Sharing benefits among different stakeholders is one of the project objectives, and the core of pay-for-performance schemes. But how should one split the created value? Usually, when building owners refurbish buildings, they just increase the value of the buildings. How to share the increased value among those that contributed to increase it is the key and one of the problems SENSEI expects to solve, as Stoyan Danov tells us.
“One of the obstacles for investments in building energy efficiency is that one player invests and other benefits. For example, the building owner invested in refurbishment of the buildings, but the beneficiaries were the tenants. So how do you split the benefits? We as a consortium in project SENSEI are aiming to find an arrangement that can guarantee a fair deal for all the contributors and the beneficiaries.” Stoyan explains.
Four important players plus the tenants
“Secondly, the stakeholders are key to achieve the main objective. With different revenues from different sources, we want to source these revenues to the players to make it attractive for the stakeholders. For example, SENSEI wants to involve the electricity distribution companies, the grid operator/energy provider, because we believe that Pay-for-Performance will have a benefit for the grid in energy efficiency.
At least four stakeholders could potentially be interested. One is the building owner, another are ESCOs, but also intermediaries like third-party aggregators in between building owners and financial investors. Building tenants are also in the game, who may not be active decision-makers but could be a fifth player. We have to find out and clarify the roles.
We have to convince all the stakeholders and demonstrate that it works. To tell a story to each of them: what to expect and what to receive. We have five entries: building owner, building tenant, ESCO, grid operator/energy provider and investors.” Stoyan argues.
Building owners are the key stakeholders
Stoyan continues: “The project is a multi-party arrangement that includes the end-user. In my view, the building owners are the key stakeholders, whom we have to attract because they are the players that are the most active and can close a deal. At the end of the chain of decisions, all comes to the building owners’ decision. If the building owner doesn’t want to make the refurbishment, the process can’t start.
“If the building owner is interested, we could go to – according to our model – the aggregator or an ESCO company to get involved. Without the building owner, there is no business. Even if somebody is promoting this service, at the end of the day they have to convince the building owner.”
Adapting Pay-for-performance from the US to Europe
“The idea comes from the USA. It is a very different obligation in the US, because the US is very much focused on energy efficiency. We have different conditions in Europe and we don’t have the same financial tools like Pay-for-Performance in Europe. Partly in Greece and Spain, where big PV projects (e.g. solar panel parks) are. It is not yet pronounced, but the trend is there. With the spreading of PV, the need will increase. If it is useful in the US within some specific conditions, it could be adapted to Europe.
Basically, we have a delay mismatch between the generation of power and the energy consumption of some hours. Demand response is one way, but it is a short-time action of shutting off demand when necessary. SENSEI will solve the mismatch problem of energy efficiency measures that permanently change the demand/consumption profile and shift it to the hours where there is an available production of renewable energy, thus matching the demand with production.
Somehow it is equivalent to production but upside down. If you shorten the demand, you produce less. You need to pay less for production. Instead of paying for production, you pay for reduction, and meanwhile you cut the emissions”, Stoyan explains.