Developing Model ESCO Performance Contracts
8. STEPS TO ENSURING A SUCCESFUL ENERGY PERFORMANCE CONTRACT Energy performance contracting is an approach to energy efficiency, if used in the right manner can prove to be very beneficial to many facility owners. There is no standard procedure to an EPC; however, it is extremely important that to have a clear understanding of what is involved from the outset and be aware of any potential legal or institutional hurdles. By reading and understanding this chapter and contents of this report; it should help an ESCO/Client to make a decision on whether an EPC is the right way forward.
Step 2 • Use an EPC
• Select ESCO
Step 4 • Define Project
Step 1
Step 3
• Negotiate & Implement the EPC
1. Deciding whether to use an EPC It is vital that the ESCO secure the support of key decision-makers before any effort is made to progress beyond the initial exploratory stage i.e. walkthrough energy audit stage .Past experience with performance contracts, particularly in the public sector, shows that obtaining approval from decision-makers can be a long and slow process. Lack of support from the party that must ultimately approve or reject a proposed contract greatly increases the risk of the project not getting executed. 2. Selecting an ESCO Once the management has decided to proceed, the facility owner needs to identify an ESCO for doing a preliminary study based on the expertise of the ESCO. Normally work done on proposals by the ESCOs at this stage is produced without cost or obligation to the Customer, which means that if the client decides not to proceed, there is no requirement to pay. 3. Defining the detailed scope of the project The next step is to develop and agree on the detailed scope of the project. If the DPR does not meet pre-determined criteria— Return on Investments (ROI), Investment costs and minimum energy cost savings—then there is no obligation to pay anything. If the DPR meets these criteria, but the client is unable to agree on a satisfactory contract, or decides not to proceed, the client is normally obliged to pay the ESCOs costs in developing the DPR. 4. Negotiating and implementing an EPC Once both parties reach this stage, the decision-making process is almost complete, and a contract can be negotiated and awarded so implementation can begin.
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