Harnessed energy constitutes the juice of life for industrial and post-industrial, knowledge and information based, economic activity. Crucial for our quality of living, electricity powers, among other things, our refrigerators, washing machines, LED lights, and domestic shrines to entertainment. It powers industrial equipment, whether programmable machine tool solutions – the machines used to make tools and precision parts for other machines – or the most powerful or most efficient electricity-driven manufacturing units. It is indispensable for the knowledge economy and information societies in the 21st century, with electricity driving computers and communication networks and even the transformation of money (remember, for example, how big an issue electricity is in the context of cryptocurrency exchanges and Bitcoin mining).
Without continued economic growth, the dispersal of economic equality and achievement of universal societal wealth, both within and between countries, is unachievable. But economic production is only one, and sometimes brutally overemphasized, factor in human existence and the wellbeing of our species. What the universal role of electricity in shaping the quality of our mundane lives and the reliance on it for economic production and productivity also mean, however, is the inescapable presence of irresponsible use. Thoughtless squander, and even deliberate abuse of this essential ingredient is rife in modern times. Alongside the fact that most of energy is expended in the production of energy, the wasting of this resource makes rationalizing electricity usage a crucial need for future economic growth and for the preservation of living quality.
Part of such a rationalization are energy audits, improvements in the efficiency of our everyday appliances, upgrading household electricity conduits, investments in advanced machinery and methods of production, and adoption of optimal power solutions for public venues, institutions and systems. Such rationalization efforts, which by Executive’s past observations were often driven by corporate need for savings but led by energy consultants and academically inspired tech startups, can be found in Lebanon, albeit historically not in the needed, broad coverage of private and public life.
Responding to the challenge
Under the current challenge of rebuilding and revitalizing economic activities in the country, it is moreover notable that energy audits are embedded into today’s rare opportunities of renewable energy finance for enterprises (listen to Executive’s Renewable Energy Finance podcast with Nadine Tawk and Danny Maalouly of USAID).
Still, the awareness and practice of energy conservation among private householders remains underdeveloped. Furthermore, the attention given to reduction of electricity and energy wastage by public administrators appears to be amiss as one among many deficiencies in Lebanese institutions. Additionally, energy conservation in small, medium and tiny enterprises needs to be incentivized much more, as career environmental advocate and energy conservation practitioner Mario Ghoraieb describes in the following story of ongoing civil society-led and EU-supported efforts for pushing the agenda of energy preservation forward (For more on Mario Ghoraieb’s views, also listen to our podcast on Lebanon’s energy transition and its prospects of conservation, regulation and security).
An EU-funded initiative for Lebanon’s SMSEs
Reestart (Renewable Energy and Energy Efficiency for Sustainable Energy Transition and Reinforced Trust between SMEs and ESCOs) is a European Union funded project, with a budget of 2.5 million Euros over three years beginning in November of 2019. Instituto per la Cooperazione Universitaria (ICU) is the lead implementer alongside local and international partners including the Lebanese Solar Energy Society (LSES), the Italian National Agency for New Technologies, Energy, and Sustainable Development (ENEA); and the Federazione Nazionale delle Esco (FEDERESCO).
The project was designed starting from the identification of two main market criticalities. The demand side saw a significant need for renewable energy (RE) and greater energy efficiency (EE) technologies for small and medium-sized enterprises (SMEs) due to the lack of financial resources to invest in RE/EE and weak access to available SE finance. On the supply side, the project identified significant difficulties in making full use of alternative financing models to support RE/EE investments.
Challenges on the supply side were traced back to a lack of know-how within energy companies, and the absence of successful and replicable models at the national level. Reestart aimed to address both the demand and supply side to foster increased uptake and improved quality of the RE/EE services and solutions provided to the local market. It focused on reinforcing energy service companies (ESCOs), due to their potential to act as game changers in the national sustainable energy transition
Identifying deficiencies, capacity building, and partnering for success
Reestart’s strategy focused on ESCOs’ business development through empowerment and fostering of a supportive ecosystem and, mainly, trust-building through successful SMEs-ESCOs co-operation. Duly empowered, ESCOs can provide alternative financing models for RE/EE, and through successful partnership with SMEs within a supportive ecosystem, both ESCOs and SMEs can develop mutual trust. By fostering this trust, Reestart aimed to trigger a breakthrough that would lead to wider RE/EE adoption and ESCOs market growth. In turn, the cascading effects would include an increased RE share in national energy consumption, reduced overall electricity consumption and reliance on the national electricity grid as well as private generators, and increased access to stable and secure green energy supply, thus contributing to Lebanese economic growth.
Specifically, participants in Reestart included all ESCOs listed under the Lebanese Center for Energy Conservation (LCEC) framework (their qualification process evaluates indicators such as the company’s experience in the sector, financial revenues and services provided, and World Energy Council membership), 35 SMEs, and 20 energy and finance companies from both the public and private sector. The project endeavoured to pilot innovative technologies and business models, support access to available sustainable energy finance, and create a supportive institutional environment for ESCOs.
However, given the lack of know-how within most local energy companies concerning energy auditing, ESCO business models and proper methods of implementation, it was critical to develop these capacities and skills. Towards this end, ICU collaborated with the AEE (Association of Energy Engineers), to deliver a three-module training certification program to the selected companies on energy management (CEM), measurement and verification (CMVP) and performance contracting and financing (PCF). The program covered technical, financial and contractual aspects of ESCOs’ business. Both qualified and aspiring ESCOs need to reinforce their overall capabilities. For ESCOs with LCEC qualification, this meant improving the quality and soundness of the services delivered and underlying contracts in order to consolidate their customer base and grow their business and financial capacity. On the other hand, aspiring ESCOs need to enhance their energy savings and performance contracting (ESPCs) and gain the technical skills needed to be acknowledged as qualified ESCOs, thus becoming more competitive on the local market. Once the energy companies received certification in the three above mentioned modules, they were ready to lead on the energy audits for the selected pilot implementation projects.
That said, it is of utmost importance to acknowledge that the partnership between the SME and ESCO is one of the fundamentals of the ESCO model. This is why ICU adopted the Decentralized Renewable Energy Power Generation (DREG) which matches and empowers the partnership between ESCOs and SMEs, enabling them to apply to the project jointly. The purpose of ESCOs nominating SMEs through this method is to build trust and foster a supportive ecosystem for successful cases of SMEs-ESCOs cooperation.
Another one of Reestart’s objectives was to build a pilot of the ESCO business model through the ESCOs and SMEs involved in the project. This enabled the involved energy companies, newly considered as ESCOs, matched with their SMEs, to perform energy audits based on the developed Scope of Work (SOW) of the energy audit, the agreement signed between ICU and the energy company, and the notice signed by the SMEs (allowing ICU to perform and facilitate the audit) as well as the ESPC contract to be signed between the ESCO and the SME guaranteeing the savings.
The final selection of the six pilot projects was based on the grading of the SMEs and assessment of the ESCOs. The six pilot projects were financially supported by a donation of 110,000 Euros each. Each ESCO will secure the remaining amount from the participating SMEs through the return on investment of the implemented measures and based on the proposed savings.
In parallel with the selection of the six pilot projects, it was of crucial importance to develop the ESPC contract that framed the contractual relationship between the ESCO and the SME, a pillar for the ESCO business model. Therefore, we approached this matter in the following way:
Step 1: Designing a successful ESPC framework
The first step in designing a capacious ESPC framework is data collection and research. The project reviewed successful, longstanding ESPC programs in other countries, namely within the USA and UAE, in order to identify specific best practices that could be incorporated into the program’s design. Additionally, the project collected data on the current status of the ESPC market in Lebanon.
Step 2: Strategic outreach plan
The second phase of the project included developing a strategic outreach plan in order to provide the necessary information and awareness to stakeholders (specifically facility owners and managers) involved in the ESPC process. The strategic outreach plan included a compiled document that describes the importance and process of ESPC (from audit to contract to implementation) as well as the responsibilities and duties of each involved party.
Step 3: ESPC Development and creation of standard templates and model documents
The development and creation of standardized templates and model documents was necessary to successfully guide the procurement and contracting process for involved stakeholders. Usually, there are two main approaches to solicit an ESCO: ESCO Pre- Qualification, and solicitation through a standard request for proposal. Since the project only considers ESCOs for a pool of a pre-qualified ESCOs, the ESCO solicitation with ESCO Pre-Qualification was used. This phase included the development of the eleven documents and templates.
In conclusion, the Reestart project, generously funded by the EU and spearheaded by the ICU and its partners, embodies a transformative endeavor to redefine Lebanon’s energy landscape. Beyond meeting immediate energy needs, Reestart envisions a future where economic prosperity harmonizes with environmental sustainability. It not only represents a project for greater energy efficiency but a testament to international collaboration, strategic planning, and a commitment to fostering positive change. As Lebanon navigates the challenges of rebuilding and revitalizing economic activities, Reestart stands as a beacon, illuminating the path towards a more sustainable and energy-efficient future.
Mario Ghoraïeb is the energy and private sector unit manager at ICU
