RE:FIT re:viewed

June 2013: As part of a study commissioned by DG Energy into the investment potential for energy efficiency in buildings and of the use of financial instruments at national level, a research report and series of case studies has been prepared. The report  ‘Local investments options in Energy Efficiency in the built environment includes reference to the London RE:FIT scheme energy efficiency retrofit scheme targeted at non-domestic public sector buildings. The case studies report provides a detailed outline of the Greater London Authority RE:FIT programme, along with some analysis on how the programmed has fared to date.

Page 9 onwards of the case studies report sets out a ‘RE:FIT project report’

“The delivery framework associated with the RE:FIT programme is a key enabling feature of the programme… RE:FIT allows public sector building owners to procure and implement large scale retrofit programmes up to six times faster than if they were to undertake their own OJEU process for public sector procurement.”

The two concluding parts of the RE:FIT case study section of the report are copied below:

1.3 Analysis

As the project was being developed a range of different operational and financial models that would enable the investments being “on”, or “off”, balance sheet were explored. Making the investment off balance sheet was seen as a complex option. The issues around ownership, liability and the assigning of risk could not be over come. Additionally, the public sector, at the time of initial project development was simply not interested in this type of approach. However, the project is now entering a critical phase where they are looking to develop a second phase of the project with a revised procurement framework for RE:FIT. Due to the recent economic crisis and the effects it has had on public sector finances the option of going off balance sheet is now more attractive. This will be explored as potential financial option for the revised framework; however these discussions are still at a very early stage of development.
In terms of what could be done better, or changed in future, the importance of ambitious initial applications was noted as important. Public sector cautiousness means applicants with extensive building stocks may initially only apply for a small proportion of their buildings to be refurbished. However, on successful implementation of a few buildings they have returned (often within 12 months) to reapply. The process of reapplication is time consuming and expensive for all involved (the applicant, the funders and the programme delivery unit). In future, a phased approach to renovations will be promoted, so that renovations can still be done at a speed comfortable to the  public body involved, whilst also leaving the option open to future renovation phases, without the need to reapply to the scheme from scratch.

ESCO partners undertaking energy performance contracting require an established baseline of information in order to estimate and guarantee what savings they will be able to generate for the public sector client. In the past this baseline energy information has not always existed and this has limited the number of buildings within which renovations could take place. Initial project experience has demonstrated this and there is now more active education of participating public organisations regarding the importance of establishing a verifiable baseline of energy data. This is now demanded of potential applicants as the first step in the project cycle.

Originally the main barriers to these investments may have been technical capacity, lack of resources, procurement complexity and lack of financial instruments. Many of these have been overcome, but banks and the public sectors attitude to lending has hardened over recent times. This is likely to remain the main challenge to this project in the foreseeable future.

Overall, the RE: FIT programme is on track to achieving what it set out to do. Some of the learning points outlined above may make it more effective in the future, but most of these affects were unforeseeable. Even with the benefit of hindsight, little would be done differently today. The combination of framework, LEEF funding and delivery unit is considered widely to be at the forefront of public sector energy performance contracting. Furthermore, the RE:FIT framework has value out with of London, as various regions and cities around the UK are in the process of copying and creating similar initiatives of their own. There is no reason why this approach could not be utilised more widely around Europe. Particularly, in times of limited public finances energy performance contracting provides an attractive mechanism to fund large capital intensive energy efficiency investments within the public sector building stock. If not for this mechanism, many of these investments would unlikely have taken place.

1.4 Conclusion

From the outset of this project the main barriers to public sector investment were recognised as internal resources, procurement complications and capital availability. It has successfully overcome these challenges through the setting up of the programme delivery unit, the RE:FIT procurement framework, and the complimentary LEEF financing scheme. However, much has changed since the original model was devised, i.e. the banking and Euro zone financial crisis. With this in mind, it may necessitate a new approach and the possibility of carrying out public energy efficiency loans and renovations off balance sheet may need to be explored.

In principle the RE:FIT model works and nothing major would be done differently for the second phase. The core pillars on Energy performance contracting, of simplified procurement frameworks, guaranteed savings and low cost finance are sound and will be tweaked to improve their effectiveness for future phases. Water savings may also be included within the scope of the scheme to maximise the environmental benefits of the programme. For a more advanced, yet similar model Berlin was highlighted as a best practice example in the area of Energy Performance Contracting.”

The Berlin EPC model is looked at from page 115 onwards in the report.

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