Energy service company - An implementation guide for real estate developers based on the underground thermal energy storage

Abstract

The real estate sector is going through difficult times, as Covid-19 induced uncertainty in the markets. Post-Covid trends in the residential and commercial sectors, like digitalization and new customer services, are rocking the sector. The purchasing power of customers in the real estate sector is suffering from housing prices increasing faster than wages and tighter mortgage conditions. Rising prices are not going to stop with the galloping inflation due to supply chain crunches and rising energy prices. In addition, stricter legislation on sustainable real estate imposed by the European Union is challenging the industry and forcing product modifications that are not helping the affordability of real estate. A solution must be found to meet all these changes. The implementation of UTES systems through Energy Service Companies comes to mind here because it offers a sustainable solution that is affordable for customers. However, Matexi, Belgium's largest neighbourhood developer, is experiencing difficulties in implementing ESCOs. When evaluating the projects already implemented, the unanimous conclusion was that the results are not optimal and can be improved. There should be a clear information guide on what to look out for. Also, the whole pricing model is not sufficiently specified, which means that the financial results fall short of expectations. A more practical guide to optimally implement is then proposed. A detailed technical analysis explains how 2 types of UTES systems, ATES and BTES, work, accompanied by a comparison between the two systems, explaining the advantages and disadvantages of each. A decision tree provides a clear model for selecting ATES or BTES based on the specifications of the future real estate project. The legal analysis outlines the operational and legal structure and highlights specific laws that must certainly be taken into account during the operation of an ESCO. To end, the financial analysis outlines all financial aspects, such as the possible financial structures to set up the ESCO and the available subsidies per region in Belgium. It then introduces a dynamic pricing model that includes all financial aspects and should allow mapping the financial picture of the investment in an ESCO. The result depends on the choice between 2 main options: either Matexi operates the ESCO until the end of the contract, or the ESCO is sold during the contractual period. The main conclusion is that selling the ESCO is considered the best scenario, as all financial indicators show the best outcomes here. The report concludes with the limitations of the pricing model, followed by a section looking at further steps. Here, the use of solar panels is discussed as an addition to UTES, as well as emerging new service-based business models, such as Charging as a Service and an extension of ESCO, namely Neighbourhood as a Service Company (NESCO).