EU’s dark side: the accounting risk of the energy efficiency.

Experts around the world have identified the “accounting risk” as one of the main barriers to energy efficiency progress.

In the energy efficiency investments for the public sector –MUSH-, the distinction between being “off-balance” or “on balance” makes the difference between the possible and the impossible.

Like the moon, the EU has a dark side in energy matters. In Bruxelles, the Commission´s Directorate-General for Energy is permanently saying “oui”, “oui”, “oui” to energy efficiency. Meanwhile, the EU´s hidden face –EUROSTAT, by the way of his Head of Excessive deficit procedure and methodology Mr. Luca Ascoli- is permanently acting against the implementation of real energy efficiency measures.


It is widely known that energy efficiency investments are largely compensated by energy savings in a reasonable middle term. But the EU´s bureaucracy seems to ignore it.

In February 2015, the EU´s Energy Efficiency Financial Institutions Group (EEFIG) in his Report “How to drive new finance for energy efficiency investments” warned:

This “accounting risk” puts companies off even starting the project and so the EE project gets trapped between not having enough development time to get to an agreed “off-balance-sheet structure” with the auditors, and the company not having enough confidence that the project will be an off-balance sheet to approve transaction costs to develop the project to get auditor sign‐off.

and recommended the “Review of the public and private accounting treatment of Energy Performance Contracts (EPC)”.

EUROSTAT’s thoughts on accounting risk

The reply to this Report came in August 2015 by the way of EUROSTAT´s “Guidance-Note on Energy Performance Contracts”. This Note is an actual mess that, as a matter of fact, makes almost impossible the “off-balance” EPCs.

The main argument of the EUROSTAT bureaucrats is based on the Chapter VI.4 of the Manual on Government Deficit and Debt (MGDD Edition 2016, chairman of the EUROSTAT Task Force on methodological issues: Luca Ascoli) and the European System of Accounts (ESA 2010). This is about the accounting rules to apply to Public-Private Partnerships (PPP).

In a few words, the EU´s accountants have an archaic idea about EPCs. They only see energy efficiency operations as “on balance” financial leasings –MGDD Leasings, licenses, and concessions- or “almost on balance” PPPs. With respect to the latter, the rule of the 50% -MGDD 2016 VI.4.17- is a monument to irrationality.

Anyway, because of ignorance about energy efficiency new business models or because of dark lobby´s pressures, their idea is always to compute energy efficiency formulas as “on balance”:

Therefore, as a practical rule, given the high likelihood that capital expenditure incurred in the context of EPCs would have to be recorded in government accounts anyway, Eurostat considers that all capital expenditure within EPCs should be treated, by default, as government expenditure through gross fixed capital information… The impact on the debt will also follow the above-mentioned treatment.

Seven months later, in March 2016, this position about PPPs –without a specific mention of EPCs- has been confirmed by the EUROSTAT´s clarification note “The statistical treatment of PPP contracts”. Again, the reference is Luca Ascoli.


In some countries, as Spain, this interpretation of efficiency assets against EPC contracts is a mortal rule for the “deuda viva” of the municipalities. Mortal, unjust and stupid because has nothing to do with the structure of the energy efficiency financial operations and makes unavailable the progress of the efficient economy.

In favor of an “off-balance” interpretation are experts of EEFIG, E3G, EU-ESCO, Climate Alliance, European Investment Bank (EIB), and European PPP Expertise Centre (EPEC). Also, according to a survey of Transparense, representatives of Austria, Belgium, Bulgaria, Ireland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden strongly agreed that the Eurostat guidance note from 7th August 2015 had a negative impact on public EPC markets in their respective countries.

Significative is the EUROSTAT-EIB-EPEC report –September 2016- “A Guide to the Statistical Treatment of PPPs” with the unique back of EUROSTAT and his reference Luca Ascoli. Unusually this report states:

The findings, analysis, interpretations, and conclusions contained in this publication do not necessarily reflect the views or policies of the EIB or EPEC. Neither EPEC nor the EIB accepts any responsibility regarding the accuracy of the information contained in this publication or any liability for any consequences arising from the use of this publication.

This is 2017 and here we are, stopped. So, who determines the EU´s energy efficiency policies? DG of Energy or the EUROSTAT´s bureaucratic interpretation of accounting rules?

ESCO business model: Key points.

We found the key points of the ESCO business model in a research report that the British «Department of Energy and Climate Change», DECC, commissioned to Carbon Trust and SPA Future Thinking.

«Exploring the design of policies to increase the efficiency of electricity use within the industrial and commercial sectors”, dated in November 2012, had to build an evidence base on a system of incentives to stimulate efficiency solutions in the ESCO business environment.

That happens because the Department of Energy and Climate Change pushes the project Electricity Demand Reduction, EDR. This project aims to ensure the effectiveness of efficiency measures and that potential energy and cost savings are actually realized.

Two key points in the ESCO Business Model

Modelo ESCO publicado en ESCOs, Myth and Reality: Negotiation misunderstandings when outsourcing energy efficiency

The researchers interviewed end-users and ESCOs. Opinions revealed that there´s no unanimity about the best payback period, but, on the other hand, there´s consensus about two key points in this business model:

  • Trust in ESCO model. Literally:
    • End users: ‘No upfront cost’ offer is ‘too good to be true’
    • ESCOs : “The biggest barrier for ESCOs is selling and getting the concept accepted”
  • Efficiency project size. A single large project is easier to finance than a lot of small projects.
    • “If [the banks are] going to lend you something, they want to lend you £1m shall we say rather than £10,000.”