Under The Energy Efficiency Regulations 2015 all rented property (both domestic and non-domestic) which is to have a new tenancy must have an EPC rating of at least “E”. Currently approximately 6% of all residential properties and 18% of commercial properties with leases of 6 months to 99 years will fall short of the required minimum E rating (Consultation Stage Impact Assessment for the Private Rented Sector Regulations - IA No: DECC0168).
The best method of improving the EPC rating is to “retro-fit” the property with a range of Energy Conservation Measures (ECM’s) such as enhanced insulations, LED Lighting, boiler optimisation etc and which combined will reduce the energy consumption of the property.
Under an Energy Savings Performance Contract (ESPC) arrangement an Energy Service Contractor (ESCO) will assess and recommend the relevant ECM’s and implement the installation of these. The ESPC will be fully funded by the ESCO who will use the stream of income from the cost savings, or the renewable energy produced, to repay the costs of the project, including the costs of the investment. Essentially the ESCO will not receive its payment unless the project delivers energy savings as expected.
This may also be funded by the property owner or via a third party finance provider and in these circumstances any technical uncertainty or financial risk needs to be addressed.
Energy Efficiency Insurance usually has a policy period of 5 years although a shorter period can be selected. It has been specifically designed for investors in ECM’s, ESCO’s, and those financing energy saving projects. It can cover the assets installed, revenue generated by projects and shortfalls in energy savings realised each year.
In a nutshell the policy is available for periods of up to five years and provides cover for the following:
Covers physical damage, including breakdown, to equipment and materials installed as part of an energy saving project with the aim of saving or generating energy. Replacement of equipment is on a new for old basis. Cover extends to include manufacture defects not otherwise covered by a manufacturers warranty.
Covers loss of gross revenue and increased cost of working following insured damage to equipment. Revenue is income generated under an energy service contract and incentives received for the production of renewable energy.
Covers the annual shortfall in energy savings compared to the amount of savings insured by the policy. It covers shortfall caused by deficiencies in the design or implementation of energy saving measures and does not require damage to have occurred to the equipment. The cover is subject to a project audit.
An ESCO provides funded retrofit solutions under an ESPC.
In this example the ESCO was asked by an organisation (which runs a 24 hour call centre) to suggest methods of reducing their energy spend. The ESCO conducted an audit of the premises and determined that savings in the range of 30% per annum could be achieved by installing a number of retrofitted energy savings measures. These included replacement of the conventional lighting with a LED system and up-grading existing electrical and cooling systems, combined with a remote monitoring building management system.
The ESCO arranged the funding of these measures from a specialist fund and guaranteed to their customer a minimum level of savings per annum. The period of the contract is 4.5 Years.
The ESCO approached us to provide an insurance which would cover the guaranteed element of the contract and effectively take this amount “Off Balance Sheet”.
We were able to a deliver a 4.5 Year policy to the satisfaction of the ESCO’s funding providers and remove the technical risk from the contract.
If you would like to speak to one of our experts to learn more about how our Energy Efficiency insurance products can help you, please get in touch with us today.