FAQ

Most frequent questions and answers

  • PLaaS: Public lighting as a service
  • ESCO: Energy Service Company, specialised company that offers PLaaS
  • ESCO client: municipality/public body (or company) on whose installations an PLaaS project is carried out
  • EPC: Energy performance contract, contract on which PLaaS is based on which defines the cooperation between ESCO and client, regulates rights and obligations for both parties, most importantly the achieved savings and other required standards.

PLaaS represents financing model of public lighting retrofit where investment is carried out by ESCO. This means that investment is off balance sheet of municipality. ESCO finances design, material and works.

Public partner should do preparatory activities which include: preparing contract, tendering the service and selection of private partner, keeping track on service delivery during the contract period (usually via automated control & management software), paying renumeration for delivered service and monitoring of the reconstruction phase.

Private partner should: insure the financial sources for the investment,               develop all necessary designs, coordinate and lead the project, provide professional supervision, purchase of materials, conduct works for retrofit, maintain the contracted standard (quality), repay debts to lenders, management of the project risks. Private partner has the role of investor and public partner becomes the user.

Replacement of luminaires, new control systems, system optimisation and smart city infrastructure. Extending the public lighting system and additional works like retrofitting of poles can be incorporated into the project, but usually cannot be financed by energy savings.

Without standardised documentation an investment of several tens thousands of Euro is the minimum (>5,000 luminaires), the cost of preparing the project (including setting up the contract) represents too large of a proportion of the savings. However, with standardised documentation it is possible to implement small scale projects (<1,000 luminaires).

Guaranteed savings and consequences if they are not achieved (pay per performance), billing schedule, split of tasks and risks between the ESCO and the ESCO client, contract termination fees, ownership issues after the end of the contract, bankruptcy of a contracting party and other provisions in accordance with EUROSTAT Guidance on statistical treatment of Energy Performance Contracts (EPCs)

An experienced ESCO will strive to integrate existing staff and service providers (e.g. local electrician) into the project. The PLaaS project might also result in new tasks for the staff previously in charge of some aspect of the public lighting system such as quality control and service verification.

Careful preparation and development are crucial for the successful implementation of an PLaaS project. At the beginning of the project, all concerned staff should be involved in order to ensure transparency and acceptance by all parties. Good planning of the project and clear requirements for the ESCO in terms of quality criteria are required.

At the end of the contract period, the municipality can take back the ESCO’s tasks and benefit from the lower energy costs.

Whether it is more advantageous to implement energy efficiency investments with or without PLaaS depends, among others, on:

  • the size of the project
  • the availability of investment funds and own staff resources
  • the financial conditions when purchasing lighting equipment
  • the technology in place

 

However, PLaaS has many advantages that the retrofit using own resources does not offer. For example,

  • with PLaaS, the energy savings and required quality are guaranteed, assuring the municipality of the financial outcome of the project.
  • Inadequate design and installation process and later maintenance of the lighting system can lead to unachieved savings. By transferring those risks to the ESCO the chances of actually achieving the expected saving are higher.

That obviously depends on the circumstances and the size of the project. Typical preparation times is up to 1 year. Unlike traditional process of retrofit where municipality orders design and based on the design tenders the material or works, in PLaaS municipality exclusively does detail energy audit of the lighting system and road classification in accordance with EN 13 201, based on which the PLaaS tender is published. Detail energy audit and road classification usually takes up to 1 year.

Before starting an PLaaS project two studies should be done. One of them is detail energy audit of the public lighting system as inventory baseline database and second one is road classification in accordance with EN 13 201-1 as baseline for lighting quality requirements. Those documentations are necessary for setting a baseline and determining minimum quality levels.

Mostly used quality criteria is renumeration sum and guaranteed savings which determines the overall costs of the project. Besides quality criteria there should be minimum financial and technical requirements for the ESCO as for the equipment.

To prevent that factors which are out of the ESCO’s control (e.g. energy prices, change of operation times of lighting), energy costs and energy consumption levels are compared to those of the reference year. The reference year represents the "baseline" and it is the basis for calculating the ESCO’s fee.

In tendering process, guaranteed saving are usually one of the economically most advantageous offer criteria. Guaranteed quality, energy saving targets and maintenance saving are guaranteed by contractual agreement that defines all roles, responsibilities and rights of contractual parties in detail.

Minimum savings that must be achieved are determined during the first analysis by the consultants based on the detail energy audit and road classification study. Guaranteed savings are often economically most advantageous offer criteria and are set in contract. Real savings are being determined during the whole contract duration and compared with guaranteed savings in order to remuneration harmonisation.

For public lighting projects, savings are determined mostly based on the installed load reduction. This is measured before refurbishment (detail energy audit) and after refurbishment as a part of regular periodic verification for the whole time of the contract duration.

Difference between guaranteed energy savings costs and renumeration should be constant during the whole contract period. If savings are lower than guaranteed, then renumeration decreases for the same amount.

Current inventory and costs (before refurbishment) are used as baseline. Additional luminaires lead to higher investment costs and downgrading the energy savings (additional consumer when compared to baseline). Energy savings that are going to be achieved are usually not enough to cover this additional cost, so this means that usually within the PLaaS scope is only replacement of existing luminaires.

Current inventory and costs (before refurbishment) are used as baseline. Additional luminaires lead to higher investment costs and downgrading the energy savings (additional consumer when compared to baseline). Energy savings that are going to be achieved are usually not enough to cover this additional cost, so this means that usually within the PLaaS scope is only replacement of existing luminaires.

It is important that the measurement and verification method used is approved by both parties (the municipality and the ESCO). Any method that provides real information that can be easily verified by both parties is enough. In most countries, IPMVP is not mandatory, but it helps to verify that you are working with a good/trust worthy ESCO.

IMPVP can be conducted by an external body, ESCO or by the municipality, but the output must be very clear and must be understood by the customer.

There are several options to reduce the economic risk for the municipality in case the guaranteed savings are not achieved. For example:

  • Foreseeing in the contract that the municipality's payments to the ESCO reflect the achieved savings. If the savings are lower than what was guaranteed, the municipality is allowed to reduce its payments to the ESCO accordingly.
  • Using bank guarantees that the municipality can easily pull if the guaranteed savings are not achieved.

Monitoring the savings should be done and verified on a regular basis.

ESCO is offering a service that includes much more than just goods (luminaires). It includes design, installation, luminaires, extended warranty, financial guarantees, technical and financial risks takeover, ESCO profit and other costs during the contract period. If adding those costs to the traditional tender, PLaaS must be cheaper.

However, in most cases in the long run, the PLaaS project will help the municipality save money (the ESCO often gets better prices when buying lamps/luminaires than the municipality would get and as a specialised company, it can do number of steps in the process in a more effective manner).

This needs to be defined in the contract. According to Eurostat Guidance note, higher savings than guaranteed can be split in ratio 1/3 or lower to municipality and 2/3 or higher to ESCO.

The contract guarantees energy savings. Therefore, any increase in electricity cost is the responsibility of the municipality and is paid to the utility through the electricity bills.

When the ESCO calculates the total investment cost, it usually includes all costs that it arise for the implementation of the project: material, installation, staff costs, etc. It also considers the risk that it takes and its profit.

When a municipality wants to change other installation than the luminaires (switch boards, cabling, pillars, etc.), these costs can be considered as the project costs, but can most often not be financed through the energy savings. In these cases, the municipality has the extra cost of financing these parts of the installations.

Including luminaires with historical cultural value in PLaaS is possible. These need to be included in the pool of purchased luminaires and, therefore, influence the project costs.

The municipality continues to their electricity bill from the electricity supplier (with a reduced amount due to the new energy efficient luminaires that the ESCO made) and a second bill from the ESCO. Both together should not be higher than what the municipality was initially paying before the PLaaS project (unless the municipality is financing a part of the project by their own means)

What happens if technology changes?

Nothing, because you have a contract guaranteeing the lighting level and savings (which will still be achieved, regardless of the development of technology).

Quality assurance is part of the ESCOs contracted obligation and it guarantees quality level of the ESCO’s work (e.g. minimum savings, lighting level, functionality of the system etc.). If luminaire doesnt fit those requirements renumeration is denied.

PLaaS contracts last for 10 or more years. ESCOs will strive to use the best technology available at the time of refurbishment with lowest life cycle costs. Refurbishing with a less efficient technology might help reduce the investment costs, but it also has disadvantages and lot more risks for ESCO in later years of contract duration. Although another technology might seem to offer an economic viable solution at the time of calculation, over the years, the forgone savings can be very significant.

This depends on the supplier. It is best to have a reliable supplier. It is recommended to only purchase luminaires for which the life span is guaranteed. Clients should always ask for extended guarantees and supporting documents. It is also important to ask for the guarantees of all components (not only for the diode, but also for the driver, etc.). It can also be specified in the tender/contract that the equipment needs to fulfil respective EU standards.

 

One advantage of PLaaS is that the ESCO is responsible for the proper functioning of the equipment and for the replacement of any defective parts during the PLaaS contract duration. In the contract, one can also specify in how much time a defective part needs to be replaced (e.g. within a week).

One of the quality assurances is availability of the luminaire, so in case of failure of the luminaire ESCO is responsible to repair it or replace with the new one.

Usually 2-3 years longer than the calculated financial payback time. This permits the ESCO to payback their investment and make a profit.

There is the possibility that ESCOs guarantee each other’s PLaaS contracts. In the case, if an ESCO goes bankrupt, the contract is taken over, under the exact same conditions, by another ESCO. 

PLaaS contract are built up in a way so that municipalities do not run the risk of having their public lighting installations removed if the ESCO goes bankrupt.

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