Disclaimer: The sole responsibility for the content of this paper lies with the authors.
It does not
necessarily reflect the opinion of the European Union. The European Commission is not
responsible for any use that may be made of the information contained therein.
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Standard EPC documents
Questions & Answers
European Energy Service Initiative EESI
IEE/08/581/SI2.528408
May 2011
Prepared by
Berliner Energieagentur
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1 11 1 Chances with Energy Performance Contracting
EPC and energy services in general are often characterised as a win-win models.
In the past, the fact that the contractor takes over the investment has played a major role in the
eyes of the implementing public clients as it meant a relief for the building owner's capital budget.
As a matter of fact, however, implementation EPC projects means numerous other benefits as well
for the potential clients:
+ The building owner / client does not need to use own funds, in this way transferring its own
investment risk.
+ Modernisation of the plants improves energy efficiency and thus also increases operating
reliability and security of supply, while energy costs and environmental pollution are reduced.
+ The ESCO's technical know-how and professional energy management are used.
+ The building owner / client is relieved of essential planning and operating work. More time
remains for its own core tasks.
+ Value, productivity and comfort of the building(s) are enhanced.
+ A number of individual areas (planning, financing, construction, operation, maintenance) are
covered from one source. This enables a considerable reduction of the number of interfaces.
+ Additional services such as user motivation and training measures can be contractually
stipulated.
+ Contract elements assign commercial and technical risks to the ESCOs to a large extent.
In particular, the valuation of the saving guarantee is to be highlighted. It accounts for the essential
additional benefit compared to solutions under own management and is the pre-eminent quality
feature of energy saving contracting, which is also emphasised in the European Rules and
Regulations.
Clients who do EPC on a regular basis additionally appreciate the model's flexibility, combining
compulsory measures or other special requirements with EPC.
Of course, the ESCO also has advantages. It gains its entrepreneurial profit through the projects
carried out and secures highly qualified jobs for designers, technicians and engineers. The local
labour markets, in particular executing craftsmen and engineering firms, profit from the
subcontracts which are usually awarded locally during implementation.
The use of EPC is not a guarantee of success but EPC provides a lot of options and chances. As with
other projects as well, what finally matters is correct application and carrying out in the individual
case.
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2 22 2 Question and Answers
? Can any building possess the potential energy savings to make it a good candidate for an EPC?
In principle, saving potentials arising from economic and technical improvement can be found in
almost any building. This has been verified by successful EPC projects in buildings which have been
renovated just recently. For small buildings that have low energy costs it should be checked in a
simple rough examination whether the expenditure for an EPC tender is appropriate in relation to
the possible saving. The formation of pools of smaller buildings may be appropriate to create
properties that make invitations to tender viable. Apart from the size of the project, continuous use
of the building and guaranteed continued existence are essential criteria to determine suitability.
? Are long-term contracts a risk for the building owner?
An EPC usually lasts between 5 and 15 years, depending on the situation surrounding the building:
i.e. how much is to be invested and to what extent the building owner can participate. It can
generally be said that the longer the contract lasts, the further the energy saving investments go.
Competent selection of the building for EPC can prevent the occurrence of organisational problems
during the contract term. Apart from that, long-term contracts may well be advantageous to the
client: the ESCO's investment becomes more sustained as it has to guarantee for a long term the
function of the installations brought in and the measures taken. Consideration of this fact is of high
economic relevance and requires appropriately long terms of contract.
However the contract will only run smoothly if the tendering process and contract ensure a solid
assessment of the current situation and form a clear definition of the tasks and obligations.
? Can energy saving measures be carried out just a well by the owner itself?
Certainly! Whether the implementation of energy saving measures by a public administration under
its own management is possible or even more advantageous will usually depend on three factors:
+ The liquidity of the capital budget
+ The building owner's expert know-how and capacities
+ The given purchase conditions for construction and planning services
However, the conclusion of an EPC contract offers decisive advantages. Reduction of energy
consumption and costs is contractually guaranteed, the ESCO bears the economic risk. It raises the
capital for the investment and commits itself contractually to reduce the energy costs by a certain
amount. Own management and EPC are by no means conflicting. On the contrary, a partnership of
internal energy management with external ESCO may achieve an optimisation of the energy saving.
? Does purchasing the ESC service entail personnel cuts?
This argument is basically not inconsistent with performance contracting projects, as existing
external know-how can be integrated into existing management structures without a problem. On
the contrary, optimisation may thus be attained by combining internal and external energy
management
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Furthermore technical staff play a central role in project development and implementation because
they are the interface between the building owner and the contractor. New areas of responsibility
are added, such as project controlling. At the same time, employees are relieved, primarily with
regard to maintenance and optimised operation of the energy saving measures. Technical staff is
given more freedom to care for operating reliability and technical service.
? By outsourcing the energy management, does the building owner hand over control of
building services and operation management?
On the contrary. The building owner becomes the owner of all new investments and remains in
charge of overall operation management (as before). The ESCO is specifically responsible for
incorporation and operation of the energy saving investments. However, when designing the
contract the building owner may choose interfaces which are especially favourable to it, e.g. with
regard to the maintenance of plants, so that just one partner is responsible for the building services
instead of several maintenance companies.
? Are project preparation and development not much too complicated and time-consuming?
Successful implementation of an EPC project is critically dependent on careful project preparation
and development. Already at the start of the project, all parties to it should be involved in the
process in order to achieve transparency and acceptance internally. As in many cases, the following
is true: The better the preparation, the more convincing the result. External consultants that have
many years of experience with EPC tenders may help less experienced public clients. Usually, the
expense required for project preparation is covered by the energy and operating cost saving of the
first years gained through the EPC.
? What happens when energy prices change?
The contract provides for a so-called adjustment of prices. The ESCO is remunerated only against
proof of the kilowatt hour saving which it actually achieves at a fixed reference price. It does not
have an influence on the supply contracts and the energy prices. The building owner (as before) will
profit from lower energy prices in the same way as it will have to pay more if prices increase
however, with a guaranteed reduced energy consumption. In the likely event of energy prices rising
in the long term, the model is even especially client-friendly. The client pays a fixed price today for
the saving which may be worth twice as much in the future.
? What happens on expiry of the contract?
First, a final audit is performed at the end of the contract in which the building owner convinces itself
that the plants and installations are in a technically perfect condition in accordance with their age.
After that, it may take over the management of the plants and be the sole beneficiary of the saving.
Experience has shown that subsequent operation management contracts or even a new EPC tender
may help the client secure the saving level or even enable additional saving.
