Financing Energy Efficiency is EPC the answer?

While everyone seems to be pointing to the financial crisis I can see more opportunities to use creative financing techniques, like the Energy Performance Contract model to finance energy efficiency improvement projects.

An Energy Performance Contract (EPC) is a tried and tested method to fund capital expenditure for an energy efficiency improvement project from the future cost savings. First, let me say this is not a new idea, energy performance contracting has been around for decades, and today is probably the best option around where budgets are tight. Typically an EPC covers the entire project cost, including all the new equipment, cost of finance, measurement and verification, and maintenance all funded from the energy savings.

I was asked today is an EPC only suitable for replacing old and ageing equipment? Typically my answer would be yes, that is a good application because large energy efficiency improvements equate to significantly lower operating expenses.  However, here in Hong Kong, there is also the option for healthy air cooled chillers can be replaced today with water-cooled chillers under an EPC so facility owners can immediately enjoy the benefit of lower operating costs.

Energy efficiency improvements achieve cost reductions by improving facilities, for example a more efficient air conditioning system, but also create soft benefits too including lower maintenance costs and improved comfort for the building occupants. Facility owners have the new equipment installed so the risk to the owner is minimal, yet there is an overwhelming inertia for EPC’s to traction in this part of the world. The objections to be honest are not clearly defined.

Also an often overlooked benefit is the value gained by combining multiple technologies and payback periods, to achieve an overall package which will meet the project cash flow projections. EPC Projects are typically 3-5 years in length, although government bodies have been known to enter into lengthy contracts.

Nowadays, with the software and analysis tools available, EPC’s often include more complex systems such as central plant distribution loop modifications. These more complex upgrades could include plate and frame heat exchangers, variable frequency pumping, and controls.  Some contracts even include other sectors, such as water, grey water, and waste treatment.

There are seven model Energy Performance Contracts types, and clearly these will continue to evolve. In the current economic climate they might even reach critical mass.

John Herbert
Kelcroft E&M Limited

helping lower the cost and impact of doing business in Asia

3 thoughts on “Financing Energy Efficiency is EPC the answer?

  1. Pingback: International Energy Efficiency Finance Protocol | Energy Efficiency Sustainability

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    Thanks.

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