Energy performance contracting 101

Energy performance contracts (EPCs) are an integrated energy services model delivered by an energy service company (ESCO). The ESCO undertakes both the design and installation stages of the project, and effectively operates as a head contractor, sourcing and managing the suppliers of technologies and services.

Under an EPC, the ESCO is contractually obliged to achieve a minimum level of energy savings, or to pay a financial penalty to the customer, thereby guaranteeing savings. This reduces the financial risk to the business, as the ESCO assumes the risk of each project.

EPCs incorporate a measurement and verification (M&V) plan, which is agreed prior to contract signing, and forms the basis for the savings guarantee.

With an EPC, a business can make the energy upgrades needed now – with no or limited up-front capital – and pay for the upgrade once energy savings have been realised.

Given the detailed nature of an EPC, this sort of service agreement is typically only suitable for large businesses and large projects, which is why EPCs are popular in the United States. While they have gained traction in Australia’s public sector over the last decade, the market for EPCs in Australia is still developing.

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