By Natalia Drozdiak

(Reuters) - One of Berlin's most famous universities is getting a free green makeover that will slash its energy bill by nearly a third under an increasingly popular type of efficiency contract.

With engineering companies looking for new ways to drive growth in a tough economic environment, and the public sector finding it difficult to invest on stretched budgets, the deal between Siemens and the University of the Arts is a template for more.

Under a 'buy now pay later' scheme, worth about 1.1 million euros, the UdK has turned its heating, cooling and lighting over to Siemens to renovate.

In return Siemens gets to keep a substantial part of the savings that the scheme generates: since 2004 it has cut energy consumption by about 28 percent each year, reaping annual savings of about 240,000 euros.

After the 10-year contract expires and the renovation has been paid for, the university gets to keep all the savings.

Siemens is eager to expand the contracting business because it expects clean-tech revenues to outpace overall sales growth in the years ahead. It has set a target of raising sales of green technologies and products to more than 40 billion euros by 2014 from 28 billion euros in its 2010 fiscal year.

"We're doing a tremendous amount of business in energy contracting and it's definitely a growing sector," said Rudolf Siegers, chief executive of Siemens Germany.

The global market for making buildings energy efficient is estimated to be 17 billion euros, according to Siemens. Buildings are responsible for about 40 percent of the world's energy consumption and thus greenhouse gases.

Other companies are also using energy performance contracting to tap new business.

Another rival, Johnson Controls, did the energy retrofit of another landmark building in Berlin, the Jewish Museum, in 2011. It cut energy costs by 45 percent and reduced CO2 emissions from the building by 55 percent.

STRONG DEMAND

"It's an economical matter as much as an ecological one -- with every building we make more energy efficient costs go down," Siegers told a group of journalists inspecting the modern heating equipment installed in the university building, which dates from 1880.

Siemens replaced the antiquated heating, air conditioning and 1960s lighting equipment with state-of-the-art systems. It introduced smart technology and upgraded the ventilation to save 4,680 megawatts of energy each year.

The demand for energy contracting is especially strong in Germany, where one in four of Siemens' energy contracting deals has been completed.

Growth is expected to remain strong in part because the appetite for energy remains high in the world's fourth largest economy -- especially after the German government decided this year in the wake of the Japanese nuclear disaster to shut down all its nuclear power plants by 2022.

Projects like this will also help Germany reach its target of reducing its greenhouse gas emissions by 40 percent from 1990 to 2020, an issue in the public spotlight ahead of the November 28-December 9 U.N. climate conference in Durban, South Africa.

Germany has already cut its CO2 emissions by 25 percent -- the country being a world leader in renewable energy gets 20 percent of its electricity from renewables. It hopes to raise that to 40 percent by 2020.

"The government's energy policy is a good motor for the German economy and green businesses to be more competitive -- and I think the government's goals to reduce carbon emissions can be reached," Siegers said.

Siemens has done energy contracting deals on 4,500 buildings around the world, including such landmark facilities as the Frankfurt national library and Dresden's central rail station. Sales are well over 100 million euros and rising, Siemens says.