Performance Contracting Summary Report (2003)

Energy performance contracting (EPC) is a wide variety of mechanisms, which, by rationally using the knowledge of energy professionals, opens up opportunities for property owners to install more energy-efficient equipment and systems in their buildings without tying up their own capital. Projects performed give examples of energy savings in buildings by 20 to 40 per cent even if some of the savings could be reached also with other energy-efficiency activities. Estimates indicate that the market in some countries could be up to ten times larger than at present. Greater use of these mechanisms could substantially contribute to lowering emissions of greenhouse gases and reducing the risks of a climate change. EPC includes financing alternatives to lower the financial burden for the property owner and, at the same time, reduce the yearly operational costs for energy (alternatively giving more services at the same cost, or using more environmentally friendly sources within the same cost). Better performance is guaranteed by the contractor – the energy service company (ESCO). The objectives of the Task are to facilitate the greater use of performance contracts between professional building owners and all types of companies offering these services. There have been problems to introduce and increase the diffusion of the EPC concept. ESCOs have met hesitation from prospective clients, and policy makers have been slow in launching EPC marketing programmes In this report, the eight countries participating in Task X of the IEA DSM Agreement Finland, France, Italy, Japan, The Netherlands, Norway, Sweden and the United States have identified many problems and barriers but also many good examples and large opportunities. After having summarised the situation in the individual countries, the findings are summarised in this report and suggestions of a number of concrete actions are given in order to facilitate the greater use of energy performance contracting and related mechanisms (see Figure 9, “Introduction and diffusion of EPC: Problems – Actions – Results”). The most important actions are: raising the general credibility of EPC through aimed information, demonstration projects, accreditation of ESCOs, special performance guarantees and process and procurement guidelines. These actions will enlarge the market for all stakeholders working within this area, and EPC will offer an interesting alternative for facility owners. Savings in energy use are used to pay for upgrading equipment and/or investing in new efficient systems, and the remaining savings are shared between the facility owner and the ESCO under the terms of the agreement. Different alternative solutions are presented. The ESCO takes the project performance risk by guaranteeing a specified level of energy savings and/or energy services. The ESCO may also take the responsibility for the financing of the project, either totally or partly, or offer different financing arrangements for the facility owner. In line with many recent EU SAVE reports, Third Party Financing (TPF) is treated in this report as being the same mechanism as EPC. The participating countries represent very different energy situations. Some countries are still very dependent on fossil fuel, resulting in large CO2 emissions per se. Liberalisation and deregulation of the energy market have proceeded at different speed in the Task X participating countries, and experience in EPC-related fields differs. The countries have identified EPC solutions that exist in their country. With the help of national reference groups, which include stakeholders in this area, the national experts have presented different ways of initiating projects through facility owners, government and ESCOs, and have pointed out combinations of obtaining energy savings and offering services and alternative procedures for implementation. A more international market will open new business opportunities. The main barriers and issues for enlarging the market have been identified, including clarification of procurement rules and contract arrangements, guarantees and securities, financing alternatives, and measurement and verification. Experience from countries with EPC programmes and a mature market has been combined with findings in countries with emerging markets when formulating the actions suggested. Substantial activities in the information and educational fields have been proposed in order to create credibility and a positive environment for using the performance contracting mechanism. Incentives and clarifications regarding regulations, accreditation of companies involved in performance contracting and also the measurement and verification process have been suggested, together with model projects in the current Country Plans.