Energy performance contracts (EnPCs) and the market development of energy service companies (ESCOs) can play a key role in cost-effectively boosting renovation rates. The current EU building stock consumes 40% of energy and produces 36% of greenhouse gas emissions. 80% of the current buildings will still be in use by 2050. The current energy renovation rates of 1% a year are insufficient in achieving a climate-neutral European Union by 2050. There is a clear need to incentivise renovation and EPCs can provide a working solution.
What is an EnPC?
EnPC is a tool for securing financing to deliver energy savings. It is a contractual agreement between the end-user and the service provider (typically an Energy Service Company (ESCO)) with an agreed repayment schedule based on an energy savings guarantee. The ESCO implements a project delivering energy efficiency and uses the stream of income from the cost savings to repay the costs of the project. Once the energy performance agreement expires, 100% of the savings remain with the end-user.
ESCOs have the necessary know-how to provide turnkey services and solutions achieving significant energy cost reductions while addressing various market-related barriers on the ground. ESCOs can handle projects, manage or mobilize financial resources, undertake installation and maintenance work as well as collaborate with other market players. When providing Energy Performance Contracting (EnPC), ESCOs assume performance risks by linking their compensation to the performance of their implemented projects, thus incentivising themselves to deliver savings-oriented solutions.
The two main EnPC models are shared savings and guaranteed savings models. Under the guaranteed savings model the client secures the loan, while under the shared savings mode the ESCO is responsible for securing the loan. Nevertheless, under the guaranteed savings model the ESCO still provides a performance guarantee for the energy saved. The ESCO and the financing partner structure the project, enable the savings and its finance and bear the risk of the project delivering the proposed savings.