What is an Energy Performance Contract?
An Energy Performance Contract (EPC) is the exchange of guaranteed energy savings for financial consideration (money). EPCs are delivered by Energy Services Companies (ESCOs) who are experts in delivering energy efficiency upgrades. For the customer, EPCs can pass technical and financial risk to the ESCO courtesy of the guaranteed savings and turnkey project delivery. However, distributing this risk outside of the your organisation means there is a complex contract that needs to be managed.
EPCs are popular for Government bodies and medium-large businesses as they can handle the contractual complexity and prefer to distribute risk to the party more qualified to handle it (the ESCO). If done properly, EPCs are a highly effective way to deliver guaranteed energy savings. If done poorly, EPCs can become contractually cumbersome and costly, delivering only a small portion of the guaranteed energy savings with limited recourse to the customer.
What are the elements of an EPC?
During the procurement phase, there is typically an Expression of Interest , Request for Proposal and a Detailed Feasibility/Facility Study. Following the submission of the Detailed Facility Study, the customer selects whether to sign an EPC or not. Typically, only three ESCOs are invited to participate in the Request For Proposal phase and a single ESCO is selected to deliver the Detailed Facility Study and EPC. Industry standard forms of EPCs are publicly available to assist in delivering these types of projects.
There are two critical components that are custom for every EPC. The Detailed Facility Study, which outlines the efficiency measures that are going to be installed and the savings they will achieve, and the Measurement & Verification (M&V) Plan, which details how the ESCO will prove that the energy savings are achieved.
Why wouldn't you want a performance guarantee for your energy efficiency project?
That’s a fair question but there are times when a performance contract is not the best option. It may sound like common sense: EPCs should be used when the primary purpose of the contract is to deliver energy performance. For small, simple projects, using EPCs adds a layer of administrative burden and complexity that isn’t necessary. On the other end of the spectrum, don’t try to use an EPC for a type of project that isn’t focused on energy performance. Contracts that aren’t fit for purpose cause projects to take longer, be more complex and result in poor outcomes for both you and the contractor.
Here are some project examples:
My organisation is installing a single proven technology requiring a small-medium investment. Is an EPC suitable?
No – additional EPC cost/complexity is to the detriment of project
My organisation is trying to achieve energy savings involving a mix of technologies and large investment. Is an EPC suitable?
Yes – there is an energy performance focus. An EPC will give certainty to your investment.
My organisation is trying to achieve energy savings but also do a major building redevelopment unrelated to energy savings. Is an EPC suitable?
No – an EPC is not fit-for-purpose for major redevelopments unrelated to energy savings.
Organisations that don’t have the in-house expertise in delivering complex contracts may find EPCs overwhelming. So how do you get certainty of energy savings in this case?
Option 1: Employ an expert who has experience delivering these style of contracts.
Option 2: Use the same components of an EPC, without the guarantee, with a well regarded ESCO.
This post is a snippet from our two-part guide that will help you achieve your sustainability goals through energy efficiency upgrades.