Energy Performance Contracting
This is a form of creative funding for capital enhancement that permits the upgrading of funding energy upgrades from cost reduction. In Energy Performance Contracting (EPC), and Energy Saving Company (ESCO) is assigned the responsibilities of executing an energy efficiency or a renewable energy project. The production of energy or saving in the project finances the initial investment of the project that is to be carried out. The ESCO is compensated in regard to the performance revealed and delivered towards the agreed energy saving. EPC is the most considered option for infrastructure investments when encountering a lack of technology or manpower information, energy engineering skills, and capital.
When ECP is done perfectly, it is considered today by most experts as the most appropriate and cost-effective method in delivering and optimising energy efficiency measures and investments in industrial and building facilities. So far, the EPC has been recognised for a long time, with its first application recording was established in the 1980s in North America. By then, it was used to deliver assured and sustainable energy savings ( Novikova et al, 2017).
Energy Performance Contract (EPC)- Immediate savings
Energy efficient infrastructure projects can be completed over a short period of time unless it is intended to be done in large volume. In such a case, slightly longer period may be necessary but should be kept as short as possible so that energy savings can be achieved as quickly as possible.
Advantages: The main merit of this model is that it allows for maximum energy savings. In addition, because new technologies in particular—require less maintenance, the associated costs are lower. This should be reflected in the price offered by the private partner.
This model tends to have multiple disadvantages. Firstly, In the event where the city is responsible for paying for all of the necessary improvements, the significant initial expenditure may be restrictive. There is a possibility that the conditions of the agreement on the contract will oblige the city to permit major construction work at the same time. The city should reconsider the repercussions if the planned improvement impacts the urban life. In contracts that go on for long durations, the infrastructure improved in the early stages might be outdated by the end of the project and might need additional improvements. If the modernisation process completed over the contract period will not incorporate any new technology; this prevents the city from modernising infrastructure at a constant rate.
Projects that can be financed with this model:
This model of financing is more suited for projects with immediate modernisation needs and can be accomplished over a short period of time.
Novikova, A., Stelmakh, K., Hessling, M., Emmrich, J., and Stamo, I. 2017. Guideline on finding a suitable financing model for public lighting investment: Deliverable D.T2.3.3 Best practice guide. Report of the EU-funded project “INTERREG Central Europe CE452 Dynamic Light”, October 2017.