Energy Contracting is a service in which the energy balance of a building is improved through energy efficiency measures in order to reduce energy costs and greenhouse gas emissions. In contracting, a building owner transfers tasks related to increasing the energy efficiency of his building to a specialized energy service provider, the so-called contractor. The contractor reduces the energy requirements or energy consumption of the building through optimization measures. The contracting model represents an “energy-saving partnership” between a building owner and an energy service provider. The business model aims to achieve energy savings from which both contracting parties benefit.
The aim of all contracting models is to reduce energy consumption and energy costs. There are essentially two models in contracting, which essentially have the same goal but pursue a different approach:
- Energy performance/ saving contracting (EPC).
- Energy supply contracting (ESC).
Energy performance/ saving contracting (EPC)
Energy Performance Contracting (EPC) is a form of ‘innovative financing’ for increasing energy efficiency in buildings and facilities which allows funding energy upgrades from cost reductions.
“Under an EPC arrangement an external organisation (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, including the costs of the investment. Essentially the ESCO will not receive its payment unless the project delivers energy savings as expected.” (JRC – Energy Performance Contracting | E3P (europa.eu)
With EPC, the building owner transfers the energy optimization of his buildings to a specialized service company, the contractor. The contractor looks at the building or building pool holistically with the aim of minimizing energy consumption, energy costs and CO2 emissions. To do this, the contractor plans, implements and finances technical, structural and organizational measures. The contractor guarantees the level of savings contractually and also takes care of the maintenance of the new technology. Through monitoring and continuous optimization, the contractor ensures that the savings are actually achieved. The services and investments are refinanced through a portion of the energy costs saved, which the contractor receives during the contract term of usually 7-12 years.
Energy supply contracting (ESC)
ESC often also referred to as heat supply contracting, focuses on the installation or renewal of a building’s energy generation system and its supply with useful energy.
Depending on the scope of services required, the contractor takes on planning, financing, construction, operation and maintenance as well as fuel procurement. The contractor is remunerated for the services via fixed price conditions through the sale of the generated useful energy (e.g. heat, electricity, cold) to the building owner. The contractor’s interest here is therefore also in the system operating very efficiently.
In brief:
Energy contracting offers the following benefits:
- Guaranteed savings: The service contractor guarantees certain energy savings specified in contractual agreements.
- No upfront costs: The client does not need to make any initial investment, as the service contractor provides the financing.
- Performance-based compensation: The service contractor is paid from the actual savings, minimizing financial risks for the client.
- Comprehensive service: The service contractor offers a full range of services including energy audit, project planning, implementation and monitoring.
