BUSINESS PLAN – Public Lighting in Serbian Municipalities
The aim of this project is to modernize the public lighting system in Serbian municipalities – including modernization of maintenance standards, energy and cost savings and environmental aspects. To assist the municipality in financing the project, a contracting model has been developed. The energy and cost-savings, guaranteed by the client and illustrated in the incremental cost analysis, are the leverage to make this project profitable. After the end of the contracting agreement concluded between the municipality and the client, the municipality can fully profit from the modernized public lighting system with all its advantages.
The public lighting project is related to several socio-economic topics: in general, regional development will be enhanced. An up-to-date public lighting system is a pre-requisite for several businesses such as service enterprises, the retail industry or tourism. Furthermore, safety on the street will increase both for car drivers and pedestrians. The installation of fittings and bulbs in historic street lightings will improve the historical appearance of the town.
Performance contracting is a means of raising money for investments in energy efficiency that is based on future savings. It enables money that will be saved as a result of the introduction of a new energy-efficient technology to be used to offset the cost of financing, installing, and operating the technology. Future savings are greater than costs.
Performance contracting, also known as ‚third-party financing‘ or ‚contract energy management‘, can be used to pay for measures to reduce energy costs and waste disposal costs, or to recover materials.
A third-party contractor designs, installs, finances and, if required, operates a new technology. The contractor is then paid according to the savings achieved – i.e. the performance.
The benefits of a performance contract for the municipality include:
- Reduced risk – the contractor takes on the risk of not achieving savings;
- Turn-key services – the performance contractor provides all required services;
- Project financing can be ‚off balance sheet‘ and not affect debt load;
- State-of-the-art products and services are used;
- Savings are normally much higher than if the municipality carries the work itself;
- Additional improvements to environmental performance can be paid for out of the savings.
Cost savings based on utility bills will be the most appropriate method of verifying the energy savings. Data of energy consumption are available from the municipality, and with detailed indications for the number of bulbs, operating time, energy consumption per bulb and average maintenance and disposal costs, the future energy consumption can be projected in detail. The incremental cost analysis shows the energy and cost savings for the municipality.
To diminish the disparity between the sales price and the production costs of energy in Serbia, the governmental controlled electricity prices were raised by 124% since April 2001. The installation of modernized, energy saving bulbs for public lighting has a positive impact on the cost savings, but also on the environment – due to longer lifetime of the bulbs and lower disposal cost.