Energy Performance Contracts


What is Energy Performance Contracting?

Energy performance contracting (EPC) is a specific type of contract between an Energy Service Company (ESCO) and the recipient of this service, which may also be a public authority. ESCO are specialized companies, who are paid from achieved savings.

The essence of the EPC is the provisioning of service in the form of guaranteed energy savings with respect to the current energy balance of property owned by the state entity, for which the ESCO is entitled to agreed compensation. The ESCO undertakes to take measures on the building (i.e. replacement of the boiler, windows, insulation, etc.) that will lead to reduction in energy usage. The ESCO guarantees the amount of such savings. Instead of paying for energy, the public authority pays for guaranteed savings. The benefit for the public authority is lower spending on consumed energy.

In a simplified way, ESCOs are paid from achieved savings

 

EPCs have many similar characteristics to PPP projects (Public Private Partnership). The basic common feature is cooperation between the public and private sector. EPCs should be recorded off-balance sheet for the government (when the Eurostat’s conditions are met). This means that such projects do not affect the Maastricht debt calculated by the ESA 2010 methodology.

Contracts to deliver energy efficiency improvements through substantial refurbishment, renovation or upgrade of existing infrastructure could, in some circumstances, be interpreted as falling within the scope of Eurostat’s rules on PPPs. This is because rules on PPPs are stated to apply where the amount of capital expenditure in the refurbishment of an existing asset represents 50% or more of the value of the asset after completion of the works.


Benefits of EPCs in the public sector

  • Significant potential to modernize and refurbish public buildings without the need for public funds
  • Renovation of public buildings combined with a more environmentally friendly approach
  • The ESCO has to provide the technical and the financing solution to the public body
  • Focus on the concept of ‘economic ownership’ - the majority of risks and awards
  • ESCOs are paid from achieved savings

NO Energy savings = NO payments to ESCO