What are Energy Performance Contracts?
Introduction to Energy Performance Contracts (EPCs)
An energy performance contract (EPC) is a type of agreement between a customer and an energy service company (ESCO). The customer agrees to pay the ESCO for energy efficiency improvements that are guaranteed to save a certain amount of energy over the contract period.
EPCs originated in the United States in the early 1990s as a way to finance energy efficiency upgrades in commercial buildings. Over time, the use of EPCs has expanded to include other sectors, such as industry, transportation, and even residential customers.
There are three main types of EPCs: prescriptive, performance-based, and shared savings.
A prescriptive EPC is the most common type of contract. In this type of agreement, the ESCO provides the customer with a list of recommended energy efficiency measures (EEMs). The customer then pays the ESCO for implementing those EEMs.
In a performance-based EPC, the ESCO agrees to achieve certain energy savings targets set by the customer. The customer pays the ESCO based on how much it actually saves.
In a shared savings EPC, both the customer and ESCO share in anyenergy cost savings achieved during the contract period. This type of contract gives both parties an incentive to work together to save as much energy as possible.
EPCs can be used to finance a wide range of EEMs, such as upgrades to lighting, HVAC
What are the benefits of an EPC?
An energy performance contract (EPC) is a type of agreement between a customer and an energy service company (ESCO). The ESCO agrees to provide a certain level of energy savings for the customer over a period of time, usually 5-10 years. In return, the customer pays the ESCO based on the amount of energy saved.
The main benefit of an EPC is that it provides a way for customers to finance energy efficiency improvements without any upfront costs. The payments are made based on actual energy savings, so there is no risk for the customer. Customers can also feel confident that they will receive the promised energy savings, since the ESCO is contractually obligated to provide them.
In addition, EPCs can often be used to finance other types of improvements, such as solar panels or water conservation measures. This makes them a versatile tool for financing sustainability initiatives.
What types of projects are eligible for an EPC?
There are many types of projects that can be eligible for an Energy Performance Contract (EPC). Some common project examples include:
-Improving the energy efficiency of an existing building
-Constructing a new energy efficient building
-Installing renewable energy systems such as solar PV or wind turbines
-Upgrading an existing heating or cooling system to a more efficient model
– Implementing an energy management system
To be eligible for an EPC, a project must aim to improve the energy efficiency of a building or buildings. The improvement must be measurable and there must be a clear financial benefit to the client from implementing the project.
How does an EPC work?
An EPC is a contract between a government entity and an energy services company (ESCO). The contract stipulates that the ESCO will provide certain energy-saving improvements to the government entity’s facilities and/or operations, and guarantee that the improvements will result in energy cost savings for the government entity over the term of the contract. In return, the government entity agrees to pay the ESCO a portion of the energy cost savings realized.
The ESCO designs, implements, and commission Energy Conservation Measures (ECMs) at no up-front cost to the government entity. Common ECMs include lighting retrofits, HVAC upgrades, water conservation measures, etc. The ESCO guarantees that the ECMs will result in specified energy cost savings over the term of the contract, typically 5-7 years. In some cases, an EPC may also include operation and maintenance (O&M) of installed equipment as part of their service agreement.
During the performance period, utility bills are paid by the government entity as usual. The ESCO collects data on energy consumption (e.g., via monthly utility bills) to track progress towards guaranteed energy cost savings targets. At the end of each year or billing period, any shortfall in guaranteedenergy cost savings is paid by the ESCO to the government entity; any surplus is retained bythe ESCO as additional revenue. At project completion or termination, ownership of all ECMs generally transfers tothe government entity unless otherwise specified in the
Are there any drawbacks to an EPC?
Yes, there are some drawbacks to an EPC. First, they can be complex and expensive to set up. Second, they typically only cover a portion of the total energy usage for a building, so there may still be significant energy costs not covered by the contract. Finally, the savings from an EPC may not materialize as quickly as hoped, and the contractor may not be willing or able to make up the difference.
Conclusion
Energy Performance Contracts can be an effective way for businesses to improve the efficiency of their energy systems and reduce costs without having to invest large sums upfront. By working with a qualified energy expert, businesses can identify areas of improvement that will not only lead to reduced costs but also improved environmental performance. Ultimately, Energy Performance Contracts provide business owners with an opportunity to make significant improvements in their energy usage while saving time and money.
