"Contracting" as an instrument for utilizing Combined Heat and Power and Combined Heat Cooling and Power units

Combined Heat and Power (CHP) as well as Combined Heat Cooling and Power (CHCP) are highly efficient technologies, capable of significant energy-loss minimization, when using fuels to produce electricity, heat and cooling. This however is usually related to capital intensive investments, which additionally require thorough technical understanding and appropriate maintenance. Therefore, many potential users simply fear the integration of such concepts or, in some cases, are not aware of the advantages those technologies have. A simple solution for the problems mentioned above could be the so called “Contracting”, as a way of avoiding high capital expenditures and taking full advantage of the latest technical and economical know-how available on the market. 

There are four (4) major types of “Contracting” to differentiate:

  • Energy Delivery Contracting (EDC) (Energieliefer-Contracting (ELC)) 
  • Energy Saving Contracting (ESC) (Energiespar-Contracting (ESC))
  • Financing Contracting (Finanzierungs-Contracting)
  • Technical Facility Management (Technisches Anlagenmanagement -Contracting)

The two most popular types of contacting are the Energy Delivery Contracting and the Energy Saving Contracting, the foremost being with the largest market integration  (Offermann & Seefeldt, 2013). The expertise of an experiences Contractor (the service provider) can lead to a win-win situation for both Contractor and customer e.g. exploiting unutilized energy efficiency potential.

The most common definition for “Contracting” in Germany is: a contractual agreement on the provision of services related to improving energy efficiency, energy delivery or any thereof related service. In any case, those should lead to measurable improvements in terms of energy efficiency or/and savings in the usage of primary energy sources: this is often being the case as the choice falls in favor of a concept including a renewable energy source. Genuinely speaking, “Contracting” should lead to benefits and positive financial results for both parties, assuming one takes full advantage of more efficient technologies available or of a modern Facility Management concept, respectively (Offermann & Seefeldt, 2013).

Energy Delivery Contracting
(Facility/power plant contracting, energy delivery)

"Energy Delivery Contracting stands for a development, where a contractor plans, finances and erects an energy producing plant or facility or takes over an existing one (…)" (Verband für Wärmelieferung e.V., 2016). The plant operator (contractor/energy supplier) is responsible for the operation, maintenance, procurement, utilization strategy (e.g. a natural gas fired power plant) and finally, selling the “useful energy” to the energy customer.

Advantages of the energy delivery Contracting 

The main purpose of an Energy Delivery Contracting is to create economical advantage for the customer consuming the energy, by utilizing any economies of scale the energy supplier (contractor) can provide.  Contracts of this kind can have a duration of over 20 years.

Advantages for the energy offtaker::

The energy customer/offtaker does not have a capital commitment of any sort in the realization of the project. He or she can use the funds/equity in further developing his or her core business. The necessity of having the competences of operation and maintenance or the development of a facility management concepts are herewith becoming obsolete. Certain risks e.g. energy prices, changes in the legal environment, technical risks, operation outages and financial risks can be covered by the contractor, mainly because managing and hedging all of the above in an economical way, belongs to his or her core competences (Verband für Wärmelieferung e.V., 2016).

Energy Saving Contracting
(Performance Contracting)

„What one can describe as an »Energy Saving Contracting« does not only include energy production plants but also energy distribution and consumption as well as any other measures (e.g. building insulation) relevant for the energy consumption in a building or a facility; this could include the planning, financing, constructing and maintaining certain part of a building or facility. Involving the customer in the process of creating the concept as well as its training are quite regularly a major part of the whole service” (Verband für Wärmelieferung e.V., 2016). At this point one should stress the importance of the warranty given to the customer, that he or she would achieve energy savings, according to a predefined baseline.

Advantages for the energy offtaker:

Economic advantages arise from achieving a reduction in energy consumption; a maximization of energy and cost savings compared to a "baseline" (= current amount of consumed energy/ energy costs) 

Components in an Energy Saving Contracting:

Typical components in an Energy Saving Contracting are the following points:
A warranty of achieving predefined saving; responsibilities for the facilities under management (major points: measurement and control technologies, building control systems); influence on the user behavior; intensive energy management; facility pool-creation; medium term contracts (3 to 10 years) (Verband für Wärmelieferung e.V., 2016).

Refrigeration Contracting

“Contracting” can also be applied in the area of industrial refrigeration and facility cooling. The integration of the “Contracting” concept, in that aspect, can take place by utilizing a compression refrigeration or a thermal refrigerator system. When talking about thermal refrigeration, what is usually meant are absorption or adsorption chillers, which are capable of cooling by utilizing a thermal energy source (e.g. steam or hot water). Most of the times an energy offtaker, who has a demand for cooling, would also need heating. This means that thermal chillers could be utilized, whenever there is an existing connection to a district heating network or e.g. there is an operating Combined Heat and Power unit.

The utilization of Refrigeration Contracting can be meaningful under the following conditions:

  • There is an existing, preferably low-cost heat source for the utilization of a thermal chiller. A good pre-condition to offer this kind of Contracting would be the access to a source, which is still producing heat during warmer seasons of the year: e.g. a waste treatment facility or any production site with abundant industrial heat.   

  • A decentralized CHP, which receives high subsidies (e.g. Biogas CHPs under the German Renewable Energy Act – EEG), is often in a position where the revenue from selling the heat is non-crucial to the project’s success (due to high subsidies). 

  • Decentralized CHPs can improve their annual utilization hours and thereof their profitability, by funneling the heat to an ab-/adsorption chiller, during warmer periods of the year.

You can find further information on “Contracting” under the following links: