Using Energy Performance Contracting to Address The Split Incentive Issue in SME

The EU Horizon 2020 funded, SmartSPIN project, led by IERC is developing, piloting and evaluating a new business model, based on the ‘Energy Efficiency-as-a-Service’ concept, to overcome the well-known split incentive issue. The split incentive issue occurs when the benefits of an investment in energy efficiency do not accrue to the same party who performed the investment. A typical example of this is where an SME is renting space in an office block. In most cases the building owner would be expected to invest in any energy efficiency measures however in this case the financial benefits of this investment would not accrue to the building owner. Conversely, it would be unlikely if the SME would be interested in making an energy efficiency investment in the building as it is not their building and if they had to leave that building for any reason that investment would be stranded.

SmartSPIN is developing an innovative tripartite Energy Performance Contract that will allow splitting of the benefits between all stakeholders in a fair and transparent manner and building trust between parties. SmartSPIN will demonstrate smart energy services delivering energy efficiency and flexibility at three demonstration sites in Ireland, Greece and Spain.

As the leader of Work Package (WP) 2, IERC completed the review of the smart energy services market for the commercial rented sector, working in close collaboration with the partners Hebes Intelligence, EGEN, EUNICE Laboratory, SMARKIA Energy, Tecnalia and Lawler Sustainability. The review covered the existing business models for smart energy services, the market & revenue stream mapping, and policies supporting smart energy services in the European countries of interest for demonstration, and ended with the recommendations for the SmartSPIN Service that will be demonstrated and validated in work package 5. IERC has taken a leading role to develop the fundamental research that will enable the partners Lawler Sustainability and Hebes Intelligence to design, respectively, the SmartSPIN contractual template that will govern the relationship between ESCO, landlord and tenant and the proposed approach to automate the financial transactions between the parties involved in the contract.

The SmartSPIN service definition and contractual template under development reflect the vision of a tripartite EPC that has been conceptualized by the project partners through the research performed in WP2 (included in the final recommendations) as well as through the engagement and discussions with the SmartSPIN advisory board. IERC will continue overseeing the on-going work on the contractual service definition (WP3) business model definition and development of SmartSPIN toolkit (WP6) participating actively to all the related tasks and working in synergy with the leading partners.

Furthermore, IERC are leading the Impact Analysis Methodology, which will detail the approaches to be used to measure the actual primary energy savings achieved, GHG emissions avoided and investments made in sustainable energy projects resulting from SmartSPIN. SmartSPIN will deliver 4.72 GWh/year primary energy savings, a green-house-gas emission reduction of 812 tonnes CO 2 eq/year and 7.38 M€ of investments in sustainable energy across its three demonstration sites in Ireland, Greece
and Spain.

Click here to watch a recent webinar on this project.