Energy Performance Contracting (EPC): a fair energy service business model


What is EPC?

According to the Energy Efficiency Directive 2012/27/EU, EPC is “a contractual arrangement between the beneficiary and the provider of an energy efficiency improvement measure, verified and monitored during the whole term of the contract, where investments (work, supply or service) in that measure are paid for in relation to a contractually agreed level of energy efficiency improvement or other agreed energy performance criterion, such as financial savings” (art. 2, para. 27), but also energy savings.

The financial savings include reduction in costs of energy provision and can also include reduction in other operational costs, such as costs of maintenance and workforce. Instead of being price-driven, energy performance contracts are performance (results)-driven.

EPC may also include a whole customised energy service-package, consisting of planning, building, operation and maintenance, optimisation, efficient energy supply, efficient energy trnsformation, (co-)financing and user behaviour.

Why implement EPC Projects in buildings?

  • to reduce energy bills despite of increasing energy prices
  • to stay competitive by implementing sustainability
  • to create healthier living and working conditions
  • to make buildings climate resilient.

Why trust ENACE for the elaboration and management of an EPC Project?

ENACE stands for high quality services provided by competent staff disposing of the necessary technical, commercial, legal and financial know-how and skills. Additionally, as a signatory of the EPC Code of Conduct (http://ec.europa.eu/energy/efficiency/financing/doc/2014_european_code_of_conduct_energy_performance_contracting.pdf), ENACE adheres to the principles of ethical business contact, thus making sure that the EPC Project is managed in an effective, professional and transparent manner.

How does  ENACE help to effectively implement EPC?

As a core stakeholder in the Energy Performance Contracting Campaign of the European Union (EPCC, http://ec.europa.eu/energy/efficiency/financing/campaign_en.htm), ENACE contributes to ensure better understanding of EPC, thus increasing confidence in the reliability and effectiveness of this business model based on investments financed by savings.

By doing so, ENACE works hand in hand with the European PPP Expertise Centre (EPEC, http://www.eib.org/epec/index.htm) in strengthening the ability of the public sector to engage in Public Private Partnership (PPP) transactions.

More precisely, within the SuSoh Project  (www.susoh.eu) ENACE organizes capacity building events on the national level and online about innovative financing models such as EPC in the Social housing area (Nov.14-Oct.15), in close cooperation with our partners (Housing Europe, Power House, AVS, PU Europe and Cype) and sister projects such as BRICKER http://www.bricker-project.com, EESI http://www.european-energy-service-initiative.net/eu/project.html, EESI2020 http://eesi2020.eu, EU GUGLE http://eu-gugle.eu/es/project/, FRESH http://www.fresh-project.eu/project/, iNSPiRe http://www.inspirefp7.eu and Transparense http://www.transparense.eu/eu/home/welcome-to-transparense-project,

Which risks are related to EPC?

EPC-related risks are of two types, technical and financial. They lie with the EPC provider (or Energy Service Company, ESCO), which commits to guarantee the “conctractually agreed level of energy efficiency improvement”. If the EPC Project fails to achieve this quantified, contractually agreed performance, the EPC provider (or ESCO) has to compensate the shortfalls in savings. If on the contrary, excess savings are achieved at the end of the contract, they shall be shared in a fair manner such as foreseen by the contract.

Savings are to be determined by Measurement and Verification (M&V) using appropriate methodology (such as the International Performance Measurement and Verification Protocol or IPMVP® Protocol, http://www.evo-world.org/index.php?option=com_content&view=article&id=272&Itemid=379&lang=es).

What can the customer expect from the EPC Provider?

The EPC Provider (or ESCO) takes the technical risk and guarantees the financial and energy savings. The ESCO usually is paid a management fee out of these savings. However, no payment is made if no savings are achieved.

Which requirements have to be met by the customer?

Successful implementation of an EPC Project requires a working partnership based on trust and confidence. This implies a relationship between the customer and the EPC Provider that is characterized by fairness, transparency and a close collaboration on the long term.

Who finances EPC Projects?

The capital to finance EPC Projects may originate from the customer, the EPC Provider or a third party (such as a public or private bank). Examples of financing instruments available in Spain are the Fondo JESSICA-FIDAE, the PAREER programme of IDAE, Equity Funds such as the Green Building Equity Fund (http://www.ascri.org/noticia.php?seccion=3&subseccion=1&ID_NOTICIA=7066&busc_palabra=&busc_mes=&busc_anio=) , Financing lines made available by ICO (https://www.ico.es/web/ico/ico-comercio-minorista), “Seguro de Eficiencia Energética” (http://www.clustereficiencia.cat/framework/uploads/presentaciceecjornada4062013ceecdef.pdf).

What are the main barriers to effective EPC implementation in Spain?

  •  EPC is a relatively new service which is perceived as being complicated due to the lack of clear information
  •  Transparent presentation of good practice examples is lacking
  • More adequate financing schemes are needed
  • Need to train EPC facilitators in financial institutions, public administration, ESCOs
  • Procedural barriers linked to the fact that in the national accounting system investments in energy efficiency measures are considered as deficit
  • Lack of trust in EPC Providers (or ESCOs) due to the absence of binding national rules as to accreditation of energy service providers (and thus absence of control)

How can these barriers be overcome?

  • building trust by striving for high quality energy services
  • committing to respect the values and principles of the European EPC Code of Conduct
  • the public sector leading by example
  • creation of innovative public-private partnerships

Links to related documents

European Commission Joint Research Centre Institute for Energy and Transport, The European ESCO Market Report 2013, edited in 2014 by Paolo Bertoldi, Benigna Boza-Kiss, Strahil Panev, Nicola Labanca, available at  http://iet.jrc.ec.europa.eu/energyefficiency/publication/european-esco-market-report-2013

Gobierno de Navarra, Departamento Economía, Hacienda, Industria y Empleo, Guía práctica de contratación de servicios energéticos con garantía de ahorro, 2013, http://www.navarra.es/NR/rdonlyres/983FDCD8-746E-4F70-8490-79187CF6F42B/0/GuiaPractica.pdf

Ministerio de Industria, Energía y Turismo, Secretaria de Estado de Energía, Plan Nacional de Acción de Eficiencia Energética 2014-2020, http://www.f2e.es/es/espana-presenta-el-plan-nacional-de-accion-de-eficiencia-energetica-2014-2020-a-la-comision-europea

ESCAN, Various documents about EPC implementation in Spain published in the framework of the Transparense Project are available here  http://www.transparense.eu/es/pagina-principal/bienvenido-al-proyecto-transparense