Executive Director, Efficiency Valuation Organization (EVO)
In an address in Berlin in September 2016, the governor of the Bank of England, Mark Carney, highlighted two paradoxes about climate change. The first is that climate change is a cost imposed on future generations. The second is that if the transition to a low carbon economy is too fast, this could put global financial stability at risk.
To resolve these paradoxes, Carney suggested that we collectively need to consider three forms of risks. First, physical risks resulting from more frequent climate severity. Second, liability risks for those who will suffer damages and who will seek reparation from those held accountable for our climate deterioration. Third, transition risks related to a low carbon economy, which could fundamentally impact the value of carbon-intensive assets.
For a low carbon transition, energy efficiency should play a more significant role.
THE INTERNATIONAL PERFORMANCE MEASUREMENT AND VERIFICATION PROTOCOL (IPMVP) AND EVO
In 1994, stakeholders in the energy efficiency industry identified measurement and verification (M&V) as one of the key tools to validate energy savings following the implementation of Energy Conservation Measurements (ECMs). This approach of measuring and verifying energy efficiency resulted in the publication of the International Performance Measurement and Verification Protocol (IPMVP) in 1997. To maintain and improve the IPMVP over time, IPMVP Inc. was incorporated as a not for profit organisation in 2001 and renamed the Efficiency Valuation Organization (EVO) in 2004.
The core mission of EVO is to ensure that appropriate measurement and verification techniques are the basis for assessment of savings, as well as for impact assessment of energy efficiency and sustainability projects. Its work is based on three key ‘messages’:
- The first is confidence in energy Although this might be self-evident, we must realise and understand that decision-makers at various levels of the energy supply and demand chain cannot base their decisions on wishful thinking or vague statements.
- The second refers to While we are all striving to reduce
our energy use, we must recognise that utilities and governments have had the security of energy supply at the very top of their list of issues. All economies depend on a reliable and stable energy supply.
- Thirdly, to generate confidence in reliable savings, they must be appropriately measured and verified at different stages. M&V was developed as a method to reduce some of the barriers to the broader implementation of energy conservations measures.
MAKING SURE ENERGY SAVINGS ARE REAL
Energy efficiency projects are financed through a variety of mechanisms. Projects could be self-financed, they can be implemented by energy services companies or publicly funded by green banks. The reasons to perform M&V are numerous, and include to: increase energy savings; document financial transactions; enhance financing for efficiency projects; improve the design, operations, and maintenance; account for variances from the utility budget; support evaluation of efficiency programmes; educate facility users about their energy impacts; and improve building certification programmes scores.
Energy efficiency is not a tangible asset. To make energy efficiency projects “bankable”, there is only one solution: verify that the energy conservation measures impacts are properly assessed. To help address market needs for M&V at different stages in the lifetime of an energy efficiency project, EVO will deploy in the first half of 2019 its Certified Energy Savings Verifier (CESV) programme. The CESV will recognise engineers who have the knowledge and competencies to lead or perform detailed analyses of M&V plans, prepare or review investment grade audits and to validate and verify energy savings calculations for tradable energy efficiency projects.
The IPMVP provides a repeatable methodology for M&V. It is intended to increase reliability and level of savings, to reduce transaction costs and to reduce financing costs. It has been successfully used over the years in thousands of energy performance contracts. Current training and certification programmes have been effective to satisfy contracting parties’ needs at the individual project level.
But the generally accepted M&V practices set in the IPMVP are not always being consistently applied, and this is creating a gap in the energy efficiency markets. As a result, the verification of energy savings remains a key barrier for global investors to have sufficient confidence in the estimated savings to be willing to fund and implement energy efficiency projects on a scaled-up basis. The consistent use of the IPMVP principles –for example through EVO’s CESV programme – should help reduce financing costs and increase the reliability of savings, thereby allowing project bundling and pooled project financing that lead to greater energy efficiency deployment.
By Denis Tanguay, Executive Director, Efficiency Valuation Organization (EVO)