Frequently Asked Questions

Active Managed Buildings withEnergy Performance Contracting

Energy performance contracts (EPC) are a form of financing capital improvements and energy upgrades using the financial savings resulting from the energy savings measures. Under an EPC, an external organisation (typically an ESCO) implements an energy-saving project, or a renewable energy project, and uses the stream of income from the cost savings, or the renewable energy produced, to repay whole or part of the project.

Essentially the ESCO will not receive its payment unless the project delivers the expected energy savings. The approach is based on the transfer of technical risk from the client to the ESCO based on a performance guarantee given by the ESCO. In energy performance contracting, ESCO remuneration is based on demonstrated performance; a common measure of performance is the level of energy savings.

 

You may find EPC related terminologies here.

An ESCO is a company that offers energy services which may include implementing energy-efficiency projects (and also renewable energy projects) and in many cases on a turn-key basis. The three main characteristics of an ESCO are:

 

  • ESCOs guarantee energy savings and/or provision of the same level of energy service at a lower cost. A performance guarantee can take several forms. It can revolve around the actual flow of energy savings from a project, can stipulate that the energy savings will be sufficient to repay monthly debt service costs, or that the same level of energy service is provided for less money
  • The remuneration of ESCOs is directly tied to the energy savings achieved
  • ESCOs can finance, or assist in arranging to finance for the operation of an energy system by providing a savings guarantee

 

Therefore ESCOs accept some degree of risk for the achievement of improved energy efficiency in a user’s facility and have their payment for the services delivered based (either in whole or at least in part) on the achievement of those energy efficiency improvements.

Under an EPC arrangement, an external organisation (e.g., ESCO) implements a project to deliver energy efficiency, or a renewable energy project, and uses the stream of income from the cost savings, or the renewable energy produced, to repay the costs of the project, including the costs of the investment. Essentially the ESCO will not receive its payment unless the project delivers energy savings as expected. The approach is based on the transfer of technical risks from the client to the ESCO based on performance guarantees given by the ESCO. In EPC ESCO remuneration is based on demonstrated performance; a measure of performance is the level of energy savings or energy service. EPC is a means to deliver infrastructure improvements to facilities that lack energy engineering skills, manpower or management time, capital funding, understanding of risk, or technology information. Cash-poor, yet creditworthy customers are therefore good potential clients for EPC.

To be successful, a match is needed between on the one hand the building centric stakeholders, that will offer flexibility, and on the other hand energy system stakeholders (like aggregators and DSOs) that will need/want flexibility.

 

Energy Performance Contracting has been commonly regarded as a critical and valuable energy conservation mechanism in urban development, under which an energy service company (ESCO) provides an energy-saving service to the building energy manager/ energy user with who also shares the energy cost-savings. Therefore, the implementation of an EPC project can bring ESCOs the most of energy-saving benefits so as to recover their investment and secure some profits.

 

However, in the EPC project implementation process, there are some other groups and sectors that have impacts on the project operation, including policymakers, banks, motor manufacturers, third party power saving auditing companies (Real Estate) and SMEs.