy management in thesector is described and its effectiveness is evaluated, including an identification ofstrengths and weaknesses. The topics discussed include: energy policy; environmentalpolicy; information systems; accountability and incentives; capital budgeting andinvestment criteria; awareness and culture; purchasing and policy integration; and the useof ESCOs
• Evidence of barriers: The case study results are then analysed using the theoreticalframework developed in section 3. The evidence for each of the barriers is discussed inturn and an attempt is made to identify which of these barriers is most important in thesector. The latter are summarised in a table, together with an identification of the specificinstances where they occur and suggested policy measures to address them.
• Policy implications: Policy initiatives which may help overcome the identified barriers aredescribed. These fall into three categories: a) within individual organisations; b) via sectorassociations and other bodies; and c) national/EU policies for encouraging energyefficiency. Given the range of potential barriers, initiatives at all three levels are likely tobe required. But there are synergies between them: for example, national initiatives mayassist organisations in developing improved energy management.
The results from the UK contain two additional sections: a) a description of the results of apostal survey of energy management in UK universities; and b) an investigation into thebarriers to energy efficiency within new construction. The results from Germany containadditional work on the prospects for ESCOs within the higher education sector.
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4.1 BARRIERS TO ENERGY EFFICIENCY IN THE UK HIGHER EDUCATIONSECTOR
4.1.1 Characterising the UK higher education sector
There are 90 universities in the UK, or 115 if the colleges of the federal universities ofLondon and Wales are counted separately. In 1996-97 there were 1.13 million full-timestudents and 0.54 million part-time students taught by 126600 academic staff. Totalexpenditure on higher education end 1996-97 was £11.5 billion, or approximately 10% of theeducation budget. The primary (41%) source of funding is the Higher Education FundingCouncils (HEFCs), which distribute public funds for teaching and research according toquality criteria.
The 1990’s have seen declining dependence on public funding for universities, a considerablereduction in capital grants and a significant increase in university borrowing. A combinationof financial constraints and growth in student numbers led to a 40% reduction in the unitfunding per student between 1977 and 1997. These financial constraints led to significantunder-investment in infrastructure and created a crisis in higher education. The situation hasnow improved following the Labour governments’ Comprehensive Spending Reviews. Butacross the sector in 1997-98, operating surpluses were only 1.5% of income with 28institutions in deficit. A 1997 survey suggested that investment of £4.2 billion over a five yearperiod was required to bring the university estate up to an acceptable standard. Manyinstitutions are engaged in major construction programmes, with an estimated £2.3 billionbeing spent over the period 1995-6 to 2000-01. Approximately one quarter of this expenditureis for new residences.
Total expenditure on energy in the higher education sector is approximately £200million/year. This represents around 1.8% of total expenditure by the sector, or 4% ofgovernment spending on higher education. A 1998 study by the funding councils suggestedthat savings of 10% - 20% were possible ‘over a period’, representing £20-40 million/year.The majority of efficiency opportunities were ‘generic’ technologies for public & commercialbuildings, including BEMS, high efficiency lighting and fabric improvements.
The sector has been the focus of a number of energy and environmental initiatives, includinga 1993 report on environmental responsibility. But adoption of the recommendationsproposed by these initiatives has been limited, with no institutions being accredited to arecognised environmental management system. As a consequence, environmental issues havehad only a limited impact on energy management.
Universities are large institutions with complex decision-making structures. Energymanagement is typically controlled centrally by the Estates department and may or may notinvolve dedicated energy management staff. Much improvement in energy efficiency isachieved through routine maintenance and refurbishment. While there are many examples ofgood practice in the sector, there are also a large number of poorly performing institutions.
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4.1.2 Survey on energy management in UK higher education
A postal survey was conducted with the aim of identifying: a) current energy managementpractices at UK universities; b) the extent of adoption of energy efficient technologies; and c)perceptions of the most important barriers to improving energy efficiency. It was sent to theindividual responsible for energy management at 94 UK universities (excluding the six casestudy institutions), with replies being obtained from 31 institutions (32%). Institutions wereclassified by the size of their annual energy bill: small = <£1m/year; medium = £1-2m/year;and large = >£2m/year. Key results include the following:
• 81% of respondents had an energy policy, but only 46% were signatories to thegovernment Making a Corporate Commitment Campaign (MACC).
• 72% of respondents had an energy manager, but less than half the small institutions did.39% had an energy committee, and only 22% delegated responsibility for energy tobuilding managers.
• 59% had an environmental policy, but only 16% had an environmental manager. Only 13%felt that the environmental policy had made a significant impact on energy management.
• Energy use is most commonly metered at the building level and recorded monthly. 86%monitored trends in consumption, 71% adjusted for weather conditions, 62% used amonitoring & targeting (M&T) system and 62% compared consumption with sectorbenchmarks.
• 41% of institutions advised building users of energy performance, but only 29% chargeddepartments for the energy they consumed.
• Respondents were asked to fill in a ‘self assessment’ matrix, which grades performancefrom 0 (poor) to 4 (excellent). The overall average score was 2.0, with 1.5 for smallinstitutions and 2.3 for large.
• Half of the respondents reported the investment criteria they used for energy efficiency,with a mean value of 4.1 years. Only 39% of institutions had an annual budget for energyefficiency investment, and only 27% reinvested energy cost savings in future projects.
• 79% of institutions agreed or strongly agreed that a wide range of measures could beimplemented that would yield paybacks of <4 years at current energy prices.
• The DETR Energy Efficiency Best Practice Programme was considered the most usefulinformation source on energy efficiency (73% rating it good to excellent), followed bynetworks of energy managers.
• Only five institutions (14%) used some form of contract energy management.• Participants were asked to rate the extent to which they had adopted a range of energy
efficient technologies, using a scale from 1 (not adopted) to 5 (extensively adopted). Theoverall average score was 3.1 and there was little difference between small and largeinstitutions.
• Technologies with the highest reported take-up included BEMS, high frequency lightingand boiler sequencing controls. Technologies with the lowest reported take-up includedCHP, draught proofing, and specification of high efficiency office equipment.
• Participants were asked to rate the importance of 21 suggested barriers to energy efficiencyusing a scale from 1 (not important) to 5 (very important). The overall mean score was 3.3,with the average for all sites ranging from 2.4 to 4.3 Hence, most of the suggested barriers
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were considered of at least average importance, several were considered very important,and very few were considered not important.
• Lack of capital was considered the most important barrier, closely followed by lack of timeand departments being unaccountable for energy costs. Those barriers considered oflimited importance included technology inappropriate at this site, hassle & inconvenience,technical risk and business/market uncertainty.
4.1.3 Case studies of energy management in UK higher education
The following table summarises the key features of the six UK higher education case studies.
Table 4.1 Summary of UK university case studies
Feature UniversityA
UniversityB
UniversityC
UniversityD
UniversityE
UniversityF
Old/new ‘Old’ ‘ New’ ‘Old’ ‘Old’ ‘New’ ‘Old’Type Campus Metropolitan Metropolitan Campus Metropolitan MetropolitanAnnual income £76.6m £66.2m £126m £187m £67m £255mEnergy spend(£m)
£1.03m £0.85m £2.02m £2.4 £0.79m £3.09m
Energy spend as% of income
1.4% 1.2% 1.6% 1.3% 1.2% 1.2%
Size category Medium Small Large Large Small LargeEfficiency(GJ/m2)
1.22GJ/m2 1.29GJ/m2 0.98GJ/m2 n/a New build:0.71GJ/m2
n/a for oldcampus
1.14GJ/m2
Self assessmentscore
2.0 2.5 2.2 1.5 1.5 2.8
Full-timeenergymanager?
No Yes No but 3staff
involved
Yes Yes Yes(4 full time
staff)Energy policy? Proposed but
not adoptedProposed butnot adopted
Yes since 1992
No No Yes since 1989
Environmentalpolicy?
Yes Yes Yes Yes Proposed butnot adopted
Yes
Payback criteria 3 yrs 3 yrs 3 yrs no fixedrules
3 yrs 4 yrs
Assessment Poor Fair Good Good/Fair Fair/Poor Good
Some key features of the case study results are summarised below:
• Organisation: Energy management was very much a technical exercise, centralised in theEstates department and legitimated on cost saving grounds. The energy manager, orequivalent, was typically linked to the Building Services division, while separate divisionswere responsible for maintenance of building fabric and capital projects. Investment inenergy efficiency via a dedicated budget was very much a secondary activity. Instead, themajority of efficiency improvements were obtained through routine maintenance, newbuild and refurbishment, and much time was taken up in managing information systems. Inrecent years, three factors had led to significant changes in university energy management:a) the fall in energy prices following energy market liberalisation; b) the consequent shiftof attention from energy efficiency to energy purchasing; and c) continuing reductions in
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‘overhead’ staff in universities. The consequences of this were a reduction in the prioritygiven to energy management and increasingly severe time constraints on university staff.
• Energy policy: Only two institutions had an established energy policy, and these were themost progressive. Only University F had established quantitative targets.
• Environmental policy: There was wide divergence in the extent of take-up ofenvironmental policies, but in no case did they have a significant impact on energymanagement. Energy was considered relatively ‘invisible’ and it was difficult to make thelink between energy and the environment.
• Energy information systems: These varied widely in quality between rudimentary(universities A and E) to best practice (university C). Meters were typically read manuallyon a monthly basis. Establishment of a good M&T system was considered a prerequisitefor effective energy management
• Energy control: Use of BEMS also varied from basic (university A) to extensive(universities C, D and F). Standardised BEMS for all buildings, controlled centrally byEstates, was an objective of all institutions and was seen as a key element of effectiveenergy management.
• Accountability & incentives: Only university A directly charged departments for electricityuse, while none charged directly for fuel/heat. Instead, utilities cost were included withingeneral overheads with three institutions linking this to space occupied. While non-accountability for energy costs is a major barrier to its efficient use, the establishment of‘devolved budgeting’ was a highly sensitive political issue. Furthermore, there weresignificant practical obstacles such as frequent changes in room use. Hence, none of theother institutions had plans to introduce devolved energy budgeting.
• Capital budgeting and investment criteria: Three institutions had a dedicated budget forefficiency investment equivalent to 5% of the annual utilities bill, while a fourth had atoken £10k/year. As indicated above, this was seen as a secondary source of efficiencyimprovement. Four institutions used 3 year payback criteria, while university F required 4years. There was no attempt to use IRR or DCF, and the rationale for stringent paybackswas never explicit. Time constraints were as important as capital constraints in preventingefficiency improvements.
• New build and refurbishment: All institutions had major ongoing capital programmes, andtwo institutions had attempted to deliver best practice in energy and environmentalperformance in some of their recent projects. Nevertheless, all institutions reported a rangeof barriers within the construction process which acted to undermine energy efficiency andwhich had created a series of problems at their institutions. These barriers ultimatelyderived from the structure of the construction industry and the incentives placed on variousactors in the construction process (see below).
• Purchasing & policy integration: None of the institutions had been successful inintegrating energy concerns into purchasing policy and all gave examples of whereefficiency opportunities had been lost. For example, no institution had been successful inensuring both the purchase of Energy Star compliant PCs and the enabling of the powersaving facilities. Use of whole life costing was limited and consultation between Estatesand purchasing departments rare.
• Awareness & culture: The level of energy awareness among staff and students wasuniformly reported to be very poor. There had been relatively little activity on awarenesscampaigns and they were not considered particularly effective. Part of the problem was the
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lack of accountability for energy costs. The importance of a high level ‘policy champion’in achieving results was clearly demonstrated. Management support and interest was highin those institutions performing relatively well, and poor elsewhere.
• Energy services and outsourcing: One university was considering an energy servicecontract for a CHP district heating scheme financed through the government PrivateFinance Initiative (PFI). But in all other institutions there was considerable scepticismabout the value of energy service contracts. One reason for this was that key drivers, suchas the need for major investment in utilities plant, were typically absent.
4.1.4 Barriers to energy efficiency in the UK construction industry
The case studies identified a series of barriers to energy efficiency in new construction thatwere considered to be of particular importance. Through additional interviews and the reviewof some relevant literature it proved possible to explore these problems in somewhat greaterdepth, focusing in particular on building services.` It was found that the problems derivedprimarily from the traditional fragmentation of the construction industry, the ‘linear’ ratherthan integrated design process, the reliance placed on cost-based competitive tendering andthe incentives placed on different actors within the construction process. The followingfactors were considered to be of particular importance:
• Time constraints, deriving from a variety of sources but particularly from the new fundingenvironment, can militate against the extra effort required to produce energy efficientdesigns.
• The clients’ focus on capital costs, using £/m2 precedents, can lead to the neglect of lifecycle costs. In turn, designers and contractors have few incentives to consider life cyclecosts.
• The traditional contracting arrangements in the industry are not conducive to the integrateddesign processes essential for high energy efficiency.
• The fact that building services frequently come last in the design process makes theirdesign and implementation especially vulnerable to constraints on time and budget.
• The incentives created by legal liability and the need to accommodate future changes inbuilding use encourage overspecification and oversizing of heating, ventilation and airconditioning (HVAC) equipment.
• The selection of contractors on the basis of minimum cost, coupled with fierce competitionin the industry, creates incentives to ‘cut corners’, reduce quality and thereby undermineenergy efficiency.
• The continuing use of fee structures based on percentage of capital cost further encouragesoversizing of HVAC equipment and creates a perverse disincentive to energy efficientdesign.
• The time constraints on projects, the lack of communication between contractors and usersand the paucity of post occupancy evaluations means that commissioning is often not doneto the standards required for optimum energy efficiency.
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4.1.5 Evidence of barriers in UK higher education
The empirical results have been interpreted in terms of the theoretical framework for theBARRIERS project. This framework groups barriers under 12 broad headings (section 3.8).The barriers found to be of particular importance in this sector are:
• Access to capital• Hidden costs• Risk• Imperfect information• Split incentives• Adverse selection• Bounded rationality• Power
These apply to particular situations. For example, risk applies in particular to buildingservices contractors in new construction. Table 4.2 elaborates this list by identifying theparticular instances where these barriers operate. Table 4.3 indicates some potential policymeasures which may address these barriers. These are given at four levels: within theindividual university; within the higher education sector; within the construction industry; andat a national level. More information on policies is given in section 4.1.6.
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Table 4.2 Barriers found to be of high importance in the UK higher education sector
Generalcategory
Specific instance Comments
Access tocapital
Availability of capital to theuniversity
Funding Council imposes restriction on borrowing. Borrowing rarely contemplated for smallinvestments. Capital constraints in project funding for new construction a major source ofinefficiency.
Allocation of capital withinuniversities
Research investment has greatest priority. Budgets for energy efficiency typically less than bestpractice recommendations.
Hidden costs Overhead costs of energymanagement
Salary overheads are very significant - typically 60% of the investment budget. This is manifest insevere time constraints on staff. Overheads may need to be recovered in part from energy savingson investment projects.
Risk Risk perceptions of buildingservices contractors
Legal liability & need to accommodate future changes in building use gives strong incentive tooversize HVAC equipment.
Imperfectinformation
Information onorganisational energy use
Many institutions could significantly improve their information systems. Communication ofinformation to management, staff and students is poor.
Information transfer in thedesign process for newconstruction
Problems caused by a) lack of integration in the design process; b) the unfamiliarity of highefficiency solutions; and c) the lack of information on client’s future needs.
Splitincentives
Departments not accountablefor energy costs
Perceived as a major obstacle. But major costs and difficulties associated with introduceddevolved budgeting.
Purchasers of equipment notaccountable for energy costs
Limited adoption of whole life costing, few attempts at integrating energy concerns intopurchasing criteria and limited consultation between Estates & purchasing departments
Designers & contractors fornew buildings notaccountable for running cost
Primary incentives are to keep to the capital budget and deliver on time. Also incentives to cutcorners in a highly competitive market and structure of design fees may encourage oversizing. Insum, powerful incentives may significantly undermine energy efficiency.
Adverseselection
Asymmetric information onbuilding services equipmentin new construction
Consequence of building services & controls being highly technical, ‘black-box’ issues.
Boundedrationality
Decision-making andorganisational routines mayneglect energy efficiency
Difficult to demonstrate the importance of this empirically. Prevalence of severe time constraintsis strongly suggestive of its importance, as is the neglect of energy efficiency in manyorganisational routines. But other barriers frequently also present.
Power Energy management has lowstatus, making it ineffective
Academic priorities dominate. A major obstacle to the introduction of devolved budgeting.
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Table 4.3 Policy measures to overcome barriers found to be of high importance in the UK higher education sector
Generalcategory
Specific instance Suggested measures
Access tocapital
Availability of capital to theuniversity
• Organisational: where appropriate consider external financing
Allocation of capital withinuniversities
• Organisational: create an energy management profit centre• National: climate change levy;
Hidden costs Overhead costs of energymanagement
• Organisational: create an energy management profit centre; assign responsibility for energymanagement
• Sectoral: promotion of energy service contracting• National: climate change levy;
Risk Risk perceptions of buildingservices contractors
• Construction: partnering & integrated design• Sectoral: promotion of energy service contracting
Imperfectinformation
Information onorganisational energy use
• Organisational: establish an effective energy management system; conduct energy audits;establish a programme for improved controls
• Sectoral: improve EEBPP information; establish standardised benchmarks; promote EnergyShare Fair network; HEFCE to implement mandatory reporting requirements; include energyefficiency in audit procedures
Information transfer in thedesign process for newconstruction
• Organisational: integrate energy efficiency into new construction and major refurbishment• Construction: partnering & integrated design; value management & the building life cycle;
education & training• National: revisions to the building regulations
Splitincentives
Departments not accountablefor energy costs
• Organisational: where possible, introduce departmental charging for energy costs• National: market transformation programmes;
Purchasers of equipment notaccountable for energy costs
• Organisational: integrate energy management into purchasing procedures• National: market transformation programmes;
Designers & contractors fornew buildings notaccountable for running cost
• Organisational: integrate energy efficiency into new construction and major refurbishment• Construction: value management & the building life cycle; reform of engineering fee
structures• National: revisions to the building regulations; market transformation programmes;
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Adverseselection
Asymmetric information onbuilding services equipmentin new construction
• Organisational: integrate energy efficiency into new construction and major refurbishment• Construction: partnering & integrated design; education & training• National: revisions to the building regulations
Boundedrationality
Decision-making andorganisational routines mayneglect energy efficiency
• Organisational: integrate energy management into maintenance procedures; integrate energymanagement into purchasing procedures; establish energy awareness campaigns; wherepossible, introduce departmental charging for energy costs; integrate energy efficiency intonew construction and major refurbishment
• Sectoral: HEFCE to implement mandatory reporting requirements; voluntary adoption ofenergy efficiency targets; adoption of whole life costing in purchasing; use of purchasingconsortia
• National: climate change levy; revisions to the building regulations; market transformationprogrammes;
Power Energy management has lowstatus, making it ineffective
• Organisational: adopt an energy policy; assign responsibility for energy management; createan energy management profit centre
• Sectoral: voluntary adoption of energy efficiency targets; include energy efficiency in auditprocedures; adoption of whole life costing in purchasing
• National: climate change levy;
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The subsequent sections briefly summarise the evidence for the full list of 12 barriers. Thebarriers considered of high importance are discussed first, followed by the remainingcategories of barrier.
Barriers considered of high importance in the UK higher education sector
• Access to capital: This was considered the most important barrier to cost effectiveinvestment. While university borrowing is limited by the funding councils, there is alsogreat reluctance to use external funding sources for energy efficiency investment. Thiscreates a self-imposed constraint whose rationale is unclear. Constraints on the capitalbudget for new buildings are a major source of lost opportunities, although in principlemore money could be borrowed. Within institutions, energy efficiency has a much lowerpriority than investment in research and teaching and is thus subject to severe budgetrestrictions.
• Hidden costs:• The overhead costs of energy management was found to be a very significant
factor, and is clearly demonstrated by the prevalence of severe constraints on stafftime. If the salary overheads of energy management staff were to be entirelyrecovered from the returns on investment projects, it would be necessary to usesignificantly more stringent investment criteria for the capital costs alone. Butwhile it is difficult to justify recovering all salary overheads in this way, thequestion of what proportion of overheads should be recovered is difficult toanswer. In the context of severe time constraints, costs associated with identifyingopportunities, analysing cost effectiveness and tendering can be significant. Thus,for example, no investment projects had been proposed at university E because themanager lacked the time to identify them.
• In contrast, hidden costs specific to a technology investment, such as hassle andinconvenience were found to be of considerably less importance. Loss of benefitsassociated with energy efficient technologies was rarely important, and it was morecommon to find technologies providing additional benefits.
• Risk: Risk is not generally considered an important barrier in the HE sector. However,business risk is frequently used as a rationale for stringent investment criteria. Also, in theabsence of incentive contracts, the perceived risks for staff when proposing energyefficiency investment may sometimes exceed the rewards. In contrast, there is no evidencethat the criteria for energy efficiency investment are more stringent than for other types ofinvestment and little evidence that changes in energy supply markets constitute animportant risk. Risk is an important factor for building services contractors in newconstruction, however, and is a major contributory factor to oversizing of HVACequipment. Specifically, contractors are concerned about legal liability and future changesin building use.
• Imperfect information: Information on current energy use in many institutions is poorowing to lack of investment in information systems. Communication of information tomanagement, staff and students is poorer still. The level of information on generic energyefficiency opportunities is relatively good, but many institutions lack more specificinformation as they have not conducted detailed energy audits. In the constructionindustry, there is a series of problems in communicating information between differentactors. For example, lack of integration in the design process means that building servicesdesigners lack the necessary information to optimise their designs.
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• Split incentives: Split incentives in a variety of forms were a dominant theme of the casestudies and are clearly an important barrier to energy efficiency. The lack of accountabilityfor departmental energy costs is the most important factor, but there is a series of practicaland political obstacles to overcoming this through the introduction of devolved budgeting.Related to this is the fact that the individuals responsible for purchasing equipment are notaccountable for running costs. Similarly, designers, consultants and subcontractors are notliable for the running cost of a building and hence tend to focus primarily on meeting thecapital budget and delivery schedule. Other potential forms of split incentives were foundto be much less important, notably: landlord-tenant relationships in leased buildings andshort term incentives created by rapid job rotation.
• Adverse selection: This occurs where purchasers have difficulty in identifying the energyperformance of a good. The results demonstrate that problems of adverse selection pervadethe procurement process for new buildings and apply in particular to building services andcontrols. This is primarily because it is very difficult for the client to identify inefficient,oversized or incorrectly operating building services equipment. We would also expectadverse selection to be present in common forms of equipment purchasing by universities,such as PCs, catering equipment and research equipment. However, the case study resultsare insufficient to allow useful conclusions to be drawn here.
• Bounded rationality: Bounded rationality clearly provides a more realistic account ofdecision-making than that assumed in conventional economic models. Similarly, theempirical results demonstrate that energy efficiency is neglected in a wide range oforganisational routines and that this neglect is greater where other priorities dominate -such as the need to replace a failed motor as quickly as possible. But split incentives, lackof information and other factors are typically also present. The best we can conclude isthat, in most decision-making contexts, bounded rationality compounds the neglect ofenergy efficiency that is encouraged by these other factors.
• Power and status: Energy management has a low status in institutions dominated byacademic priorities. This is particularly the case in ‘old’, research based universities.Conflicts between Estates and other interests are common and form the greatest obstacle tothe introduction of devolved budgeting. In sum, diverging interests between Estates andacademic staff would appear to be an important barrier to energy efficiency.
Barriers considered of less importance in the UK higher education sector
• Heterogeneity: To clearly identify the importance of this barrier, it would be necessary toconduct survey research focused on a particular technology. Nevertheless, the case studyresults suggest strongly that heterogeneity is not an important obstacle for the majority ofselected technologies at the institutions studied.
• Principal-agent relationships: This is another form of asymmetric information in whichmonitoring and control problems may lead principals to require stringent investmentcriteria to ensure that only unambiguously high value projects are undertaken. Theevidence here is inconclusive as there are several plausible hypotheses for stringentinvestment criteria. However, the fact that, first, investment criteria are frequently chosenby the Estates department itself rather than Finance, and second, interviewees were unableto give a clear rationale for stringent criteria suggests that principal-agent relationships arenot the primary issue. It is notable that employment contracts for university energymanagers contain no direct incentives for improving energy efficiency. This could be dueto difficulties in performance monitoring, or may simply reflect the lack of precedents forincentive contracts in the sector.
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• Form of information, credibility and trust: There would appear to be a number ofinformation sources available to the sector which meet the criteria for credibility, trust andeffectiveness. Notable among these is the Higher Education Energy Share Fair Network,which combines practical workshops, information sharing and an email list. In thiscontext, we cannot conclude that either the form or credibility of available information isan important barrier.
• Values and organisational culture: Environmental values and the establishment ofenvironmental policies have not to date been an important factor in improving universityenergy management. Environmental concerns play a very much secondary role, and energyis seen as very much a secondary environmental concern. External pressures on improvingenvironmental performance are considered to be relatively weak, although the energyperformance of new buildings has gained some profile. For both energy and environmentalmanagement, however, high level managerial commitment is essential for success.
4.1.6 Policy implications
Some key policy initiatives at the organisational, higher education sector, construction sectorand national levels are highlighted below.
Organisational levelThere is a wide range of best practice literature on the measures which individual institutionscould take to improve their energy efficiency. Much of this is highly relevant to the HE sectorand there are a range of best practice examples in the sector which can be followed.Recommendations include: adopting an energy policy; assigning responsibility for energymanagement; establishing an effective energy information system; creating an energymanagement profit centre; including incentive terms in staff contracts; establishingprocedures for user consultation; establishing a programme for improved controls; conductingprioritised energy audits; integrating energy management into purchasing and maintenanceprocedures; integrating energy efficiency into new construction and major refurbishment;introducing departmental charging for energy costs (where possible); establishing energyawareness campaigns; and, where appropriate, considering external financing.
HE sector levelThere are three areas where initiatives could be undertaken at the sector level:
• Information: The government could more clearly indicate their requirement that the highereducation sector contribute towards meeting the UK’s obligations under the KyotoProtocol. To assist this, it could expand the range of sector specific information literatureand give particular emphasis to promoting informal networking through the so-called‘Energy Share Fairs’.
• Funding councils: The funding councils could introduce mandatory reporting requirementson energy consumption and energy efficiency. Ultimately this could include reporting ofconsumption against benchmarks at a building level. A further step could be the adoptionof voluntary, sector wide, targets on energy efficiency - although this may require centralgovernment intervention. Inclusion of energy management practices in audit criteria is alsoimportant, together with guidance on the adoption of energy efficiency standards in newand refurbished buildings. These should exceed building regulation requirements. Finally,the funding councils could allocate capital funding to cost effective energy efficiencyprojects.
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• Purchasing: The Group responsible for purchasing procedures in the HE sector couldmake greater efforts to ensure that whole life costing is adopted. One possible route forthis is through the regional purchasing consortia.
Construction sector levelThe UK construction industry is currently undergoing major changes, following a reformagenda initiated by two major government reports. While energy efficiency and sustainabilityhave largely been a side issue in this process, the reforms currently underway have thepotential to overcome many of the barriers to energy efficiency identified above. Three keyareas are:
• Partnering & integrated design: The aim here is to reduce the dominance ofsubcontracting and adversarial relations through the introduction of long term relationshipsbased on collaboration, teamwork and mutual learning. Integrated design is a key element.
• Value management and life cycle costs: Value management involves the design teamworking together with a facilitator to achieve the clients needs while eliminatingunnecessary costs. A central component of this must be the use of life cycle costing.
• Education, training and design tools: A variety of support can be given to encourage thesechanges through best practice literature, standardised methodologies, design tools,assessment methodologies for green buildings and similar approaches.
National measuresThe above measures will only be effective in the context of a broad based climate policy,incorporating fiscal, regulatory and information measures. The following elements of theemerging UK climate strategy are of particular importance.
• Climate Change levy (CCL): This is a revenue neutral business energy tax to be introducedin April 2001. Average electricity prices will rise by around 11% and gas prices by 27%,with corresponding reductions in employers’ national insurance. Universities should gainfrom tax overall as the reductions in national insurance contributions are likely to exceedthe increase in energy costs. Early estimates suggest that the sector as a whole should gainby £77 million, which compares with total annual expenditure on energy of ~£200 million.If correct, this suggests that the CCL is a major economic benefit to the sector, while at thesame time substantially increasing the profile of energy management.
• Revised building regulations: A second element of the climate programme is stricterbuilding regulations, including standards on ventilation and air conditioning. These are aeffective means of providing minimum standards in construction, without requiringorganisations to modify internal procedures. However, regulations can be a ceiling asmuch as a floor, so positive change is also required in the construction industry (above).
• Market transformation programmes: There are limits to what can be achieved throughinternal organisational change, particularly in areas such as equipment purchasing. Analternative is to simplify decision-making for the organisations by transforming the marketfor energy using goods. Relevant measures include energy labelling, mandatory efficiencystandards and voluntary agreements. Such measures will require action at EU level due tothe implications for competitiveness and the single market.
•
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4.2 BARRIERS TO ENERGY EFFICIENCY IN THE GERMAN HIGHEREDUCATION SECTOR
4.2.1 Characterising the German higher education sector
The higher education sector (HES) in Germany includes a variety of institutions calledUniversitäten (Universities), Gesamthochschulen (Comprehensive Universities),Theologische Hochschulen (Theology Department only), Pädagogischen Hochschulen(Education departments only), Kunsthochschulen (Arts), Fachhochschulen, andVerwaltungsfachhochschulen (Administration). In 1998/99, there were 349 institutions ofhigher education. The vast majority of institutions are public, with only 1% of students beingenrolled in private institutions. Since the early 1970’s the total number of students has grownfrom 422,000 to over 1.8m. After a few years of decline, enrolment is increasing, and in 1999the number of freshmen was about 290,000. Officially, the German HES provides places foronly 1m students. In 1998/1999 about 481,000 people were employed in the HES, 45% ofwhich were scientific staff and 8% professors.
The financing of investments in the HES is regulated through a special law calledHochschulbauförderungsgesetz. Operating expenses are generally financed through the state(Laender) budgets, with some by churches or private organisations. For large equipment, newbuildings and building extensions, 50% of the investment costs are paid for by the federalbudget. Total federal and state expenditure for HES institutions in 1997 amounted to 50.9 bn.DM (~26 billion Euros) of which 11.7 % was investment. In general, the funding of the HESsuffers badly from tight federal and state budgets, creating a major challenge for thefunctioning of the sector. Many institutions need new equipment for research and teaching,and many buildings need to be refurbished.
Recent reforms provide both challenges and opportunities. These include: increasedautonomy for individual institutions; the introduction of global budgeting and businessaccounting; more use of ranking and evaluation; increased competition; new forms ofteaching, such as virtual universities; and new programme design.
Total annual energy consumption within the German HE sector is estimated at 11TWh, whichcorresponds to 0.4% of German final energy consumption. Total energy costs in the highereducation sector are estimated to be around 1billion DM (~0.5m Euros), which accounts forapproximately 2 % of total expenditure in the HES. Electricity costs account for about 60 %of total energy costs, but due to decrease in electricity prices following the liberalisation ofthe electricity market, this share is expected to decrease.
Universities are large institutions with complex decision-making structures. Energyconsumption is influenced by several institutions, individuals and groups from within andoutside the university. University administration is primarily responsible for the control andplanning of energy consumption, including prioritising investments, measuring and recordingenergy consumption, purchasing equipment, planning space allocation, and maintainingbuildings. Usually, the department for technical services is responsible for the supply of heatand electricity services, while a construction department participates in the planning ofbuildings and is in charge of the buildings maintenance. Typically, there is no energymanager to co-ordinate all energy management activities. For buildings construction and
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most refurbishment, a state construction agency (staatliches Hochbauamt) is responsible forthe planning and carrying out of the work, while the influence of the universities is limited.
The technical and economic savings potential in the HES is estimated to be high.Organisational measures in the public sector may save 5-15%, technical measures to reducethermal energy consumption 25-60 %, and technical measures to reduce electricityconsumption at least 10 %. Universities vary considerably in energy efficiency performance,and, while there are many institutions with good performance, there are also a large numberof poorly performing institutions.
4.2.2 Case studies of energy management in the German higher education sector
The following table summarises the key features of the six German higher education casestudies.
Table 4.4 Summary of German university case studies
Feature UniversityA
UniversityB
UniversityC
UniversityD
UniversityE
UniversityF
Number ofstudents
16,000 15,000 10,000 11,000 18,000 24,000
% of buildingsbuilt before1945
20 % 30 % 70 % 0 % n/a 33 %
Net floor spacein m2
200,000 240,000 76,500 63,800 160,000 530,000
Budget inm Euros*
200 300 60 70 n/a 250
Energy cost inm Euros
4.3 5.2 1.1 1.2 n/a 6.0
Energy cost as% of budget
2.3 % 1.7 % 1.8 % 1.7 % n/a 2.4 %
Energyconsumption
82.5 GWhth36.5 GWhel
44 GWhth40 GWhel
13.6 GWhth7.95 GWhel
18.2 GWhth7.9 GWhel
n/a 82 GWhth41.6 GWhel
Specific energyuse (GJ/m2)
1.5 GJth/m2
0.66 GJel/m20.66 GJth/m2
0.6 GJel/m20.64 GJth/m2
0.37 GJel/m21.03 GJth/m2
0.45 GJel/m2n/a 0.56 GJth/m2
0.28 GJel/m2
Self assessmentscore
3.3 2.0 2.0 1.66 n/a 0.83
% of listedtechnologiesadopted
55 % % 80 % 70% n/a 42 %
Full-timeenergymanager?
Yes No No No Yes No
Environmentalpolicy
No No yes, since1997
No No No
Payback criteria 5 years,flexible
< 5 years 5 years,flexible
no fixedrules
no fixedrules
no fixedrules
Assessment Good Fair Good Good/Fair ? Good/Fair* including third party funding
Some key features of the case study results are summarised below:
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• Organisation: Only two of the universities had an energy manager. Otherwise energymanagement was located in the departments for technical services, and was very much atechnical exercise. Energy management is only one of many tasks for these departments.For buildings construction, refurbishment and, in some cases maintenance, a stateconstruction agency is responsible for the planning and the carrying out of the work withlimited involvement of the individual institution. Time constraints on staff wereemphasised by all interviewees.
• Energy/environmental policy: Only one university had a formal environmental or energypolicy. As a general - but not formally encoded - rule, teaching and research are the toppriorities and must not be affected by energy savings measures.
• Energy information systems and controls: Except for university A, all universities had aBEMS in place, although usually only for a subset of the buildings. At university B, theBEMS is very old, and incompatible with new control technologies. Thermal energyconsumption is usually metered monthly at the level of individual buildings, or buildingcomplexes. Electricity consumption is measured for some large items of individualequipment but generally energy data is not available at the level of individual departments.Typically, energy consumption is controlled, but no targets exist. Energy savings fromefficiency measures were only recorded for universities A & D.
• Accountability & incentives: No university directly charged departments for energy costs.Instead costs were paid out of a central budget and formed part of general overheads. Plansexisted for devolved budgeting with the introduction of business accounting systems inmost universities, but there were a range of practical obstacles.
• Capital budgeting and investment criteria: No university had a dedicated budget forefficiency investment. By law, 6% of the buildings maintenance budget should be spent onenergy efficiency, but this does not mean much in practice since almost any measure canbe declared as an energy savings measure. Regular profitability/risk analyses for RUE-measures were performed to some extent, but with varying quality, in universities, A, C,D, and E. Simple pay-back was the norm, with a required payback of 5 years or less. Inmost cases, profitability or risk assessments were secondary for the investment decision.Urgency, research and teaching needs, prestige, design etc. were usually more important.Instead, the majority of efficiency improvements were obtained through routinemaintenance, new build and refurbishment.
• New build and refurbishment: In principle, the state construction agency is responsible forthe planning and carrying out of new buildings construction, refurbishment, and oftenmaintenance. The input of the universities is only advisory. Usually, energy efficiency isonly secondary to other aspects such as design or prestige. In addition, the different tasksof planners, engineering firms and trades are not well co-ordinated. Laws for the protectionof historic monuments are often barriers to energy efficiency in old buildings.
• Purchasing & policy integration: Typically, a central purchasing office orders equipmentaccording to the specifications provided by individual departments. Subject to thesespecifications energy efficiency is taken into account, but usually initial outlays (and notlife-cycle costs) are most important. The impact of the energy managers on the purchasingof equipment is very limited. Even where guidelines for the integration of environmentalperformance into purchasing procedures exist, they are not very powerful and usually notenforced.
• Awareness & culture: Lack of awareness of energy performance was considered a problemin all universities. Where awareness programmes exist, they are widely ignored by researchand teaching staff. Also, motivating students is difficult as they only stay temporarily in
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the system. Reward programmes to generate new ideas are often unsuccessful and rarelyco-ordinated with those in charge of energy management. In general there is neitherinternal nor external pressure to reduce energy consumption. Support for RUE-measuresfrom the top-administration is important, but of greater significance is the personalmotivation of energy management staff.
• Energy services and outsourcing: At universities A, B, and F energy service companies areinvolved in various types of energy management. The motivation for this is lack of capitaland time, as well as pressure from state ministries. Major difficulties include staffredundancies, monitoring and control costs, and cherry-picking. Also, as outsiders, ESCOshave less knowledge of user requirements.
4.2.3 Evidence of barriers in be German higher education sector
The empirical results have been interpreted in terms of the theoretical framework for theBARRIERS project, which classifies barriers into 12 categories. The barriers found to be ofparticular importance in the German higher education sector are:
• Access to capital• Hidden costs• Imperfect information• Split incentives
These apply to particular situations. For example, hidden costs applies in particular to theoverhead cost of energy management. Table 4.5 elaborates this list by identifying theparticular instances where these barriers operate. The table also indicates potential policysolutions to these barriers - discussed more fully in section 4.2.5.
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Table 4.5 Barriers found to be of high importance in the German higher education sector and proposed policies
General category Specific instance PoliciesSplit incentives Departments not accountable for
energy costs• introduction of devolved budgeting with new business accounting system
Restricted transferability of funds • global budgeting (in the process of being implemented in most universities)State construction agencyresponsible for planning of newbuild and refurbishment
• increase universities’ planning (and financial) authority;• put operating/facility/space management company in charge;• privatisation of all facility/space;
Contractors etc. for new buildingsnot accountable for operating cost
• operating costs as part of tender,• integral planning;
Lack of capital Availability of capital to university • ESCOs and CEM;Allocation of capital withinuniversity
• conduct profitability analyses,• life-cycle costing;• make university funding a function of energy performance or energy audits;• environmental/energy management schemes to raise awareness of top
administrationHidden costs Lack of time, management costs • ESCOs;
• energy audits;• energy manager;• targeted information programmes;• co-operative procurement;
Imperfectinformation
Information on energy use andneeds
• facility management;• energy manager to improve co-ordination of energy management and to improve
communication;
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Below we summarise the evidence for the full list of 12 barriers. The barriers considered ofhigh importance are discussed first, followed by the remaining categories of barrier.
Barriers considered of high importance in the German higher education sector
• Access to capital: This is an important barrier to cost effective investment. Tight federaland state budgets limit funding, while historically borrowing has not been possible forindividual universities. Also, applying for funding and obtaining approval is a verycomplex and time-consuming process. Teaching and research are top priorities withinuniversities and energy efficiency - or even cost efficiency - is very much secondary.
• Hidden costs/transaction costs: Overhead costs of energy management, includingdisruption, hassle, inconvenience, staff replacement and training etc. are not usuallyincluded in profitability analyses. The overhead costs of energy management were foundto be a significant factor, as indicated by the prevalence of time constraints. By contrast,hidden costs specific to a technology investment, such as hassle and inconvenience werefound to be less important. Similarly, the loss of benefits associated with energy efficienttechnologies was considered rarely important. Often, costs for additional energy services(e.g. cooling, ventilation) are not considered when buying new equipment. The transactioncosts for identifying savings potentials, finding RUE-measures, conducting profitabilityanalyses, and preparing public procurement processes are important barriers. But there isonly limited evidence that they are significantly higher than for standard measures.
• Imperfect information: Information on current energy use at the level of individualbuildings or departments in many institutions is poor. Thus, energy consumption and costscannot be allocated to individual departments. Data on energy costs, consumption and userneeds are often not collected at a central organisational level. Similarly, the needs of end-users are not always known or well communicated. By contrast, the level of information onenergy efficiency opportunities appears to be good.
• Split incentives: Various forms of split incentives were the most important barriers toenergy efficiency identified in the case studies. The lack of accountability for departmentalenergy costs is a very important factor. Similarly, prior to the changes in theaccounting/budgeting principles, funds could not be spent for other than the designatedpurpose and unused funds could not be transferred across periods. Likewise, thoseresponsible for the planning of new buildings and major refurbishment (the stateconstruction agency), are not those responsible for future operating costs. Thus,architectural design, prestige, or low investment costs are more important than energyefficiency and life-cycle costs. Likewise, architects, engineers, sub-contractors, andconsultants are not accountable for future operating costs. For them, meeting deadlines andstaying within the budget are vital. Lack of co-ordination between different tradesaggravates this problem. Although modified, the payment ordinance for architects andengineers does not provide sufficient incentives for energy efficient planning. Otherpotential forms of split incentives such as landlord-tenant relationships in leased buildingsand short term incentives created by rapid job rotation were found to be less important.
Barriers considered of less importance in the German higher education sector
• Heterogeneity: To correctly assess the relevance of this barrier, it would be necessary toconduct detailed technology and profitability analyses for each case. Nevertheless, the case
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study results do not lead to the conclusion that heterogeneity is an important barrier in thissector.
• Risk: There is no evidence that technical risk is a significant barrier in the HE sector.However, business/financial risk is of some importance. The liberalisation of theelectricity market has led to a sharp decline in electricity prices and has increaseduncertainty about future prices. Also, the reforms in the HE sector, increased competitionbetween public universities and the emergence of private universities have created risk.Nevertheless, these factors do not justify pay-back rates of 5 years or less since the overallrisk of bankruptcy remains extremely low.
• Adverse selection: The majority of those interviewed had no problems identifying theenergy performance of typical equipment purchases. However, more detailed, technology-specific analyses would have to be carried out to fully assess the validity of this barrier.Based on the interviews we cannot conclude that adverse selection is an important barrier.
• Principal-agent relationships: Although universities have complex decision structures,there is no evidence that principal-agent type problems lead to stringent investment criteriabeing imposed. First, profitability/risk analyses are not always performed. Second,profitability/risk criteria are usually not the prime decision criteria. And third, the required,pay-back rates of 5 years and more are not particularly strict. As part of the public sector,employment contracts for university energy managers cannot contain incentives forimproving energy efficiency.
• Bounded rationality: It is hard to determine whether bounded rationality is an importantbarrier to energy efficiency in the sector. Bounded rationality is a function of many factorslike the complexity of technologies, the decision-making structure, the ability andeducation of people in charge, the level of staff training, time constraints etc. Compared toother sectors, the technologies in the HE sector are less complex, but information and co-ordination costs are higher. It may be reasonable to conclude that in most decision-makingcontexts, bounded rationality split incentives, lack of information, and other factors actsimultaneously and reinforce each other.
• Form of information, credibility and trust: There are several good information sourcesavailable such as BINE, HIS, ecocampus network, or workshops organised by theClausthal-Zellerfeld Technical university, but they are not always known to those in chargeof energy management. Leaflets, brochures and guidelines from state or federal agencieswere judged to be too general and not very useful.
• Values and organisational culture: Although universities with environmental values and agreen culture perform better than other universities, the impact of environmental valuesand the establishment of environmental policies in improving university energy efficiencyhas been limited. Environmental concerns are only of secondary importance, and there isonly weak internal or external pressure. Energy efficiency performance usually depends onthe technical competence and personal motivation of those in charge of energymanagement.
• Power and status: In general, energy management has a low status compared to researchand teaching, which have to be the top priorities for any university. Universities where thestatus of energy management was high were also the better performers in terms of energyefficiency. Liberalised energy markets, rising oil prices and the introduction of businessaccounting are expected to raise the status of energy management.
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4.2.4 The role of ESCOs in the German higher education sector
This subsection is based on the case study interviews and on additional interviews carried outwith four energy service companies (ESCOs). The following list identifies the main reasonswhy the HE sector and ESCOs can mutually benefit from each other:
• HE institutions carry a very low financial risk because they belong to the public sector;• The energy consumption of HE institutions provides a sufficiently large project volume;• The sector has fairly homogenous energy supply and demand technologies which favour
customer-focusing strategies by ESCOs;• Lack of know-how, manpower and time prevent RUE-measures from being realised
internally by HE institutions;• Many HE institutions lack sufficient funds to finance profitable RUE-measures;• The HE sector has started to pursue a lean management strategy, and thus has an incentive
to outsource;• State administrations are encouraging contract energy management as a strategy to
overcome financial restrictions;
Important barriers to contract energy management and ESCOs in the German highereducation sector include:
• Long negotiation times because the decision making process is complex, inflexible andtime consuming as are result of public sector legal requirements.
• Outsourcing or privatisation is often associated with the loss of jobs in the public sector,which creates political difficulties. Even if employees are taken over by the ESCO thereare problems arising from the change in the nature of the contracts from public to privatesector. In general, employees do not want to give up job security, or other benefitsprovided with the public sector.
• Historically, in the case of equipment contracting, universities had problems getting theinvestment part of the contracting rate “reimbursed” by the state;
• Historically, some states have denied approval for contracting because this was consideredto be a type of “hidden credit”;
• Often, universities compare new offers from ESCOs with the variable costs of the existingsystem. This incorrect procedure renders offers by ESCOs, which calculate on the basis offull costs, (seemingly) unprofitable;
• ESCOs suffer from a lack of credibility and trust. The standing of ESCOs is rather poorand university administration often fears that they would lose control;
• There is frequently a lack of knowledge regarding the nature and benefits of contractenergy management;
• When considering whether to use an ESCO or whether to realise the project internally (andkeep the profits), universities underestimate the foregone cost savings during the additionaltime it takes to realise the project under their own authority;
• Savings potentials identified by ESCOs reflect poorly on those in charge of energymanagement at the university level;
• ESCOs do not know the needs of the energy users as well as those within the university;
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4.2.5 Policy implications
Some key policy initiatives at the organisational, sector and national levels are highlightedbelow.
Organisational levelPolicy recommendations at the organisational level include the following:
• Energy manager: An energy manager post should be established to: a) reduce informationdeficits, b) improve co-ordination of energy management, and c) improve vertical andhorizontal communication about energy management. The manager could play the role ofa “product champion” for energy efficiency
• Centralisation: Bundling information and competencies for energy use and consumptionwithin a single department saves co-ordination costs and helps identify and resolveconflicts of interest. That is, responsibilities for planning, maintenance, technical services,space management, heat and electricity supply and BEMS should be under the same roof.
• Environmental management: Certified schemes can be useful especially for poorperformers to not only organise environmental management, but also to motivate staff andstudents and to get energy management on the top administration’s agenda.
• Investment appraisal: Instead of using pay-back periods, profitability analyses using life-cycle costs should be carried out to show the cost-effectiveness of RUE-measures. Whendeciding on new equipment, indirect costs for additional energy services shouldautomatically be considered.
Sectoral levelPolicy recommendations at the sectoral level include the following:
• Accounting: To set the right incentives for universities to invest in energy efficiency,universities should be able to keep the cost savings and use them for other purposes. Also,they should not be punished for reducing energy costs by receiving less funding in thesubsequent budget period. Thus, global budgeting with unrestricted transferability of fundswithin and across budgeting periods should be introduced in all organisations. Similarly,individual departments should have individual budgets and be held accountable for theirenergy costs as far as possible. The business accounting system, which is currently beingintroduced in many universities is expected to lead to a better allocation of financialresources and to provide better incentives for energy savings measures than the oldcameralistic system.
• Funding: Making a portion of university funding a function of prior energy savings (orsome kind of benchmarking) would set incentives for RUE-measures and help to getenergy costs on the agenda of top management. Similarly, a portion of funding coulddepend on the universities having had an energy audit with the last year or two, or onhaving an environmental/energy management system in place.
• Autonomy: To create incentives for the planning and operating of buildings compatible,individual universities should get more planning (and financial) authority at the expense ofthe state planning agencies. Alternatively, operating and management of facilities andestates could be outsourced / privatised and the university would have to pay rent to thenew company.
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• Integration: For new buildings and major refurbishment, future operating costs should bean integral part of the procurement specifications. Likewise, integral planning should beused, including all relevant planners, architects, engineers and sub-contractors, togetherwith the energy manager to co-ordinate the various work packages. This should helpovercome incentive and co-ordination problems and avoid inefficient solutions.
• Information: Training seminars for those in charge of energy management and targetedinformation programmes on specific topics (e.g. facilities management, contract energymanagement) will help reduce information and other transaction costs. Likewise, informalnetworks are a cost-effective tool to reduce information-related barriers.
• Procurement: Co-operative procurement by several universities for energy efficientequipment (e.g. lighting) is another possibility to reduce transaction costs and overcomecapital constraints.
• ESCOs: ESCOs can be effective partners for universities to overcome lack of capital, lackof personnel and know-how. When comparing the offers made by ESCOs with thealternative of providing the energy service themselves, universities should base theirassessment on full costs basis, instead of using only variable costs.
National levelThe effectiveness of the measures at the organisational and at the sectoral level will beenhanced if they are embedded in a broad based and long term national climate policy. Thiscould include:
• Energy pricing: Increasing the price of energy will render RUE-measures more cost-effective and raise awareness at the top management level. Such price policies include thecontinuation of the ecological tax reform in Germany. Increasing tax rates on fuels andelectricity also reduce the financial risk associated with investments in energy efficiencyand allow for long term planning.
• Regulations: Relevant regulatory measures include: a) tightening of the standards set inthe ordinance for thermal insulation and the planned energy saving regulation; b) the re-examination of technical standards required for heating, ventilation, air conditioning andcooling services; and c) the introduction of minimum efficiency standards and labels forenergy-consuming equipment.
• Energy agency: The federal energy agency, which has just been founded, could initiateand co-ordinate information programmes, education programmes, best-practiceprogrammes, pilot projects, support networks, etc. with respect to RUE measures in theHE sector.
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4.3 BARRIERS TO ENERGY EFFICIENCY IN THE IRISH HIGHER EDUCATIONSECTOR
4.3.1 Characterising the higher education sector in Ireland
The Irish higher education sector comprises the universities, technological colleges, teachertraining colleges as well as some private higher education colleges that are not state-aided.There are nearly 90,000 full-time students enrolled in funded higher education institutions.
Funding for the institutes of technology is received directly from the Department ofEducation. Funding for universities is received through the Higher Education Authority(HEA), which has advisory powers over the whole of higher education and a funding role inrelation to universities and certain designated institutions. Each year the HEA receives blockgrants from the Department of Education to fund recurrent and capital spending. The HEAdoes not have any substantial input into the way in which funds are allocated within aparticular establishment. If money is saved through energy saving it can be put to other usesand would not translate into reduced funding in the next year as long as the money saved isspent in the same college year.
The principal policy intervention in the field of energy conservation has been undertaken bythe Irish Energy Centre under the energy efficiency sub-programme. Expenditure is £34million under the EU-funded Operational Programme for Economic Infrastructure 1994-1999. Some universities would be in a position to receive aid directly or indirectly forinstallation of CHP. The Irish Energy Centre has been charged with co-ordinating andimplementing the programme and it funded a report entitled “Survey of Energy Usage inColleges”. The results of this survey provide information to each organisation on their energyperformance, which they can compare against sector benchmarks. It is envisaged that the IrishEnergy Centre will play an enhanced role in the future, according to a recent green paper onsustainable energy produced by the Department of Public Enterprise.
4.3.2 Case studies of energy management in the Irish higher education sector
Five institutions in the higher education sector were chosen for case studies. The fiveinstitutions are called “universities” from here on in order to preserve anonymity. Theinstitutions were chosen to give a representative selection, with some pro-active and othersnot pro-active with regard to energy efficiency, and avoiding specialist colleges. The sizeranged from a couple of thousand students to well over ten thousand students. Some werefunded directly through the Department of Education and some indirectly through the HigherEducation Authority.
Management structure varies but the key individual with respect to energy decisions, the“energy manager”, is typically the Buildings Officer except in larger universities where theTechnical Services Manager is in charge of electricity gas water and so on. The task ofreporting to the energy manager is typically the function of the supervisors who overseeengineers, plumbers, electricians, etc., the number depending on the size of the university.
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The quality of energy information systems in each case study varied widely. The larger andmore pro-active universities had a range of information available at a disaggregated levelwhile the smaller and less pro-active organisations had much less precise information. Asummary of the case studies is given in Table 4.6 where the institutions are combined in orderto preserve anonymity.
Table 4.6 Summary of Irish university case studies
Feature Summary of case studiesSize of university A wide range of sizes is represented, but the mix is weighted
towards the larger end.Campus/off-campus In all cases bar one, more than 50% of floor space was located
on one site.Parameters of energy use: Energy per student Energy per cu. m. of floor area
Not forthcoming. The pre-interview questionnaire asked forenergy use, floor area and number of students. In generalinsufficient information was supplied from which energy perstudent or energy per unit of floor area could be calculated.
Fuel mix Over 50% of energy expenditure goes on electricity.Formal (written) environmental or energypolicy, or certification.
None, bar one, had a formal energy policy.One was considering certification to ISO14001.
Energy targeting Ranges from detailed records and attempts at comparison withoutside benchmarks to informal targeting. High growth andincreased use of computers are seen as complicating factors.
Note: The term ‘university’ includes Institutes of Technology. Five ‘universities’ participated in the study.
4.3.3 Evidence of barriers in the Irish higher education sector
The empirical results have been interpreted in terms of the theoretical framework for theBARRIERS project, which classifies barriers into 12 categories. The barriers found to be ofparticular importance in the Irish higher education sector are:
• Access to capital• Hidden costs• Imperfect information• Split incentives• Principal-agent relationships• Form of information• Power
Table 4.7 elaborates this list by identifying the particular instances where these barriersoperate. The table also indicates potential policy solutions to these barriers - discussed morefully in section 4.3.4.
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Table 4.7 Barriers found to be of high importance in the Irish higher education sector and proposed policies
Barrier category Comments PoliciesAccess to capital. Inadequate funding in the institutes of
technology is a barrier.
Payback rules as short as one year inhibitsgood management.
• Allow universities to borrow subject to adherence to guidelines on orthodoxinvestment evaluation.
• More widespread and routine use of third party finance would help.• Fiscal policy needs to be corrected so that energy prices cover external costs.• Remove the distortion stemming from different VAT rates, which is non-
reclaimable in the case of universities (charged at 12.5% on fuels and 21% onenergy efficiency services such as audits).
Hidden costs Managerial timeCost of identifying options
• Sound procedures are needed for borrowing and project evaluation, alongsideeasily accessed information (see information below) to reduce hidden costs.
Imperfectinformation
Lack of information on organisationalenergy use results in general reduction ineffectiveness of energy management.
• Routine benchmarking of energy use should be encouraged and assistance withthis could be provided by the Irish Energy Centre.
Energy specifications of new buildingpresents problems.
• Problems with information but more with enforcement (see split incentives)
Split incentives Departments’ non-accountability for energycosts was perceived as an obstacle.
• Costs and difficulties associated with introducing devolved budgeting makethis a difficult barrier to overcome.
• Submetering could be made a requirement in refurbishment and new buildings.Purchasers of equipment are notaccountable for energy costs. There arelimited attempts at integrating energyconcerns into purchasing criteria.
• Develop formal purchasing procedures• Require life cycle costing of equipment• Require equipment to meet minimum energy efficiency standards (e.g. PCs).
Designers & contractors for new buildingsare not accountable for running cost. It canbe difficult to enforce the incorporation ofenergy efficient standards in new buildingand hard to make designer and builders takeenergy efficiency instructions seriously.
• Monitoring of design and building standards is a difficult task and needs to beput on a more formal footing.
• A pre-announced system of post investment evaluation as part of thearrangements for borrowing could help.
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Principal-agentrelationship
The actors involved are the Department ofFinance, the Department of Education, theHigher Education Authority and, finally,the universities and the energy manager. Atsome point in this chain, investment criteriaare over-simplified to the detriment ofinvestments that are good over theirlifetime.
• An overhaul of investment decision-making should be made in the context ofreforms that would allow universities to borrow.
• Investment appraisal techniques, such as those recommended by the evaluationunit of the Community Support Framework, should be required.
Form of information Scarcity of managerial time is a problem.Information that still requires investigationon the part of energy managers canconstitute a barrier to investment.
• More interactive information seems desirable, such as targeted guidelines forsectoral benchmarking.
• Case studies of investments would also help, and dissemination of documentswith information for the higher education sector along the lines of thoseprovided in the UK.
Power Energy management can have low status,making it ineffective. Academic prioritiescan dominate, energy prices are low and theenergy manager may not get sufficient staffor have sufficient say to get funding.
• Many of the above policies would enhance the status of energy management.
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Below we summarise the evidence for the full list of 12 barriers. The barriers considered ofhigh importance are discussed first, followed by the remaining categories of barrier. Asshown in Table 4.7, seven of these are considered to be of high importance in the sector.Some of these may represent rational behaviour in the circumstances, and hence notlegitimating policy intervention to correct a market failure. Heterogeneity, hidden costs, riskand (possibly) lack of access to capital all fall into this category. However, these barriers maybe circumvented to some extent through policy intervention.
Barriers considered of high importance in the Irish higher education sector
• Access to capital: Access to capital appears to be a serious problem for the institutes oftechnology, and in one instance, at least, the problem lay in generally inadequate fundingfor buildings, concentrating scarce management time on urgent day-to-day problems. Bycomparison with the institutes, universities tended to feel that access to capital was notsuch a constraint. However, very short paybacks of one year or less were required by allwhich is a considerable restriction on sound management.
• Hidden costs: Hidden costs were apparent in a number of forms. The overhead costs ofenergy management was considered of particular importance and the problem ofinsufficient time was repeatedly stressed. Related to this was the cost of identifyingopportunities. Both the potential loss of benefit from efficiency investment anddisruptions/inconvenience were considered significant, as was the possibility that therecould be a requirement for staff replacement/training. Two examples were given wherehidden costs had prevented an otherwise attractive project from going ahead.
• Imperfect information: Information on current energy use varied widely with the size ofthe institution. The larger universities used monitoring & targeting and performedbenchmark comparisons. This was not the case with smaller institutions. Information onenergy efficiency opportunities was considered adequate and a wide range of informationsources were tapped. Use of a wide range of information sources was correlated with moreinvestment. Information relating to standards that affect energy use in new buildings wasavailable but the problem here was more one of enforcement (see split incentives below).
• Split incentives: The problems inherent in leasing did not arise to any significant degree inthe case studies. Departmental accountability for energy costs was not practised. While itwas felt that departments would take more care if it was, the cost and practical problems ofinstalling submetering was considered to be a barrier. Individuals responsible forequipment purchasing were rarely accountable for running costs and in most cases theycould only be influenced to a limited degree to specify energy efficient equipment. Theexception was one university where formal structures and procedures for purchasing werein place. Similarly, it was difficult to ensure that those responsible for designing andconstructing new buildings took energy efficiency seriously. This was because they lackedthe financial incentive to do (see section 4.1.4). In one university, funds saved throughenergy efficiency remained in the hands of the Estates department to spend on their ownprojects. This university also happened to be the most pro-active on energy efficiency.
• Principal-agent relationships: To ensure that only unambiguously high value projects areundertaken the principal may impose strict criteria on the agent, such as short paybackcriteria. In the case of higher education, risk is not an important factor in the specificationof this short payback rule, leading one to conclude that it is the funding arrangement that isat the root. In turn this may reflect the principal-agent relationships between the ultimate
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funding body, the Department of Finance, through its conduits, the Department ofEducation and HEA, and the university.
• Form of information, credibility and trust:: In order to get to grips energy efficiencyopportunities, respondents indicated that more interactive methods of impartinginformation would be appreciated. But all the universities had access to at least one sourceof information which they found trustworthy - the Irish Energy Centre and energy managernetworks being cited the most.
• Power and status: Where energy management had a low status, the institution tended to beless pro-active in energy efficiency. In particular, low status impeded an energy managers’ability to obtain funding for investment.
Barriers considered of less importance in the Irish higher education sector
• Heterogeneity: Several of the universities were not ‘average’ in the sense that theymanaged buildings and systems that were atypical - such as listed buildings. There is apossibility, therefore, that certain technologies may be unsuitable in these circumstances,although limited evidence for this was found.
• Risk: Risk inherent in the tried technologies ought not to be an important barrier in thehigher education sector. Neither should universities be as concerned about risks to theirfuture as private businesses. The risks that were perceived by respondents lay more in thelarge projects, such as CHP.
• Adverse selection: Procurement of common forms of equipment (PCs, photocopiers,research equipment etc.) is typically devolved and the individuals or departments involvedtend not to seek out or possess information on their energy use. This may encourage theselection of inefficient equipment on the grounds of capital cost alone, although researchresults were thin in this area.
• Bounded rationality: Decision routines throughout the universities frequently ignoredenergy efficiency. For example, calculation of life-cycle costs was not routinelyundertaken. Bounded rationality may contribute to this, but other factors are also at work.
• Values and organisational culture: At an organisational level, costs are substantially moreimportant than environmental concerns. However, personal commitment to energyefficiency on the part of the energy manager was associated with being more pro-active.
4.3.4 Policy implications
Some key policy initiatives at the organisational, higher education sector, construction sectorand national levels are highlighted below.
Organisational levelThere is wealth of literature on the measures which the higher education sector could adopt toimprove its energy efficiency. Adoption of an energy policy, introduction of an effectiveenergy information system and the conduct of regular energy audits are useful starting points.A key requirement is improved data so that energy consumption per unit floor area can becompared with benchmarks.
Purchasing guidelines should include energy efficiency standards for equipment such ascomputers and recommend the use of whole life costing.
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Where investments in new buildings are being considered, the discounted values of expectedenergy expenditure entailed in various options should be a requirement prior to decisions oninvestment. Universities should make decisions relating to lifetime cost of the building, ratherthan just the initial cost.
Other measures that ought to be implemented at organisational level include introducingdepartmental charging for energy costs (where possible), establishing energy awarenesscampaigns and, where appropriate, considering external financing.
Sectoral levelThere are three areas where initiatives could be undertaken at the sector level:
• Information: Provision of more targeted information of an interactive nature would helpbreak down the information barrier. The Irish Energy Centre would be well placed toundertake this and to help with constructing benchmarks for energy managers to use.Information on investment opportunities could usefully be provided in the form of casestudies of successful projects in the sector. Similarly the sector’s institutions should berequired to undertake pre and post investment assessments of their projects. This should bemandatory and should be a routine exercise where any public funding is involved.Mandatory reporting requirements on energy consumption and energy efficiency should bealso be established as part of the process, to allow comparison with benchmarks.
• Funding: Somewhere along the chain of funding (from the Department of Finance throughthe Department of Education and the Higher Education Authority to the university) theattitude to investment becomes transformed into the inimical and unsound short paybackrule. A programme of low risk, energy efficiency investments that have good NPVs needsto be drawn up with a view to funding. The possibility of allowing higher educationinstitutions to obtain loan finance directly is, in fact, currently under consideration atnational level.
• Purchasing & new build: Advice on standards for equipment that is being purchasedwould help institutions to avoid locking themselves in to inefficient technology. Newbuildings ought to have BEMS installed, where feasible. Energy performance targets thatexceed building standards should be specified in the design specifications for newbuildings - and in refurbishment where possible.
National measuresThe above measures will only be effective in the context of a broadly based commitment toreducing energy-related emissions. Fiscal, regulatory and information measures all have a roleto play.
As mentioned, the possibility of borrowing by universities is under review. An overhaul ofinvestment decision-making is needed and simple but adequate decision techniques arerequired. Those recommended by the evaluation unit of the Community Support Framework,for example, ought to become routine for public funding.
The lack of enthusiasm for engaging Energy Service Companies (ESCOs) needs to beconfronted and measures that would engender trust would help (section 7). If ESCOs wereperceived as having the potential to do a good job, energy managers that did not want theirfunction to be withdrawn from them would then want to demonstrate that they were doing agood job already.
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In the field of fiscal policy generally, the failure to account for the external damage ofgreenhouse gases and other emissions in the price of fuels needs to be corrected. Of concernalso is the issue of VAT in so far as higher education institutions are exempt. This exemptionmeans that they pay non-reclaimable VAT on their inputs. The upshot of this is that theirenergy is subject to VAT at 12.5%, while energy efficiency services such as audits are subjectto 21% VAT, representing a distortion in the relative prices amounting to nearly 8% in favourof energy use. A removal of the difference in rates is evidently desirable.