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.
The key characteristics of an EPC project are the following:
- Turnkey service: The energy service company (ESCO) provides all services required to design and implement a comprehensive energy saving project at the customer's facility, from initial energy audit to measurement and verification of savings.
- Without the need for up-front capital: Energy efficiency investments are repaid directly from energy savings and related financial savings, so there is not need for up-front capital on the customer's side.
- Risks for customers minimized: The ESCO assumes the contractually agreed performance risks of the project.
- Savings guaranteed: The ESCO guarantees the achievement of the contractually agreed level of savings and is obliged to compensate savings shortfalls.
- Support in finding financing: The capital to finance the EPC project can either be supplied out of the Client's own funds, by the EPC provider or by a third party. Provision of financing by the EPC provider is an option, not a necessary part of the EPC project.
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, within Transparense project we use the EU wide definition provided by the Energy Efficiency Directive (EED):
"'energy performance contracting' means 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;".
At the same time, within Transparense project, the focus will be given to the EPC projects, where the above mentioned "contractually agreed level of energy efficiency improvement" is guaranteed by the EPC provider. Guarantee of energy efficiency improvement is commitment of the service provider to achieve a quantified energy efficiency improvement. (EN 15900:2010)
This is in line with the EED, as in its Annex XIII, guaranteed savings are listed among the minimum items to be included in energy performance contracts with the public sector or in the associated tender specifications. Moreover, in the article 18 of EED, Member States are required to promote the energy services market and access for SMEs to this market by, inter alia, disseminating clear and easily accessible information on available energy service contracts and clauses that should be included in such contracts to guarantee energy savings and final customers' rights.
Further, within the Transparense, we define the companies providing EPC as follow:
" 'EPC provider' means a natural or legal person who delivers energy services in the form of EPC in a final customer's facility or premises"
Such definition respects the fact that EPC is only one type of energy services, and is in line with the definition of the energy services provider specified in the EED as follows:
" 'energy service provider' means a natural or legal person who delivers energy services or other energy efficiency improvement measures in a final customer's facility or premises", where the 'energy service' is defined by the EED as follows: "the physical benefit, utility or good derived from a combination of energy with energy-efficient technology or with action, which may include the operations, maintenance and control necessary to deliver the service, which is delivered on the basis of a contract and in normal circumstances has proven to result in verifiable and measurable or estimable energy efficiency improvement or primary energy savings".
Within the Transparense texts, we use the commonly used term "ESCO" as equivalent of the energy service provider.