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Energy performance contracts in the municipal sector in Norway: overcoming barriers to energy savings?

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Abstract

In this paper, we investigate which factors are significant for the uptake of energy performance contracts (EPCs) in Norway’s municipal sector, based on qualitative case studies. An EPC consists of a set of energy efficiency measures provided by an energy service company. The model used in Norway guarantees that savings produced by a project will finance its full cost. Estimates indicate that an EPC is a promising way of substantially increasing savings. We find that a committed individual in the administration is essential for the adoption of an EPC. Such individuals have the technical and/or economic competence to see the potential for energy savings and the organizational competence for moving an EPC through to the political level. Further, we find that the guarantee that accompanies an EPC is well suited for addressing the logic of politicians, and is crucial when the final decision is made. These findings indicate that a standard economic understanding of energy savings is not sufficient. Efforts to increase energy savings might benefit from being targeted at the contexts where measures are to be implemented and at the logic of those making energy-saving decisions.

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Notes

  1. Energy savings is defined here as reducing the amount of energy consumed for specific energy services (e.g., for heating).

  2. Transaction costs include the time and effort needed to research possible measures, assess their costs and benefits, and often to coordinate contractors.

  3. ESCOs can offer various forms of energy service contracts, where an EPC is one of them.

  4. The Norwegian Association of Local and Regional Authorities (KS) is the employers’ association and interest organization for municipalities, counties and local public enterprises in Norway. A representative from KS was actively involved in our project. He was hired by KS to negotiate EPCs for municipalities and has negotiated most of the municipal EPCs in Norway. He provided his experience to the project.

  5. Norwegian municipalities own, run, and maintain a large number and a wide variety of buildings: schools, homes for elderly people, sport facilities, libraries, etc.

  6. Kommunalbanken Norway (KBN) is the largest provider of credit to local authorities in Norway. Owned 100 % by the Kingdom of Norway, it is a government funding agency. KBN is defined as a state instrumentality, having a public-policy mandate from the central government to provide low-cost finance to the Norwegian local-government sector.

  7. Enova is a public enterprise owned by the Ministry of Petroleum and Energy in Norway. Its goal is to strengthen efforts to make energy consumption and generation more sustainable and to improve supply security.

  8. These studies do not define exactly what is meant by a committed individual, except for stating that committed individuals assume responsibility for tasks that are self-driven and exceed their formal responsibilities. Often these bottom-up driven initiatives occur across formal organizational structures (Kasa et al. 2012; Hjern and Porter 1981).

  9. Institutional capacity could both signify informal processes and practices and formal routines, processes, and positions (see Kasa and Westskog 2015). The formal institutional capacity on energy savings is what we collect data on in our study.

  10. Rådmann in Norwegian.

  11. Bertoldi et al. (2014) find that many potential EPC clients are not even aware of EPC possibilities, and they also characterize the Norwegian EPC market as preliminary. This might explain the low number of municipalities that have considered implementing and EPC, but in the end rejected the opportunity.

  12. The relevant ESCOs in the municipalities with EPCs have provided data on the contracts.

  13. Some municipalities organize networks for knowledge sharing with administrative staff in other municipalities working on the same issues.

  14. Only one of these committed individuals (case 3) had prior personal experience with an EPC. This person had worked with an EPC in the industry sector during the 1990s, and this knowledge made him see the potential of an EPC for his municipality.

  15. Entrepreneurship in both the private and public sectors has been a major topic within innovation theory. The understanding of entrepreneurship has developed from Schumpeter’s understanding of entrepreneurs as individuals who exploit market opportunity through technical and/or organizational innovation (Schumpeter 1965) to recent discussions of public entrepreneurs where the co-evolution of private and public interests is emphasized (Klein et al. 2010). Common to most understandings of entrepreneurship is that it is conceived of as innovation, creativity, the establishment of new organizations or activities, or some kind of novelty (Klein et al. 2010).

  16. The reason for this is that it is easier to get an ESCO involved in an EPC when the project is larger in scale, which was confirmed in our interviews with the ESCOs. In the Valdres region, three municipalities worked together and issued a joint call for an EPC supplier to cover an EPC project for all three municipalities.

  17. The importance of credibility for decisions to engage in specific activities is well-known from the literature (see for instance Stern 1999; Aasen et al. 2010).

  18. Factors such as institutional similarity and cultural similarity were identified as important for policies to spread (Knill 2005), and this might explain why experiences from other municipalities were important for establishing credibility.

  19. For an overview and discussion of different political logics that might come into play in a political decision process see, for example, Cohen et al. (1972) or Boasson (2014). Jansen et al. (1998) further discuss the interplay between political considerations and knowledge that exist in the administration of public entities.

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Acknowledgments

We wish to thank Elin Lerum Boasson, Tanja Winther, Tor Håkon Inderberg, and Kjell Gurigard for helpful comments and suggestions. Funding from the Research Council of Norway is gratefully acknowledged.

Author information

Authors and Affiliations

  1. CICERO Centre for International Climate and Environmental Research, P.B. 1129 Blindern, 0318, Oslo, Norway

    Marianne Aasen & Hege Westskog

  2. Ministry of Transport and Communication, PO Box 8010 Dep, 0030, Oslo, Norway

    Kristine Korneliussen

Authors
  1. Marianne Aasen
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  2. Hege Westskog
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  3. Kristine Korneliussen
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Corresponding author

Correspondence to Hege Westskog.

Appendix

Appendix

Interview guide—municipal study EPC

  1. 1.

    About you and your role in the municipality

    1. a.

      What is your position title and what are your job duties? (The interviewee presents himself/herself and his/her place on the organizational chart.)

  2. 2.

    Energy savings in the municipality

    1. a.

      Does the municipality have established goals for energy savings (preferably include how it relates to the municipal climate and energy plan)? If so, what are the goals?

    2. b.

      What measures have been relevant in your municipality? What has been done up until now?

    3. c.

      Are you on the way to achieving the goals you have set?

    4. d.

      Who has responsibility (introduction/implementation) for energy savings in the municipality, if such responsibility has been defined? (Organizational chart.) How many positions are related to energy-saving efforts in the municipality? What are those positions?

    5. e.

      Has the issue of energy savings received more attention in the municipality’s administration in recent years or has it been given less focus? In either case, why? Has this been significant for the energy-saving efforts?

    6. f.

      Where did you first hear about EPC?

    7. g.

      How did EPC become a topic for consideration within the organization?

  3. 3.

    Assessment of energy-saving efforts and success criteria for the introduction of EPC

    1. a.

      How were energy-saving efforts organized before EPC?

    2. b.

      What occurred in the municipality that led to the approval and introduction of EPC?

    3. c.

      What were the arguments for and against? What issues were raised in any discussions?

    4. d.

      Did you consider alternative solutions for increasing energy savings? If so, what was the basis for this consideration?

    5. e.

      What is your assessment of the energy-saving efforts within your organization today? And viewed in relation to previous energy-saving efforts?

  4. 4.

    Success criteria for ensuring that EPC results in energy savings—general introduction

    1. a.

      Do you think that EPC will result in/has resulted in energy savings in your municipality?

    2. b.

      What do you think is important for ensuring that EPC works well in your municipality? What are the barriers and success factors? (To us: Ask this as an open question first before going into the various elements below if not affected.)

  5. 5.

    Knowledge

    1. a.

      What do you think are the knowledge-related challenges with regard to ensuring the success of EPC in your municipality?

    2. b.

      In your assessment, what is the level of knowledge about energy savings in general among municipal employees/those who work with energy savings in the municipality?

    3. c.

      In your assessment, what is the potential for knowledge transfer between energy service companies and municipal employees/those who work with energy savings in the municipality?

    4. d.

      How important is the interest and knowledge of public administrators in the municipality in particular and the individual municipal employee in general for the success of EPC/energy savings? What about the politicians?

  6. 6.

    Financial support and other framework conditions

    1. a.

      Have the financial incentives resulting from the EPC scheme helped to make energy savings possible?

    2. b.

      How important is a common standard contract between the energy service company and the municipality for the impact of EPC?

    3. c.

      In your assessment, how important is it to have a broker between the energy service company and the municipality when the parties enter into a contract and in any follow-up of this?

  7. 7.

    Attitudes, values, and interest

    1. a.

      Are interest and follow-up from the political level important for the success of the energy-saving efforts/EPC? In what way? And what has this been like in your municipality?

    2. b.

      How important is the individual person’s commitment/motivation for the success of EPC in your municipality?

    3. c.

      Have attitudes about energy-saving efforts within the organization changed in connection with EPC efforts, and if so, of what significance is this for the success of EPC?

    4. d.

      What significance had/has the political make-up and leadership for the quality of the energy-saving efforts within your own organization, especially the introduction of EPC (organization, implementation, scope, positions, etc.)?

    5. e.

      Do you think that energy savings is primarily an environmental measure or a measure to save money? Is the municipality’s energy-saving policy related to the municipality’s work on other environmental issues?

  8. 8.

    Cooperation, organization, and management

    1. a.

      What has cooperation between the municipality and the energy service company been like up until now, and what significance does this have for the success of energy-saving measures?

    2. b.

      Have the county administration, central government agencies, and international organizations helped with inspiration, choice of energy-saving model or something else? In what way? Or is the opposite the case?

    3. c.

      In what way has discussion of/focus on energy savings in any existing inter-municipal network contributed to the introduction of EPC/success of EPC?

    4. d.

      Do you think that you have made a positive contribution to other municipalities’ energy-saving efforts?

    5. e.

      How does the organizational structure related to energy-saving efforts in the municipality correspond with EPC? Do you see the need for organizational changes in the municipality so that EPC can have a greater impact?

    6. f.

      To what extent do you believe that the administration leads the way in the effort to save energy within the organization?

  9. 9.

    Energy-saving policy

    1. a.

      What must be done to increase energy savings within the municipality’s operations in general? What are effective instruments within the municipality/from the county administration/from the central government/others?

    2. b.

      In your assessment, are EPCs an effective instrument for increasing energy savings within the municipality’s operations in general?

    3. c.

      How should various management levels/municipal networks interact to increase energy savings in the municipalities?

    4. d.

      Have some energy-saving activities been transferred to the private sector? If yes, has this been a good solution in your experience? (advantages/disadvantages). If not, has this solution been considered? Do you think this is something the municipality should consider? (Why, why not?).

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Aasen, M., Westskog, H. & Korneliussen, K. Energy performance contracts in the municipal sector in Norway: overcoming barriers to energy savings?. Energy Efficiency 9, 171–185 (2016). https://doi.org/10.1007/s12053-015-9356-0

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