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What is EPC

Energy Performance Contracting (EPC) can provide substantial energy savings in the EU countries using the principle of repaying the energy efficiency investments directly from the saved energy costs.

A typical EPC project is delivered by an Energy Service Company (ESCO) and consists of the following elements:

  • Turnkey service – The ESCO provides all of the services required to design and implement a comprehensive energy efficiency project at the customer facility, from the initial energy audit through long-term Monitoring and Verification (M&V) of project savings.
  • Comprehensive measures – The ESCO tailors a comprehensive set of measures to fit the needs of a particular facility, and can include energy efficiency, renewables, distributed generation, water conservation and sustainable materials and operations.
  • Project savings guarantee – The ESCO provides a guarantee that the savings produced by the project will be sufficient to cover the cost of project financing for the life of the project.
  • Project financing – The ESCO usually arranges for long-term project financing that is provided by a third-party financing company, typically in the form of a bank loan.

Energy Performance Contracting allows facility owners and managers to upgrade ageing and inefficient assets while recovering capital required for the upgrade directly from the energy savings guaranteed by the ESCO. The ESCO takes the technical risk and guarantees the savings.
The ESCO is usually paid a management fee out of these savings (if there are no savings, there is no payment) and is usually obligated to repay savings shortfalls over the life of the contract. At the end of the specific contract period the full benefits of the cost savings revert to the facility owner.
While there is a vast number of definitions of EPC within Europe, the Energy Efficiency Directive 2012/27/ (EED) finally provided EU wide definition as follows:

energy performance contracting means a contractual arrangement between the beneficiary and  the provider of an energy efficiency improvement measure, according to which the payment for the investment made by the provider is in relation to a contractually agreed level of energy efficiency improvement or other agreed energy performance criterion, such as financial savings”.

Further, EED, lists „guaranteed savings“ as one of the minimum items to be included in EPC model contracts (defined by Annex XIII).