Energy in EU

ENERGY EFFICIENCY TRENDS VOL. 8 Essential insight for consumers and suppliers of non-domestic energy efficiency in the UK October 2014

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

SUPPORTED BY:

ENDORSED BY:

Š EEVS Insight Ltd. 2014. Developed in partnerhip with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

CONTENTS SECTION 1.

INTRODUCTION __________________________________ 5

SECTION 2.

EXECUTIVE SUMMARY ____________________________ 6 2.1.

2.2.

SECTION 3.

SUPPLIER TRENDS ......................................................................................... 6 CONSUMER TRENDS...................................................................................... 7

SUPPLIER TRENDS _______________________________ 8 3.1.

3.2.

3.3.

3.4.

3.5.

THE ORDER BOOK .......................................................................................... 8 STAFF NUMBERS ............................................................................................ 9 SALE PRICES................................................................................................... 9 INDUSTRY RISK ............................................................................................ 10 GOVERNMENT EFFECTIVENESS ................................................................ 11

SECTION 4.

FEATURE: A WORD FROM GIB ____________________ 12

SECTION 5.

CONSUMER TRENDS ____________________________ 13 5.1.

5.2.

5.3.

5.4.

5.5.

5.6.

5.7.

TECHNOLOGIES & MEASURES.................................................................... 13 PROPERTY TYPES ........................................................................................ 14 PROJECT COSTS .......................................................................................... 15 PROJECT FINANCE ....................................................................................... 16 FINANCIAL PAYBACK.................................................................................... 16 MEASUREMENT & VERIFICATION ............................................................... 17 CONSUMERS NOT UNDERTAKING ENERGY EFFICIENCY ........................ 17

APPENDICES ____________________________________________________ 19 APPENDIX A:

METHODOLOGY ________________________________ 19

APPENDIX B:

SUPPLIER RESPONDENTS________________________ 20

APPENDIX C:

CONSUMER RESPONDENTS ______________________ 21

ABOUT US _______________________________________________________ 22 CONTACT US ____________________________________________________ 23

© EEVS Insight Ltd. 2014. Developed in partnerhip with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

TABLE OF FIGURES Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24:

© EEVS Insight Ltd. 2014. Developed in partnerhip with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

Market Monitor – Tracking industry confidence, Q3 2012 – Q3 2014(e) ............ 6 Consumers commissioning energy efficiency projects, Q3 2012 – Q3 2014(e) . 7 Trends in orders received from national customers, Q3 2012 – Q3 2014(e) ...... 8 Trends in orders received from overseas customers, Q3 2012 – Q3 2014(e) .... 8 Trends in the number of staff employed, Q3 2012 – Q3 2014(e) ....................... 9 Trends in sale prices achieved, Q3 2012 – Q3 2014(e) ..................................... 9 Key issues of concern to energy efficiency suppliers, Q2 2014 ....................... 10 Trends in key issues of concern, Q3 2012 – Q2 2014 ..................................... 10 Trends in industry views on energy efficiency policy, Q3 2012 – Q2 2014....... 11 Industry views on management of the wider economy, Q3 2012 – Q2 2014 ... 11 Uptake of energy efficiency technologies, Q2 2014 v 4Q average ................... 13 Trends of top 4 technologies for consumer uptake , Q3 2012 – Q3 2014(e) .... 14 Breakdown of commissioned projects by property type, Q2 2014 .................... 14 Trends of commissioned projects by property type, Q3 2012 – Q3 2014(e) ..... 15 Trends in capital costs, Q3 2012 – Q3 2014(e)................................................ 15 Trends in finance models, Q3 2012 – Q3 2014(e) ........................................... 16 Trends in expected payback periods, Q3 2012 – Q3 2014(e) .......................... 16 Trends in the use of good practice M&V, Q3 2012 – Q3 2014(e) ..................... 17 Consumer reasons for lack of energy efficiency uptake , Q2 2014 v 4Q average ........................................................................................................... 17 Who completed the survey? Q2 2014 .............................................................. 19 Breakdown of respondents by supplier type, Q2 2014 ..................................... 20 Supplier respondents’ organisation size (no. of employees), Q2 2014 ............. 20 Consumers respondents by sector, Q2 2014 ................................................... 21 Consumer respondents’ organisation size (no. of employees), Q2 2014 ......... 21

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

SECTION 1.

INTRODUCTION Since its creation in 2012 Energy Efficiency Trends has established itself as the place to go for information on the energy efficiency market. This edition, however, marks something of a new beginning: regular readers will notice a new look, new analysis as well as a new name on the front cover.

Let us start with that last point by welcoming our new partner, the UK Green Investment Bank (GIB).

GIB will be supporting EEVS Insight and Bloomberg New Energy Finance (BNEF) in expanding the contributor base, contributing its market intelligence to the research and promoting the publication’s insights to a wider audience. See also Section 4 for GIB’s analysis on the market potential for UK energy efficiency. We are also delighted to welcome three new corporate supporters Bellrock, Bird & Bird and Kier.

In terms of analysis, there are two major changes. Firstly, the fact that we are in our eighth edition means that we can now see how the market is changing over time. Trends in technology choice, financing options and project size provide new insights into the evolution of the sector. Second, the report (including historic data) is now exclusively UK-focused. Around two-thirds of survey respondents are UK-based and we felt our analysis would be more meaningful if narrowed to that country only. We continue to collect data on other countries, which we hope to include in future reports specific to those markets.

And last of all, the new look. Having come on board as partners in 2013 BNEF are now leading the analysis of the survey results and production of the report. The new format brings Energy Efficiency Trends in line with BNEF’s global coverage of the clean energy sector.

Having committed to the future of the sector with our revamp of Energy Efficiency Trends, we would have been disappointed if the analysis were to have found the market moving in the opposite direction. Thankfully, this was not the case: our confidence indicator is at an all-time high, median project sizes peaked in Q2 while more projects than ever are being funded through external sources of capital. While non-domestic energy efficiency in the UK is still a long way short of its potential, there is plenty of optimism.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

Bill Rogers

Tom Rowlands-Rees

Green Investment Bank

Bloomberg NEF

Ian Jeffries EEVS Insight

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

Page 1 of 20

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

SECTION 2.

EXECUTIVE SUMMARY The EEVS/Bloomberg/GIB Energy Efficiency Trends Survey (Vol.8) was conducted between 14 August 2014 and 12 September 2014 and completed by 88 UK-based respondents (62 consumer organisations and 26 suppliers).

2.1.

SUPPLIER TRENDS • Our Market Monitor - which combines trends in supplier order books, staffing levels, sale prices and government action to give an indication of industry confidence - surpassed 100 points for the first time in Q2. This confirmed the upswing forecast in Q1 following a temporary dip in confidence last quarter. This is expected to continue into Q3 as market optimism increases (Figure 1).

• Looking at the individual components that make up the market monitor, each one saw increases in Q2 against Q1 levels. However these were modest in the case of overseas orders, sales, and government action. Confidence around staffing levels jumped by 18 points, but it was national orders that really drove confidence into the green zone – reaching 75 points in Q2 with expectations for 98 in Q3.

• The temporary dip in Q1 confidence levels coincided with the largest consensus among respondents on key barriers. Exactly half of respondents cited customer demand as their primary concern in Q1. Whilst this remains the largest barrier in Q2, it has been diluted to just 27%, followed by pressure to reduce costs at 19%, and staff costs, national competition, subsidy/policy uncertainty and regulation all at 12%. International competition and raising finance were key concerns for just 4% of respondents.

• Confidence in support from government action on energy efficiency remains low with the confidence indicator struggling to break zero. However Q2 saw a 7 point increase on Q1 suggesting cautious optimism with the most common response rating policy as ‘effective’ for the first time. This coincided with a modest increase in confidence for the Government’s management of the wider economy.

Figure 1: Market Monitor – Tracking industry confidence, Q3 2012 – Q3 2014(e) Positive sentiment (max = 500 points) 300 250 200 150 100 50

0 -50 -100 -150 -200 -250 -300

Negative sentiment (min = -500 points)

Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: based on weighted confidence indicators from figures 3, 4, 5, 6, and 9.

Zero represents neutrality. 500/-500 are the maximum degrees of positive/negative sentiment possible.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

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ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

2.2.

CONSUMER TRENDS • Around 70% of consumer respondents commission energy efficiency projects each quarter. The last quarter of 2013 saw a small dip, but since then there has been an upward trend (Figure 2). The uptake in Q2 2014 was 73% with a 1% increase expected for Q3.

• High efficiency lighting continues to see the highest uptake in terms of efficiency technologies with a record 78% in Q2. Motors and drives showed the next biggest gain on its four quarter average - ranking 5th in terms of technology uptake in Q2.

• Offices continue to be the main type of commercial property to benefit from energy efficiency upgrades (19%) with public buildings as the next single category (7%). Schools and universities make up 12% together with an equal split between them.

• The median for project capital investment reached a high in Q2 at £167,000 with the highest ever proportion (29%) of respondents reporting costs above £500K. Projects falling in bands below £100K dropped to a low of 42% collectively. However costs are expected to return to around the 100K mark in Q3.

• Whilst in-house financing remains the dominant method for backing efficiency projects, this dropped below 70% for the first time in Q2. Projects financed through a combination of in-house and third party finance reached an all-time high accounting for 22% of respondents as a trend for alternative finance models begins to emerge.

• As in the previous quarter, there were signs in Q2 that non-domestic consumers’ expectations are shifting toward longer payback periods. For the first time over 30% of respondents reported expected paybacks longer than 5 years. However the median remains around the 4 year mark with little change expected for Q3.

• The number of respondents using good practice measurement and verification (M&V) dropped to 20% in Q2 from where it levelled around 30% over the prior four quarters.

However the bulk of this drop was accounted for by respondents shifting to the unknown category – with only 1% more reporting that they did not use M&V. Figure 2: Consumers commissioning energy efficiency projects, Q3 2012 – Q3 2014(e) 100% 90% 80% 70% 60%

Historic

50%

Forecast

40% 30% 20% 10% 0% Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: shows the proportion of respondents who have commissioned (or plan to commission) projects in a given quarter.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

Page 3 of 20

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

SECTION 3.

SUPPLIER TRENDS This section of the report presents the survey findings for the supply-side of the industry (organisations delivering the broad range of building-related energy efficiency technologies, measures and services to the non-domestic market). The survey was completed by 26 supplier organisations.

3.1.

THE ORDER BOOK Figure 3: Trends in orders received from national customers, Q3 2012 – Q3 2014(e) 100%

300

90%

240

80%

180

70%

120

60%

60

50%

0

40%

-60

30%

-120

20%

-180

10%

-240

Fall significantly Fall slightly Remain constant Increase slightly Increase significantly

0%

Confidence Indicator (RH axis)

-300 Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: the confidence indicator is an input to the market monitor in Figure 1. Zero represents neutrality. 500/-500 are the maximum degrees of positive/negative sentiment possible.

The confidence indicator in figure 3 - which is based on a weighting of responses for national orders – continues its upward trend after a temporary dip in Q1. Suppliers reporting increases in orders for Q2 remained roughly consistent with Q1 at 60%, however there was a shift from slight increases to significant increases. Similarly Q2 saw a higher proportion of suppliers reporting slight falls as compared with significant falls. These changes helped drive confidence through Q2 which is expected to sharpen in Q3 as 85% of suppliers expect increases in national orders – a record high.

Figure 4: Trends in orders received from overseas customers, Q3 2012 – Q3 2014(e) 100%

300

90%

240

80%

180

70%

120

60%

60

50%

0

40%

-60

30%

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20%

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Fall significantly

Fall slightly Remain constant

Increase slightly Increase significantly

0%

Confidence Indicator (RH axis)

-300 Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: the confidence indicator is an input to the market monitor in Figure 1. Zero represents neutrality. 500/-500 are the maximum degrees of positive/negative sentiment possible.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

Page 4 of 20

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

International orders have remained relatively flat over time with the highest proportion of responses consistently falling in the ‘remain constant’ category (Figure 4). However since the small dip in Q1, a slight upward trend appears to be emerging with the proportion of respondents reporting slight increases rising by 8% in Q2 and a further 8% in Q3 (based on expectations).

3.2.

STAFF NUMBERS Figure 5: Trends in the number of staff employed, Q3 2012 – Q3 2014(e) 100%

300

90%

240

80%

180

70%

120

60%

60

50%

0

40%

-60

Increase significantly

30%

-120

20%

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Confidence Indicator (RH axis)

10%

-240

Fall significantly Fall slightly

0%

Remain constant Increase slightly

-300 Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: the confidence indicator is an input to the market monitor in Figure 1. Zero represents neutrality. 500/-500 are the maximum degrees of positive/negative sentiment possible.

Confidence around staffing levels reached an all-time high in Q2 with 42% of respondents noting increases in the number of employees; zero reporting staffing cuts. Whilst this level of optimism is expected to continue into Q3, the growth rate will slow as fewer respondents expect significant increases after this current ramp-up. That said, the projections suggest that Q3 will be the first quarter where respondents reporting slight increases will exceed the category of ‘remain constant’.

3.3.

SALE PRICES Figure 6: Trends in sale prices achieved, Q3 2012 – Q3 2014(e) 100%

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90%

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70%

120

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50%

0

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-60

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Fall significantly Fall slightly Remain constant

0%

Increase slightly Increase significantly

Confidence Indicator (RH axis)

-300 Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: the confidence indicator is an input to the market monitor in Figure 1. Zero represents neutrality. 500/-500 are the maximum degrees of positive/negative sentiment possible.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

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ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

Figure 6 shows that confidence in terms of sale prices peaked this quarter with the lowest proportion of respondents reporting price falls. Those reporting increases rose by 4%, however, the bulk of respondents continue to report price consistency and fluctuations in confidence are relatively small.

3.4.

INDUSTRY RISK Figure 7: Key issues of concern to energy efficiency suppliers, Q2 2014 Competition international 4% Raising finance 4%

Regulation 12%

Customer demand 27%

Customer demand Pressure to reduce costs Staff costs

Subsidy/policy uncertainty 12%

Competition - national Subsidy/policy uncertainty Regulation

Competition national 12%

Pressure to reduce costs , 19%

Competition - international Raising finance

Staff costs 12%

Source: EEVS, BNEF, GIB. Note: each supplier respondent was asked to select their primary issue of concern therefore results sum to 100%.

Customer demand continues to claim the largest share of responses in terms of key issues of concern for energy efficiency suppliers – at 27% in Q2 (Figure 7). However, this has been significantly diluted from representing 50% of responses in Q1. As optimism returns to the industry, there is less consensus around issues of concern. Pressure to reduce costs has regained importance after two dry quarters and staff costs – which accounted for over 5% for the first time – emerged in third place alongside national competition, subsidy/policy uncertainty and regulation.

Figure 8: Trends in key issues of concern, Q3 2012 – Q2 2014 100%

90% 80%

Other Business tax Raising finance Competition - international Regulation Subsidy/policy uncertainty Competition - national Staff costs Pressure to reduce costs Customer demand

70% 60% 50% 40% 30%

20% 10% 0% Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Source: EEVS, BNEF, GIB. Note: Note: each supplier respondent was asked to select their primary issue of concern therefore results sum to 100% in each period.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

Page 6 of 20

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

3.5.

GOVERNMENT EFFECTIVENESS Figure 9: Trends in industry views on energy efficiency policy, Q3 2012 – Q2 2014 100%

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90%

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50%

0

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-60

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-240

Very ineffective

Ineffective Neutral

0%

Effective Very effective Confidence Indicator (RH axis)

-300 Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Source: EEVS, BNEF, GIB. Note: the confidence indicator is an input to the market monitor in Figure 1. Zero represents neutrality. 500/-500 are the maximum degrees of positive/negative sentiment possible.

In Q2 the confidence indicator for views on energy efficiency policy increased by 70 points to a less negative -50 (Figure 9). Whilst this is 25 points short of the peak in Q3 2013 and is still below zero, it does suggest cautious optimism going forward as the ‘effective’ category saw a major uptick – now accounting for 35% of responses.

Figure 10: Industry views on management of the wider economy, Q3 2012 – Q2 2014 100%

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90%

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Very ineffective Ineffective Neutral Effective

Very effective Confidence Indicator (RH axis) Energy Efficiency CI (RH axis)

-300 Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Source: EEVS, BNEF, GIB. Note: CI = confidence indicator. The dotted line represents the CI from Figure 9 which is overlaid here for comparison with views on the wider economy. Zero represents neutrality. 500/-500 are the maximum degrees of positive/negative sentiment possible.

Figure 10 shows that in Q2 there was a shift towards neutrality in terms of industry views on management of the wider economy – accounting for 50% of responses. This enabled an optimistic outlook despite declines in the number of respondents reporting ‘effective’ management as those reporting ‘ineffective’ or ‘very ineffective’ also dropped to below 30% for the first time.

The increased confidence in energy efficiency can therefore be partly attributed to confidence about the wider economy. Although the upward gradient is far steeper for the confidence indicator for energy efficiency policy, it still has a lower value than the confidence indicator for the government’s broader management of the economy. Overall this suggests a view of tentative confidence in the government, but a desire for better policy on energy efficiency. © EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

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ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

SECTION 4.

FEATURE: A WORD FROM GIB Energy efficiency: Market Opportunity and the Importance of Information

As a relatively new, fast growing market it’s critical that those making investment decisions are well informed with good market insight. This publication has led the way in providing that insight which is why we are delighted to formalise our support for it. By lending Green Investment Bank (GIB) support to the EEVS and BNEF team, we hope to enable the publication to grow and develop.

“Greater energy efficiency is the key to a greener, more productive, competitive and secure UK economy”.

We know that investing in new energy efficiency measures creates a very direct business benefit. They provide the opportunity to upgrade and modernise equipment, lower risks and cut costs. New financial products, from GIB and others, now allow businesses to make these improvements without any up-front costs to them. The spend to save financing model sees the investment cost of the improvements paid from within the savings they generate from lower energy bills.

This is also an attractive market for investors. Based on publicly available information and GIB analysis, we estimate a UK investment potential of £10bn-£15bn between now and 2020, split across three key segments: • Building & Industrial Retrofit (£3bn-£6bn) including building retrofit (high efficiency HVAC, wall insulation, replacement glazing, boiler/chiller upgrades, lighting) and industrial processes (variable speed drives, motors and pumps, waste heat recovery and process optimisation).

• Renewable Heat (£5bn-£6bn) including biomass boilers in addition to ground source and air source heat pumps.

• Combined Heat & Power (£2bn - £3bn) including individual CHP generators and district heating networks.

Despite the obvious benefits, the potential is not being fully realised due to a number of barriers, including: • Access to capital: Energy efficiency investments often face high up-front costs and compete with other capital allocation decisions within businesses. Yet, the forecasted savings from such investments can prove attractive to institutional investors. GIB aims to act as a catalyst in developing a market for third party investment into energy efficiency projects, both by direct financing and investments into energy efficiency funds.

• Uncertainty on cost savings: Improvements may not be seen as strategically important for a business, often forming a small portion of company costs. If there is uncertainty around the cost savings achievable by an investment, this initial investment may never take place. Companies such as EEVS are able to play a key role in verifying the performance of an energy efficiency investment and hence underpinning cost savings with evidence.

• Lack of information: As a developing market, energy efficiency suffers from a lack of access to reliable information. In the absence of this information, businesses are less willing to prioritise energy efficiency investments. The Energy Efficiency Trends report is the sector’s key source of market intelligence. GIB believes this quarterly release can play a role in overcoming the information barrier.

The insight provided by this report is helping to improve transparency and build understanding of this new, fragmented but dynamic sector. Strengthened market intelligence is also critical to supporting better, faster, more confident decision making in energy efficiency investment.

We look forward to supporting the development of the report and encourage all its participants to play their part in helping to shape and grow it too.

Bill Rogers, GIB

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

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ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

SECTION 5.

CONSUMER TRENDS This part of the report presents feedback from energy and environmental professionals within public and private sector organisations (‘consumers’) who are purchasing energy efficiency technologies and services in relation to the built environment on behalf of their organisations. This quarter’s survey was completed by 62 UK corporate consumers (of which 73% commissioned a project in the quarter).

5.1.

TECHNOLOGIES & MEASURES Figure 11: Uptake of energy efficiency technologies, Q2 2014 v 4Q average Lighting - High Efficiency Lighting - Controls Behaviour Change Building Energy Management System (BEMS) Motors and Drives Boiler - Controls Cooling and Air Conditioning Boiler - High Efficiency Unit HVAC Boiler - Optimisation Solar - Photovoltaic Building Fabric - Glazing, Insulation, Materials Power Management - Voltage Optimisation, PFC Energy Recovery Combined Heat and Power (CHP) Refrigeration - High Efficiency Unit Refrigeration - Optimisation Refrigeration - Controls High Speed Hand Dryers Heat Pump - Air Source Heat Exchangers Compressed Air Equipment Solar - Thermal Radiant and Warm Air Heaters Heat Pumps - Ground Source Heat Pumps - Water Source Other

Q2 2014 4Q average

0%

20%

40%

60%

80%

100%

Source: EEVS, BNEF, GIB. Note: ranks technologies according to the proportion of consumers who commissioned a project in each technology out of the overall number of consumers commissioning projects.

PFC = power factor correction.

Figure 11 ranks technologies in descending order based on the proportion of commissioned projects that included that technology. High efficiency lighting has consistently topped the list. Whilst this lead narrowed in Q1, Q2 has seen a record 78% of respondents commissioning projects using efficient lighting. Lighting controls claims back second place after ceding it to measures encouraging behaviour change for two quarters. Behaviour change has dropped to 42% since its peak of 55% in Q4 2013. Motors and Drives, HVAC, boiler optimisation and refrigeration have all outperformed their four quarter averages in Q2. Of these, Motors and Drives showed the biggest gain and with this technology currently ranking fifth.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the last page applies throughout.

Page 9 of 20

ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

Figure 12: Trends of top 4 technologies for consumer uptake , Q3 2012 – Q3 2014(e) 100%

90% Lighting - High Efficiency

80% 70% 60%

Lighting - Controls

50%

Behaviour Change

40%

Building Energy Management System (BEMS)

30%

20% 10% 0% Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: shows the proportion of respondents who commissioned a project in the respective category out of the total number of respondents who commissioned a project.

Figure 12 plots the trends of the top 4 technologies based on Q2 percentage uptake. This confirms the leading position of lighting high efficiency and based on expectations for Q3 its uptake will remain above 70%. Lighting controls is also expected to increase in Q3 to a record of 50%.

5.2.

PROPERTY TYPES Figure 13: Breakdown of commissioned projects by property type, Q2 2014

Office Office Public building building Public School & University School Manufacturing & Industrial Manufacturing Leisure Centre Leisure Centre/ Sports / Sports Hospital Hospital Retail - Out of Town Retail OtherCentre Data

Source: EEVS, BNEF, GIB. Note: W&D = Warehouse and Distribution; R&B = Restaurants and Bars.

Figures 13 and 14 show that offices continue to be the main commercial property type to benefit from energy efficiency upgrades (19%) with public buildings as the next single category (7%).

Schools and universities make up 12% together with an equal split between them. What is particularly striking is the increase in the ‘other’ category. A number of respondents reported that this was for ‘highway projects’ (which we may consider breaking out in future reports).

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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Figure 14: Trends of commissioned projects by property type, Q3 2012 – Q3 2014(e) 100%

80%

Other Retail Hospital

60%

Leisure Centre / Sports Manufacturing & Industrial School & University

40%

Public building

Office 20%

0% Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB

5.3.

PROJECT COSTS Figure 15: Trends in capital costs, Q3 2012 – Q3 2014(e) % projects in each band

£ Thousands

100%

200

80%

160

60%

120

Unknown £500K+ £100-500K £50-100K £10-50K

40%

80

<£10K Zero

20%

40

0%

Median (RH-axis)

0 Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: the line shows the cost trend for energy efficiency projects over time based on the estimated median.

Figure 15 shows that a broad spread of project costs continues, however the median has reached an all-time high in Q2 at £167,000. This coincides with the first quarter where the £500K+ category accounts for the highest proportion of responses (29%) and projects falling in bands below £100,000 have dropped to a low of 42% collectively. This is however not expected to continue as Q3 returns to median project costs around the £100K mark – though it should be noted that even if the median does fall to that level, it is still consistent with a broad upward trend in project size since the start of the survey.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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5.4.

PROJECT FINANCE Figure 16: Trends in finance models, Q3 2012 – Q3 2014(e) 100%

80%

Other Unknown

60%

Supplier-arranged Third party finance 40%

Combination In-house

20%

0% Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: the orange line shows the cost trend for energy efficiency projects over time based on the estimated median.

Whilst in-house financing remains the dominant method for backing efficiency projects, this dropped below 70% for the first time in Q2. Over the past 3 quarters, and based on expectations for Q3, a trend appears to be emerging for increasing use of alternative finance models. In Q2 combination finance reached an all-time high accounting for 22% of respondents.

5.5.

FINANCIAL PAYBACK Figure 17: Trends in expected payback periods, Q3 2012 – Q3 2014(e) % projects in each band

Number of years

100%

10

80%

8

60%

6

Unknown 10 + years 5-10 years 3-5 Years 1-3 years

40%

4

20%

2

0%

<1 year Median (RH-axis)

0 Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: the line shows the expected payback trend for energy efficiency projects based on the estimated median.

As in the previous quarter, there were signs in Q2 that non-domestic consumers’ expectations are shifting toward longer payback periods. For the first time over 30% of respondents reported expected paybacks longer than 5 years. However the median remains around the 4 year mark with little change expected for Q3.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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5.6.

MEASUREMENT & VERIFICATION Figure 18: Trends in the use of good practice M&V, Q3 2012 – Q3 2014(e) 100%

80%

No

60%

Unknown Yes

40%

20%

0% Q3 2012

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014(e)

Source: EEVS, BNEF, GIB. Note: M&V = Measurement & Verification

The number of respondents using good practice measurement and verification dropped to 20% in Q2 from where it levelled around 30% over the prior 4 quarters. However the bulk of this drop was accounted for by respondents shifting to the unknown category – with only 1% more reporting that they did not use M&V. For smaller projects a formal performance analysis may not be necessary (as savings will be relatively small); for larger investments the resulting lack of transparency means that actual financial savings performance is unclear – and the extent to which a project has delivered value for money is unknown.

5.7.

CONSUMERS NOT UNDERTAKING ENERGY EFFICIENCY Figure 19: Consumer reasons for lack of energy efficiency uptake , Q2 2014 v 4Q average Energy efficiency has already been undertaken Future projects are planned Higher priorities elsewhere

Uncertainty over the financial benefits / business case Senior management not bought in Lack of affordable finance

Q2 2014 (industry neutral)

Buildings are landlord-owned, so little upside

Q2 2014 (negative impact) Lack of resource

4Q average

Subsidy uncertainty Preference for renewable energy (e.g. solar) Lack of trust in the industry

Negative impact on core operations Wider macro-economic uncertainty Other 0%

20%

40%

60%

80%

100%

Source: EEVS, BNEF, GIB. Note: Respondents not commissioning projects may have cited multiple reasons.

The chart shows the proportion of respondents in each category out of overall respondents, not commissioning projects. Results therefore do not sum to 100.

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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In Q2, 73% of consumer respondents undertook energy efficiency projects. Figure 19 ranks the reasons cited by the remaining 17% for not commissioning projects. Two of the top three reasons involve the timing of project commissioning - based on either prior action or planned future action neither of which pose long term barriers to the industry. However far fewer respondents cited planned projects this quarter compared to the four quarter average and there was an increase in more serious concerns, such as there being higher priorities elsewhere (ranking third), uncertainty over both financial benefits and subsidies, senior management not buying in, all of which surpassed four quarter averages.

Š EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

APPENDICES Appendix A:

Methodology

The EEVS/Bloomberg/GIB Energy Efficiency Trends Survey (Vol.8) was conducted between 14 August 2014 and 12 September 2014 and completed by a total of 106 respondents, of which 88 were UK-based (62 consumer organisations and 26 suppliers). Historically the report included responses from a broader set of European countries, however UK-based data has always accounted for the lionâ&#x20AC;&#x2122;s share.

In order to present results from a cleaner, more robust dataset, we have stripped out all non-UK based responses for the first time and produced a UK-focused report. This coincides with reworking the analysis techniques used to generate this research as we now have sufficient quarterly data points to undertake robust time-series analysis.

Figure 22 shows the breakdown of UK-based respondents according to type. This split is not unsurprising as the survey has typically seen between 60 and 80% of responses coming from consumer respondents.

Figure 20: Who completed the survey? Q2 2014

Supplier 30%

Consumer 70%

Source: EEVS, BNEF, GIB

Š EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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Appendix B:

Supplier respondents

Figure 21: Breakdown of respondents by supplier type, Q2 2014

Consultancy services ESCO Consultancy services, 35%

Motors and drives Boilers Lighting Refrigeration

Finance HVAC M&T BMS/controls

ESCO, 23%

Source: EEVS, BNEF, GIB

Figure 21 shows that of the respondents categorised as suppliers of energy efficient goods and services, consultancy services accounted for the largest proportion this quarter - with 35%. After stripping out all non-UK responses, this is consistent with all prior quarters apart from Q1 – during which a higher volume of responses from ESCO providers was received. This quarter, ESCO providers submitted the second highest volume of responses – equating to 23%. Of particular interest is the emergence of ‘motor and drives’ as a respondent category. This coincides with the increasing uptake of related technologies as seen in Figure 11 (which is drawn from consumer responses to the survey).

Figure 22 shows that supply-side providers of energy services continue to be SME sized organisations with 77% reporting that they employ 250 staff or less.

Figure 22: Supplier respondents’ organisation size (no. of employees), Q2 2014

19% Less than 10

4%

42%

10-50 51-250 251-500 501-1000 More than 1000

19%

16%

Source: EEVS, BNEF, GIB

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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Appendix C:

Consumer respondents

Figure 23: Consumers respondents by sector, Q2 2014 Construction & Engineering, 2%

Local or Regional Authority 31%

PublicorSector & Local Regional Institutional Authority Commercial Services & Storage Industrial Manufacturing

University 6%

Other Other

Health 6%

Central Government Agency 5%

Source: EEVS, BNEF, GIB

Figure 23 shows that the survey continues to achieve good coverage across a wide range of consumers, from both private and public sectors. Local authorities retain their position as the principal respondent grouping with 31% of responses followed by manufacturing (10%). The remaining respondents derive from a range of sectors.

Figure 24: Consumer respondentsâ&#x20AC;&#x2122; organisation size (no. of employees), Q2 2014

5% 15% Less than 50 50 - 250

13%

251-500 501-1000 More than 1000

61% 6%

Source: EEVS, BNEF, GIB

Figure 24 shows that the large organisations - of more than 1,000 employees - remain the principal respondent category and increased to 61% from 48% in Q1. The remaining responses are balanced between SMEs of less than 250 employees and those falling between 250 and 1000.

Š EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

ABOUT US

_______________________________________________________

About EEVS EEVS is a leading global provider of independent performance information and analysis services for energy efficiency. Our core service is high quality performance measurement and verification for energy efficiency projects.

Since 2011 we have evaluated the performance of over 400 energy-saving schemes to the global good practice standard – the International Performance Measurement and Verification Protocol (IPMVP). This impartial and good practice analysis is vital for the industry’s development – enabling suppliers to prove their performance credentials, whilst giving consumers all-important comfort that they are getting value for money from their investments.

Our wider information services complement this project-level analysis and aim to support greater market transparency, improving the attractiveness of energy efficiency as an investment and accelerating the uptake of the best performing technologies and services.

For further details about EEVS and our services, please visit www.eevs.co.uk

About Bloomberg New Energy Finance Bloomberg New Energy Finance (BNEF) is the definitive source of insight, data and news on the transformation of the energy sector. BNEF has staff of more than 200, based in London, New York, Beijing, Cape Town, Hong Kong, Singapore, Munich, New Delhi, San Francisco, São Paulo, Sydney, Tokyo, Washington D.C., and Zurich.

BNEF Insight Services provide financial, economic and policy analysis in the following industries and markets: wind, solar, bioenergy, geothermal, hydro & marine, gas, nuclear, carbon capture and storage, energy efficiency, digital energy, energy storage, advanced transportation, carbon markets, REC markets, power markets and water. BNEF’s Industry Intelligence Service provides access to the world’s most comprehensive database of assets, investments, companies and equipment in the same sectors. The BNEF News Service is the leading global news service focusing on finance, policy and economics for the same sectors. The group also undertakes custom research on behalf of clients and runs senior-level networking events, including the annual BNEF Summit, the premier event on the future of the energy industry.

For more information please visit about.bnef.com

About UK Green Investment Bank The UK Green Investment Bank began operations in November 2012. Created by the UK Government and capitalised with £3.8 billion of public money, its mission is to help the UK transition to a greener economy by supporting projects that are both green and commercial. One of GIB’s priority areas for investment is energy efficiency in the private and public sectors.

“We are a key part of the UK’s efforts to achieve its legally binding environmental targets. These targets require an investment of £330bn in the UK’s green economy by 2020. To date we are seeing investment in the UK’s green economy at less than half the required rate. Our business model is not designed to plug the gap through our direct investments alone. We must invest in a way which demonstrates the attractiveness of the opportunity to others. To do that we must show that it is possible to invest in projects which are green and profitable – this is our double bottom line.”

For more information please visit www.greeninvestmentbank.com

© EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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CONTACT US EEVS:

Ian Jeffries ian@eevs.co.uk +44 (0) 77 7093 9290

EEVS Insight Ltd 83 Baker Street London W1U 6AG

BNEF:

Tom Rowlands-Rees trowlandsree@bloomberg.net +44 (0) 20 3216 4144

Bloomberg New Energy Finance City Gate House, 39-45 Finsbury Square London EC2A 1PQ

Nicole Aspinall naspinall@bloomber.net +44 (0) 20 3216 5632

GIB:

Bill Rogers bill.rogers@greeninvestmentbank.com +44 (0)330 123 3035

UK Green Investment Bank plc 13th Floor: 21-24 Millbank Tower, Milbank London SW1P 4QP

Richard Braakenburg Richard.Braakenburg@greeninvestmentbank.com +44 (0)330 123 3082

Copyright:

Š EEVS insight Ltd. 2014. Developed in partnership with Bloomberg New Energy Finance (Bloomberg Finance L.P. 2014) and the UK Green Investment Bank plc. No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners.

For more information on terms of use, please contact ian@eevs.co.uk.

Š EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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ENERGY EFFICIENCY TRENDS VOL. 8 OCTOBER 2014

Energy Efficiency Trends Vol. 8 October 2014

Š EEVS Insight Ltd. 2014. Developed in partnership with Bloomberg Finance L.P.2014 and the UK Green Investment Bank plc.

No portion of this document may be reproduced, scanned into an electronic system, distributed, publicly displayed or used as the basis of derivative works without the prior written consent of the joint partners. For more information on terms of use, please contact ian@eevs.co.uk. Copyright and Disclaimer notice on the Page last page applies throughout.

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