About EPC

The application span of Energy Performance Contracting involves the entire building - as one incorporated energy consuming unit.

It is a type of long term contractual agreement where the customer benefits from new or upgraded energy equipment and the ESCO´s remuneration is directly tied to the savings achieved by the reduced energy consumption. The costs of investment is paid back from the savings, and in case the ESCO fails to achieve that, they must cover the difference between the actual and the guaranteed costs.

Why EPC

EPC is more than funding model. It is a programme of practical engineered energy efficiency measures that are implemented in buildings to deliver real energy savings such as HVAC, lighting, energy management, peak load management, thermal insulation, controls and building fabric improvements. The intention is to keep the toal energy consumption to a minimum - by way of demand side energy efficiency methods.

To ensure promised energy saving have been achieved over the contract duration, a procedure termed "measurement and verification" is used. Adhering to an internationally recognized protocol such as the International Performance Measurement and Verification Protocol (IPMVP), customers can be assured that guaranteed savings have actually been delivered despite changes to the climate, the building and its use over time.

The key benefits include risk transfer, the ability to modernise a building's energy infrastructure without necessarily having the funds and accessing external expertise. They key focus is on saving energy at the point of use first, beforde optimizing the supply of that energy.

EPC in a nutshell

• EPC is completely self funding.
• It includes a guarantee that transfers financial and equipment performance risk to the Energy Service Company (ESCO). If the savings target is not achieved, the ESCO pays for the difference.
• EPC brings immediate improvements. Existing buildings are upgraded with modern, energy-efficient and reliable equipment. The comfort conditions are improved. The energy savings targets can be achieved.
• EPC does not need additional personnel.
• EPC is a proven process.

Barriers to the adoption of EPC

• Lack of awareness of what EPC is in both the public & private sectors
• Government energy focus is on energy generation & supply rather than demand-side energy efficiency improvement
• Procurement difficulties – most procurement people are comfortable with price-based procurement rather than results-based procurement, Procurement process for EPC not understood, limited procurement vehicles for EPC, complexity of procurement process
• Selective financing of EPC projects by finance companies/banks
• Lack of policy push and incentives by EU/Governments
• Suspicion of third party finance solutions among the public sector – afraid they will be ‘ripped off’
• Reliance by public sector on government funding programmes for energy efficiency improvements
• Accounting & budgetary rules
• Discouraging investment taxation rules
• Few experienced ESCOs able to offer EPC in Europe on wide scale incl guarantees with measurement & verification
• Few case studies and references
• Need for contract vehicle that is mutually beneficial for customer & ESCO
• Lack of legislation - for example in Italy the current legislation makes EPC on public buildings impossible
• Lack of information - in many cases EPC are not being done because people just don't know what the benefits are
• Lack of test projects - in some cases without a test case in a country, no public authority wants to take the risk to be first to try EPC