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ESCO Contracts in Danish Municipalities: Improving Energy Efficiency and Public Buildings, Apuntes de Finanzas Empresariales

The use of energy service companies (esco) in danish municipalities to enhance energy efficiency in public buildings. Esco contracts enable clients to achieve defined energy savings, making investments more attractive. The benefits, motivations, and challenges of esco-contracting for municipalities, including capacity and speed, political focus on climate policies, and skepticism towards the model. It also highlights the role of esco-contracting in urban climate governance and energy savings in various building types.

Tipo: Apuntes

2012/2013

Subido el 23/06/2013

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¡Descarga ESCO Contracts in Danish Municipalities: Improving Energy Efficiency and Public Buildings y más Apuntes en PDF de Finanzas Empresariales solo en Docsity! Energies 2013, 6, 2407-2427; doi:10.3390/en6052407 energies ISSN 1996-1073 www.mdpi.com/journal/energies Article Greening Public Buildings: ESCO-Contracting in Danish Municipalities Jesper Ole Jensen 1,*, Susanne Balslev Nielsen 2 and Jesper Rohr Hansen 1 1 Department of Town, Housing and Property, Danish Building Research Institute, A.C.Meyers Vænge 15, Copenhagen DK-2450, Denmark; E-Mail: jer@sbi.aau.dk 2 Department of Management Engineering, Technical University of Denmark, Bygning 424, Kongens Lyngby DK-2800, Denmark; E-Mail: sbni@dtu.dk (S.B.N.) * Author to whom correspondence should be addressed; E-Mail: joj@sbi.aau.dk; Tel.: +45-9940-2358. Received: 27 February 2013; in revised form: 11 April 2013 / Accepted: 24 April 2013 / Published: 6 May 2013 Abstract: This paper presents current research on Danish municipalities’ use of Energy Service Companies (ESCO) as a way to improve the standard of public buildings and to increase energy efficiency. In recent years more and more municipalities have used ESCO-contracts to retrofit existing public buildings, and to make them more energy efficient. At the moment 30 municipalities (of the 98 municipalities in Denmark) are involved in, or preparing, ESCO contracts. Nevertheless, ESCO-contracting still faces many challenges on the Danish market, as there is a widespread skepticism towards the concept amongst many stakeholders. The purpose of this paper is to discuss the various experience gained so far by municipalities use of ESCO-contracting, the different approached to ESCO-contracting being used in practice, as well as the different viewpoints drivers and barriers behind the development. The strong growth in ESCO-contracts reflects that the ESCO-concept fits well with a number of present problems that municipalities are facing, as well as a flexible adaptation to the local context in different municipalities. Keywords: Energy Service Companies (ESCO); municipalities; public buildings; energy savings OPEN ACCESS Energies 2013, 6 2408 1. Introduction 1.1. Definition According to the EU-directive on energy end-use efficiency and energy services [1] an energy service company (ESCO) is defined as: “a natural or legal person that delivers energy services and/or other energy efficiency improvements measures in a users’ facility or premises, and accepts some degree of financial risk in doing so. The payment for the service delivered is based (either wholly or in part) on the achievement of energy efficiency improvements and on the meeting of the other agree performance criteria”. In an ESCO contract the ESCO-provider takes the risk for achieving defined energy savings instead of the client (e.g., a building owner), making investments in energy savings measures more calculable and thereby attractive for the client. Practical definitions of ESCO however vary across Europe [2] and the rest of the World [3,4]. As an alternative, “Energy Savings Performance Contracts” (ESPC) are often used to characterize models for energy services. A major distinction of models is between “Shared savings” and “Guaranteed savings” that concerns different distributions of investments and savings between the client and the ESCO-provider [3,4]. In short, projects using the shared savings model is based on full financing from the ESCO-provider, who in return get a share of the savings—in contrast, projects using the guaranteed savings model are typically financed by the client, where payments include money for the ESCO-provider to implement and operate solutions, as well as guaranteeing the client a certain level of energy savings over a longer period. The shared savings model is mainly used in developing countries where clients have limited access to capital, whereas in a European context, the guaranteed savings model is predominant [2,4]. In the ESCO model used in Danish municipalities, the client provides the investment (i.e., no private or third-party financing), and the ESCO-supplier implements the energy retrofitting initiatives, and guarantees the agreed level of energy savings. “Energy Performance Contracting” (EPC) would therefore be a more correct term to use, like in Sweden where similar types of contracts are used by the municipalities [5]. As “ESCO” however is used widely in a Danish context, the paper will also use this term. Throughout the paper we will use the term “ESCO-provider” for the ESCO-companies, and “ESCO-contract” for the business model, i.e., the ESCO-contract between the client and the provider. 1.2. Background ESCO contracting can be seen as a new approach to implement energy saving measures in existing buildings. Although the concept is more than 100 years old [4], it is only within the recent decade that it has actually gained growth on the European market [4,5]. Especially in Germany, Austria, UK, Spain and Hungary ESCO-providers have firmly established themselves on the market for energy retrofitting of buildings, whereas in other European countries the ESCO-market is still developing. The Danish market for ESCO-contracting is rapidly increasing, also compared to other EU-countries [6]. This is mainly due to growth in ESCO-projects on municipal buildings, where approximately Energies 2013, 6 2411 2. Results 2.1. An Overview of EPC in Danish Municipalities The first ESCO-contract in a Danish municipality was signed in 2006 (by the municipality of Kalundborg). Due to the municipal structure reform in 2007 (which reduced the number of municipalities in Denmark from 279 to 98), the collaboration was delayed, but re-started in 2009. Meanwhile, two other municipalities, Gribskov and Middelfart, had started their own ESCO projects. These three municipalities formed their own “ESCO network”, with close collaboration and knowledge-sharing in the initial phases, leading to several ideas on how the ESCO-concept could be disseminated to other municipalities. From 2010, several other municipalities have signed ESCO-contracts, or are preparing a tender for this purpose. The Danish market has been dominated by private companies that gained experience from ESCO-contracting in neighbouring countries, primarily Sweden. It should be noted that a single ESCO-provider (Schneider Electric) has a large share of the market (approximately half of all contracts so far), although several other ESCO-providers have been present on the market for some time. Several consulting companies have developed competences on ESCO-contracting, and taken on the role as consultants for the municipalities on assessing saving potentials and designing the ESCO-tender. In contrast to many other European countries [2], utilities have not played any large role as providers of ESCO services. The project periods in the contracts are typically between 8 and 10 years. In all cases the municipalities finance the retrofitting, and the ESCO-provider guarantees a certain energy reduction. If the guaranteed savings are not met, the ESCO-provider will pay the client the difference. If the ESCO-provider saves more that guaranteed, the contract specifies how this surplus is shared between the ESCO-provider and the client. Other typical features in the ESCO-contracts include Energy Labelling of the municipal buildings and training of the municipal staff. Figure 1 shows key figures from the ten Danish municipalities studied in this project. These ten municipalities were amongst the first to sign a contract. The projects are almost all in the operation phase. 2.2. Type of Projects There is a large variation in the number of buildings included in the ESCO-contracts (from 10 to 260), with an average of 60 buildings (or 122,000 m2) per contract. Moreover the investments in the buildings varies, from 22 €/m2 to 89 €/m2, with an average of 49 €/m2. The guaranteed energy savings in the contracts ranges from 16 to 31%, with an average of 21%. This is similar to the saving levels on the Swedish ESCO-market, but might be low in a global perspective, where saving potentials up to 50% in public buildings have been reported [3]. Our analysis of the Danish cases shows that the guaranteed savings are influenced by a number of factors, and not only the investments per m2. These factors include: • The standard of the buildings at the outset; well-maintained buildings (e.g., Høje Taastrup) generally reduces the guaranteed energy savings; Energies 2013, 6 2412 • The volume of buildings included in the contract; if only buildings with a high energy saving potential are included in the contract, this will increase the guaranteed energy savings. On the other hand, including very few buildings will increase transaction costs (e.g., Kalundborg); • The degree of building improvements in the ESCO-contract; if long-term energy savings or general improvements on the buildings are included, the investments will increase, but the guaranteed savings might not be remarkably higher. Figure 1. Investments (€/m2), guaranteed savings (%) and building volume (10,000 m2) in the ten municipalities ESCO-projects, where the blue, red and green lines indicated the average levels. Looking closer at the municipal ESCO-projects in practice, they are different in relation to technologies, economy, ambitions, etc., and subsequently in the way the process is organized. We have elsewhere identified three different approaches to ESCO-contracting [11]: The basic ESCO-approach: This includes replacement of installations and regulation of energy systems and services like CTS control, monitoring, light steering, heat regulation, etc. Technologies are simple and relatively inexpensive but with high energy-saving potential and a short payback period. This only occasionally involves improvements of the building envelope. Several municipalities (Kalundborg, Middelfart, Gribskov, København, Greve and Vallensbæk) are using such an approach, with short pay-back times and relatively low investments. These projects do not include for instance better insulation of the buildings-related improvements in terms of insulation. As illustrated in Figure 1, these projects are in the lower end of the volume-scale, in terms of total investments and total building volume (below 7 million € and 100,000 m2 floor area). Also measured per m2 the investments are lower for the municipalities having chosen the basic model, except for the municipality of Vallensbæk and Kalundborg. The high expenses for Kalundborg municipality reflect that it was the first municipality to implement an ESCO-project, and that they included only ten buildings. This means that the transaction costs have become relatively high, leading to high Energies 2013, 6 2413 investments per m2. The absence of internal competences in the municipality on certain assignments meant the municipality had to buy these competences from external parties, which was expensive for the municipality: “We have bought simple supervision …as there were no competences on these areas in the municipality, we had to buy all things from consultants. I’m not blaming the consultants, but the municipality, as they have cut down on all these areas.” (civil servant, municipality of Kalundborg). Entering an ESCO-project does require certain in-house competences in order to manage tenders and legal questions about contracts. If these competences are not present, and if the building volume selected for the ESCO-contract is limited, the transaction costs might get very high, and so might the overall costs per m2. For municipalities with small in-house staff, it is principally possible to aggregate their projects and their in-house expertise and contract together (bundling of projects), but there have no such attempts yet amongst Danish municipalities. Another municipality (Vallenbæk), also using a basic approach, explains that due to the small size of the municipality, they are used to outsourcing many of their operations to private parties; therefore, the basic ESCO-concept was well suited for the challenge of improving the energy efficiency in their buildings. The collaboration ability of the ESCO-provider had a high priority in the tendering process, as a good collaboration with the supplier would reduce transaction costs related to negotiations on the baseline, as the municipality would be carrying out maintenance and smaller renovations on the buildings parallel to the ESCO-project. Another characteristic of the first ESCO-projects, mainly using a basic approach, is that only a limited number of the municipal buildings are included in the project. As an example, the municipality of Vallensbæk, which has the highest guaranteed energy savings amongst the ten municipalities started their ESCO-project with a screening of all their 48 municipal buildings, but decided only to include the 20 most profitable buildings, i.e., buildings with a large potential for energy savings. This enabled a contract with large guaranteed energy savings, which reduces the payback time and makes the project more politically attractive. Amongst the municipalities using a basic approach, only two municipalities (Middelfart and Gribskov) have included all or a majority of the total municipal building volume. The integrative ESC-approach: This idea in this approach is to make energy savings with a short payback time finance investments in general building improvements. The “low hanging fruits” such as better energy regulation, adjustments of ventilation etc. are combined with “high hanging fruits” such as improvements on the building envelope, indoor climate and renewable energy sources (solar panels, PVs, heat pumps, etc.). Such projects require major investments and give longer payback periods, but they typically include a wider segment of the municipal buildings. Four of the ten municipalities (Høje Taastrup, Kerteminde, Sorø and Halsnæs) have used an integrated approach, where improvements such as improving the indoor climate, improving and insulating the building shell (facades, roof, windows), solving PCB-problems, and integrating renewable energy sources, such as PV’s and heat pumps, have been included in the contract. As illustrated in Figure 1, the total investments and investments per m2 are relatively large in these municipalities, but the guaranteed savings are not systematically higher compared to municipalities having used the basic approach. The reason for this is that parts of the costs Energies 2013, 6 2416 and CO2-reductions and eventually lead to a strategic approach. A strategic approach might not necessarily be formulated explicitly, but we see several municipalities linking ESCO-contracting to other initiatives such as climate plans, public-private partnerships, organizational changes, etc. 3. Drivers and Barriers for Using ESCO There are different viewpoints on ESCO-contracting in Denmark, especially amongst Danish municipalities about the possible benefits of using ESCO-projects. In the following we will first present the benefits, as expressed by municipalities using the ESCO-model, and other stakeholders being in favour of the model. 3.1. Motivations for Municipalities to Enter ESCO-Contracting 3.1.1. Capacity and Speed A main reason for many municipalities to carry out energy retrofitting of the municipal buildings as ESCO-contracting is that it would have been impossible as an in-house effort; many, especially smaller and medium-sized municipalities, have reduced their staff and maintenance budgets over time, partly resulting in a more outsourcing. Danish municipalities have in recent years been under large pressure for budget savings, and the maintenance of municipal buildings has been an oft-used place to find the savings. As the municipal reform in 2007 led to merge of many municipalities, and subsequently a change in the municipal facilities management organisations, the situation is that many municipal administrations are facing (a) a “new” and often unknown building stock; (b) new personnel in the facilities management organization; (c) a poorly maintained building portfolio; (d) limited staff and budgets; and (e) an increasing demand for implementing energy savings in the municipal buildings. In our interviews on ESCO-contracting, many municipalities argue that it would have been completely impossible to carry out a retrofitting of the whole municipal building portfolio using their own staff only. It would, theoretically, be possible to hire more staff for the assignment, but it would require that the municipality could keep them occupied after the retrofitting was completed, or reducing the staff again, which would be difficult. As one municipality explains: “It would take a long time to establish an organisation that could manage an assignment like that, and we would have to start to downsize it almost as soon as we had started” (civil servant, municipality of Vallensbæk). In this respect, ESCO-contracting fits has been a welcome possibility for several municipalities. Our analysis of the municipalities using ESCO-contracting shows that it is mainly small and medium-sized municipalities, which supposedly have similar small in-house FM-staff [12]. This supports the assumptions that the lack on in-house capacity is a main reason for municipalities to take up ESCO-contracting. Even if the municipality had the necessary staff, the ESCO-contract would typically allow them to carry out the retrofitting faster. Also the budgets for financing retrofitting as an in-house-approach is typically step-wise, allowing only as step-wise improvement of the building portfolio, whereas the financing in an ESCO-project is an up-front investment on the whole building stock, but also an instant, or faster, improvement of the buildings, resulting in savings from “day one”. As an example, Energies 2013, 6 2417 one municipality stated that it could have had DKK 1 m per year (EUR 130,000) for an in-house retrofitting over the coming years, but the ESCO-contract gave them DKK 68 m (EUR 9 m). The strength of this approach is that energy in buildings is reduced from “day one”; The ESCO-provider mobilizes energy retrofitting in a short time, and start saving energy almost immediately. The in-house approach operates with a smaller in-house staff, which prolongs the period of analysis before building retrofitting is implemented, and energy savings are reached. As Colburn and Walawalkar [9] argue: “The “opportunity cost,” or “cost of inaction,” is often overlooked at first by the owner. Two years of no implementation of work waiting for budget and work sequence approvals can be a real “loss” compared to implementing a project swiftly…” A survey amongst Danish municipalities on energy saving initiatives in own buildings shows that the implementation time for in-house projects is in average 6.3 years, and in ESCO-projects 2.2 years. Investments in in-house projects are in average 14 €/m2, in ESCO-projects 45 €/m2. Energy savings in in-house projects are in average 13.8%, and in ESCO-projects 21.1% [13], see Figure 2. These figures indicate that ESCO-projects actually lead to more efficient output, besides giving some municipalities the option for retrofitting the building portfolio, which would have been practically impossible as an in-house project. Figure 2. Investments, implementation-time and obtained savings in energy saving projects, as stated by municipalities having carried out in-house respectively ESCO-contracting projects on their own buildings (source: [13]). 3.1.2. Focus on Operation and Output In contrast to traditional client-supplier relations in the building sector, ESCO-contracts have a long-term perspective, integrating implementation of energy efficiency measures in the building phase with the operation phase of the buildings. Traditionally, contractors implementing retrofitting are in practice not responsible for the expected goals actually are being met in the operation phase, which has Energies 2013, 6 2418 been a concurring frustration for many municipalities, as well as other types of clients. Unlike PPP-contracting, which has addressed this problem, but has not been used much in a Danish context, the ESCO-contracting represents a solution to address this challenge in practice. This is represented by three elements in the ESCO-concept: The guarantee on energy savings defined in the contract, the long operation period (typically 8–10 years) and the incentive to motivate and train staff and users in the buildings. These elements are often referred to as a great achievement by the municipalities using ESCO-contracting. There are, however, also many examples on municipalities using an in-house approach that include these elements in their efforts, or instance to focus on training of staff, implement systematic monitoring systems on energy consumption in the municipal buildings, or establishing economic motives for municipal institutions to reduce energy consumption. 3.1.3. Enabling Climate Goals It is noteworthy that ESCO-contracting has appeared almost parallel to the strong political focus on climate issues and energy reductions that has emerged since the early 2000nds. Out interviews with municipalities having signed ESCO-contracts confirms that political ambitions on climate reductions and energy savings have been strong drivers for the ESCO-contracts, as several municipalities have signed voluntary agreements on this. Agreements such as signing up as a “Climate Municipality” or signing the “Curb-cutter” deal introduces climate goals that present great challenges for the municipalities, but also a political acceptance to pursue energy savings. Reducing energy consumption by 2% p.a. is a challenge that requires extraordinary initiatives: “We could save 2% a couple of years, using our own municipal finance. But after that it would become difficult. 2% per year is actually very ambitious…but then one of our consultants mentioned ESCO-contracting as an opportunity” (officer, municipality of Halsnæs). On the other hand, there are also examples on ESCO-contracting being used in municipalities that are not politically very engaged in the climate agenda. Here, ESCO-contracting is seen as a way of being able to do something on energy retrofitting, without having to engage very much in it. “If you had politicians that were really engaged, then you were already rolling, and you just needed to go on, instead of starting from scratch. But in our case it is better with an ESCO-project, then you can see what you get for your money” (officer, municipality of Kerteminde). In this way, the increase in ESCO-contracting reflects a growing political focus on climate policies and energy reductions in Danish municipalities, which however also encourages other types of initiatives to meet these challenges, primarily as an in-house approach. 3.2. Barriers for ESCO The skepticism expressed towards ESCO-contracting from municipalities and other stakeholders (consultants, NGO’s, politicians, etc.) are both based on a general preference that municipalities should carry out the improvements by themselves, and some critical views on the ESCO-model. In the following we will summarize these arguments. Energies 2013, 6 2421 investment, there is no reason why he should not be interested in integrating building-related improvements in the contract. There has however been a change in the political understanding and prioritization of energy savings in the municipalities, which in many municipalities has led to acceptance of longer pay-back times, typically from 10 years to 15, 20 or even 25 years, often with inspiration from municipalities who have actually done this (like the municipality of Halsnæs). This gives the municipal building administration possibilities of defining new types of projects, and many municipalities are therefore planning an “ESCO-2”, with more ambitious goals than the first ESCO-project. Consultants and ESCO-providers see the more integrated approach as the future trend. A main challenge is that the guarantee in an ESCO-project also might become a straitjacket that hinders a more innovative and ambitious ESCO-contract, for instance regarding the volume of buildings and goals included in the contract. A traditional way to manage the tendering process is that the municipalities, by help from their traditional consultant, estimates a level of energy savings within a politically defined payback time, and use these key-figures to formulate the tender. If the tender include guaranteed savings and a limited pay-back time from the outset, it prevents a discussion between the client and the ESCO-provider on the project possibilities after the ESCO-supplier has been selected. As formulated by an ESCO-provider: “You decide whether you want to open up for flexibility or you just want to complete a basic project, you do it by writing in your tender that the payback time should be 8 years—you don’t have to write more, then it’s closed.” (ESCO-provider). As a consequence, ESCO-providers and consultants advocate for partnerships instead of guarantees, and see barriers as being more cultural than technical. “In Denmark we are used to buying a commodity. But if you want to get the most out of it, you should buy a partnership. Thus we preach ‘partnership’ in the tender, and to think flexibility. It is not legislation hindering this, it is culture.” (ESCO-provider). The issue—as well as other central issues on ESCO-contracting—is related to the question of collaboration between the client’s internal organization and the ESCO-provider. Much of the skepticism comes from the internal organization that might see the ESCO-provider as a competitor to their own function, or see it as an indirect critique that the internal organization has not delivered on providing energy efficient buildings. When it comes to integrated projects, where energy efficiency measures and general building improvements have to be carried out, it is necessary for the internal organization to collaborate closely with the ESCO-provider. Here it is necessary to see the ESCO-project as a partnership, instead of an outsourcing. As argued in [10], in-house competences and ESCOs should not be seen as contradictions, but as two concepts reinforcing each other. Municipalities involved in ESCO-contracting are generally aware of internal capacity building as a central part of the project, both in the short term and in the long term. The ESCO-project might be seen as a first step in developing a strong in-house capacity over time. Also, we see no evidence that municipalities entering ESCO-contracting tends to reduce their internal staff; on the contrary, some municipalities are even expanding, as the ESCO-projects tends to bring political focus on public buildings and the climate agenda. Energies 2013, 6 2422 Below we have summarized strengths and motivations, respectively the barriers and challenges of using the ESCO-model, based on interviews with informants, and on our analysis of the municipalities ESCO-projects: Strengths and motivations • Capacity and speed: Allows small municipal FM-organisation to manage large building retrofitting; • Guarantee for energy savings is politically attractive; • Energy savings from ‘day one’ (compared to step-wise renovation through in-house efforts); • Helps municipality to ensure climate goals; • Focus on operation and output (as a contrast to in-house projects where verification and monitoring is typically weaker or absent); • Include training of in-house organisation; • ESCO-contracts reduces the risk of reductions in future investments in energy savings due to possible changes in political priorities. Barriers and challenges • Transaction costs in relation to tendering, contract management and M&V—increase with the complexity of the ESCO-contract; • Coordination between energy retrofitting and building maintenance regarded easier with in-house models; • Municipalities have limited experience with long-term collaboration; • Accept from in-house organisation and FM-staff; • Some municipalities fear “loss of control” on solutions, and that learning is kept with ESCO-providers; • Uncertainty on managing changes in future building portfolio (e.g., if municipality want to sell buildings in contract period); • Lack of detailed knowledge about ESCO-model in municipalities. In the following section we will discuss possible steps to taken in order to reduce barriers f or ESCO-contracting, especially formulation of national policies with inspiration from the Swedish ESCO-market. 4. Increased Promotion of ESCO? The study of development of the ESCO-market in Denmark illustrates on one hand some obvious advantages in using the ESCO-model on municipal buildings, but on the other hand it also illustrates some reasons why ESCO-contracting is not embraced by all municipalities. The question is whether the national state could or should do more to promote ESCO? 4.1. Political Initiatives Several authors have suggested different initiatives for the national states to encourage the use of ESCO-contracting [2,6,19,20]. This might include a number of different measures, from procurement adaptation and standard contracts to financial mechanisms such as subsidies, tax advantages, changes Energies 2013, 6 2423 in laws, information, etc. [19]. On a regulatory level, the initiatives in Denmark to reduce transaction costs have been limited. A standard contract for municipal ESCO-contracts has been developed [21], but we have no reports on municipalities actually using it. In Sweden the state has concluded that there is no need for such an initiative, as the market is already well functioning [20]. Also, as stated by Sorrell, there is little evidence that measures such as model contracts and standardized M&V-schemes actually are able to reduce transaction costs [18]. Instead, we suggest in line with Backlund and Eidenskog [10], that ESCO-contracting is basically a matter of trust between the client and the contractor, and that long-term ESCO-contracts are likely to increase this trust. Therefore municipalities should be aware of the importance of a good collaboration spirit with the ESCO-provider in preparing tendering and choosing ESCO-provider. Besides formal regulations, institutional capacity building can be an important tool for developing an ESCO-market [2], as for instance in Austria, Germany and Sweden. In Sweden, an Energy Performance Contracting (EPC) forum was formed in 2004 with the aim of creating contact between public building owners, consultants and ESCO-providers, and communicating experience, as well as collecting and communicating experience gained from EPC-contracting. Evaluations have later shown that the EPC forum has had a central role for the development of EPC in Sweden, by informing different actors about EPC and creating confidence in the concept [5]. In contrast to these countries, such institutional capacity building has not taken place as a coordinated effort in Denmark. Different initiatives have, however, contributed to it, including promotion of ESCO-contracting on a series of workshops, support to municipalities that consider ESCO-contracting, collection of knowledge and “best practice” etc., combined with disseminating knowledge of ESCO-contracting, monitoring development and experience in Danish municipalities, informed on “best practice” and finally a number of R&D projects on ESCO-contracting, including experience from other countries. 4.2. Market Development The development of the Danish market has to large extent benefitted from the Swedish and German market experience. At the time when the Danish market emerged in 2007, about 20 Swedish municipalities had already signed an ESCO-contract. Many ESCO providers (such as Schneider electric, Siemens and YIT) have built their competences and gained experience on the Swedish market, and afterwards applied it on the Danish market. This has given Danish municipalities more confidence in ESCO-contracting, as the providers could refer to cases from similar municipalities in Sweden. Also, different ESCO-providers have been actively promoting ESCO-contracting through repeatedly visits to the municipalities. On the demand-side, many clients (Danish municipalities) have arranged study trips to Swedish and German municipalities, in order to collect first-hand experience on their ESCO-projects, and gain more confidence with the concept. Moreover, the municipalities have collected information and knowledge about ESCO-contracting from different informal sources, for instance talking with other municipalities, meetings with ESCO-providers, from the media and others sources. 4.3. Standardization or Flexibility? In spite of the large influence from the Swedish market, the Danish market has, according to our informants, its own characteristics. 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