What is Energy Performance Contracting (EPC)? EPC is a form of creative financing for capital improvement which allows funding energy upgrades from cost reductions. Under an EPC arrangement, an external organisation (Energy Service Company - ESCO) implements a project to deliver energy efficiency, or a renewable energy project, and uses the stream of income from the cost savings or the renewable energy produced to repay the costs of the project.
Even though the concept is a feasible solution for financing challenges, it is not simple to put it into practice. Thus, platforms such as PROSPECT: Peer Powered Cities and Regions, a peer-to-peer learning project facilitated and funded by the European Commission – Horizon 2020 Programme, are designed in order to foster the sharing of knowledge, skills, and competencies among local and regional authorities. Inside the PROSPECT project, we find many successful cases, as it is the partnership between EnergaP - Energy Agency of Podravje- (SI) as a mentor for the Portuguese municipality of Loures for EPC in Public Lighting.
The first step of the Learning Programme started on the 21st of June 2018, both groups participated in an online session. The Local Energy Agency of Podravje presented the project ‘Establishing markets for the uptake of guaranteed energy services in the form of energy performance contracts’, a work programme aiming at an increased market uptake of guaranteed energy services through raising knowledge, transparency and trust. More specifically, the programme will provide support to concrete projects and promote energy performance contracts (EPC) in 9 European regions by using street lighting refurbishment as a learning and testing ground, fostered by the provision of regional EPC facilitation services. It consists of the following main actions: Internal capacity building and setting up regional ESCO facilitating services; Provision of regional EPC facilitation services; Financing EPC projects; Supporting and implementing real-life procurements of EPC street lighting projects; Applying the knowledge to other EPC applications; European dissemination and networking. The total savings are expected to exceed 32,000 MWh, as well as it is planned that 2 new ESCOs will be established in each of the involved regions.
During Step 2 of the Learning Programme, a second online session took place on the 28th of August 2018. The Mentee presented the project ‘ADAO BARATA PUBLIC PARK’, aiming at the replacement of all the public lighting at a public park for LED technology. The project is currently in the development phase with a total budget of 57,000 €. It is expected that this project will lead to annual monetary savings of 11,000 € and annual emission reduction of approximately 33 tCO2. Specific needs to be addressed during the visit by the mentor were discussed as well.
Portuguese Municipality of Loures visited EnergaP in Slovenia
The physical meeting took place in the City of Maribor on November 22nd and 23rd. Dr Vlasta Krmelj, Director of Energy agency of Podravje, a European Energy Manager and certified expert for energy certificates for buildings has been a wonderful host in Slovenia to Dr Fernando Noivo, Energy Municipality Manager, from Portuguese Municipality of Loures. During the visit, they had the opportunity to talk about all general steps needed to start the procurement for EPC, as well as all necessary clauses a true EPC contract should entail.
After the theoretical part, on both days there was a site visit organised to nearby municipalities, in order to witness three examples of EPC realized in practice. The first visit was to Municipality Radje ob Dravi, where EPC was used to refurbish an old municipality building. This scheme is interesting as it includes public and a private owner which share the building. Also, the municipality has refurbished 486 luminaries, or almost entire public lighting through EPC, making it not only new and modern, but the lighting also changes colours in the ones chosen by citizens as the most attractive. The second day was a day for meeting an EPC project manager, Mr. Tomaž Pristovnik in Slovenska Bistrica, who shared his positive experience of implementing EPCs in 16 of their public buildings.
Replication/Transferability: EPC in public building
The Mentor and Mentee of the group participated in the transferability and evaluation session on the 26th of February 2019.
The project in Loures is now the responsibility of Iolanda Maria Gonçalves de Sousa from the energy efficiency sector in the Municipality of Loures.
A piece of advice concerning the longevity of the EPC is to try to make it around 12 years long, not more than 15! Concerning sharing the investment, at least 20:80 public: private share is advised (not less as it would make the contract too long, and savings are of course less for the municipality).
When trying to convince the city mayor/city council to opt for ESCOS, instead of calculating only the investment, also look at the savings in the management and management of the system. Also, just taking the money from the bank gives you now assurance the savings will be achieved, and all the risk is on the public partner. With EPC, the risk is shared with the private partner, and the private partner is motivated to achieve greater savings.
Rethinking the financing scheme
- Main impressions and understanding about the financing scheme: EPC is not a bank but rather a provider of service. The main thing to look for in an EPC contract is guarantees (for savings, for maintenance for performance).
Key strengths of the financing scheme: It brings in solutions that a public owner does not have access to, and the private partner invests their money. If set up properly, it comes with numerous guarantees.
Key weakness of the financing scheme: If we only observe the money needed for equipment, then EPC is much more expensive. It is a costly contract, but it offers services and level of savings beyond what a public partner can achieve on its own. Setting up a real contract takes time and patience and a dedicated team.
Key steps to set up or develop the financing scheme: Move away from current contracts and way of thinking (it is not about the equipment the public partner wants, but rather about service/performance characteristics they want). Think about a pilot project but keep in mind that EPC contract is very costly and time-consuming and are thus best suited for large projects. Look at the audits again and see if enough information is provided, as well as if all the current costs were taken into account (think of hidden costs).
Find out more about PROSPECT here
Get involved as a Mentor or Mentee here
- Publication date
- 19 April 2023