What is an “Energy Performance Contract (EPC)?”
An EPC is based upon a detailed feasibility study similar to a detailed Energy Audit described in Step 4 above. It typically consists of a technical report outlining potential energy savings, a proposed form of contract, and the formula for identifying and measuring savings throughout the contract term. Recommended ECMs are converted into a savings guarantee that becomes part of the terms and conditions of the EPC. Thus, an EPC is like an outsourcing arrangement for energy efficiency where the contractor (EQUIDEX Energy) takes total responsibility for achieving projected savings. This is the only form of energy management consultancy where it is possible to obtain a guarantee that a certain level of energy savings will be achieved. Different levels of performance can be guaranteed; a single savings measure, a whole building, or an entire organization. Of course, larger contracts may be more cost effective. There are a number of different types of EPCs, but all share the following common features:
• The EPC contractor (often called Energy Services Company or “ESCO”) enters into a long term (5-10 year) relationship with the Customer.
• Benchmark energy performance levels are defined and energy efficiency upgrades are identified and implemented by the EPC contractor.
• The EPC contractor carries all risk that the energy efficiency upgrades will perform as specified rather than the customer.
Thus, EPCs are a way to achieve energy efficiency without the capital costs or risk and responsibility of implementing and maintaining the energy savings project. This contrasts with traditional energy management measures that customers design and install at their own risk and expense.
Types of Energy Performance Contracts
There are many different types of EPCs. The basic models in use are as follows:
• Shared Savings – The customer shares savings from a particular efficiency measure with the performance contractor over a fixed time period. The contractor uses its share of savings to pay for the costs associated with the original upgrade, monitoring and associated costs. At the end of the contract, the customer has the benefit of the on-going savings.
• Guaranteed Savings. Under a guaranteed savings contract, the performance contractor guarantees a minimum level of savings, beyond which savings are shared with the customer.
• First-Out. Under a first-out contract, the energy performance contractor takes all the savings until the contractor has recovered its costs. Once these costs are paid, the contract terminates and on-going savings revert to the customer.
• Chauffage. Under a chauffage contract, the energy performance contractor (usually an ESCO), charges a fixed fee and provides the required energy services. Instead of directly paying electricity, gas and maintenance bills, the customer pays a single fee to the ESCO and receives a guaranteed level of service for all energy-related overheads.
• Supply-Side Contracts. These are closely related to the chauffage contract but cover the provision of derivative forms of energy rather than energy services. A typical arrangement would be the sale of steam from a boiler house at a fixed cost per unit or the use of bio-fuel derived from an on-site process.