The role of energy efficiency in today's business landscape
In today’s world, energy efficiency plays a key role in reducing greenhouse gas emissions, preserving resources, and achieving sustainability goals. Organisations across all sectors are actively seeking ways to optimise their energy consumption and minimise operational costs.
One innovative approach that has proven effective in delivering energy savings is the Energy Performance Contract (EnPC).
In fact, according to a study by the Lawrence Berkeley National Laboratory, EnPC projects in the United States have achieved an average of 19% energy savings in buildings.
Integrate all EnPC-related data, track savings, incorporate calculations from existing contracts, including non-routine adjustments….. This is not a fairy tale you can dream of, it’s just the beginning of what you can do as an ESCO with our software, Energis.Cloud.
In this article, we will explore the concept of EnPCs and how they can drive efficiency improvements while delivering financial and environmental benefits, highlighting the role Energis.Cloud plays in maximizing their potential.
Table of Contents
What is an Energy Performance Contract (EnPC)?
Energy Performance Contracts (EnPCs) are written agreements between an Energy Services Company (ESCO) and an organisation (typically a building owner or facility manager). The aim of an EnPC is to improve the energy performance of the building by implementing energy efficiency measures. These contracts provide a low-risk method of financing and carrying out energy efficiency projects for companies that lack the necessary capital, technical skills, and manpower.
What are the benefits of an EnPC?
The benefits of such a contract are many.
Financial savings
EnPCs enable organisations to reduce their energy consumption and operating costs without the need for up-front capital. The savings generated cover the cost of the upgrades, resulting in positive cash flow.
Risk transfer
By entering into an EnPC, the organisation transfers the performance risk to the ESCO. In effect, this last one guarantees a minimum level of energy savings to ensure that the expected results are achieved.
Improved energy efficiency
EnPCs drive improvements by implementing tailored measures that optimise the energy performance of the building. This not only reduces consumption but also cuts down greenhouse gas emissions, contributing to a more sustainable future.
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Further reading
Bettered building performance
The efficiency measures implemented through EnPCs often result in improved comfort, indoor air quality, and occupant satisfaction. Ameliorated systems and technologies can enrich the overall performance and functionality of the facility.
Long-term partnership
EnPCs typically involve long-lasting partnerships between the ESCO and the organisation. This collaborative approach ensures ongoing support, monitoring, and maintenance of efficiency measures, maximising their effectiveness over time.
How does an EnPC work?
Under an EnPC, the ESCO performs a complete energy audit to identify potential savings within the building. Based on the results, the ESCO suggests a package of energy efficiency measures, such as implementing smart technologies, upgrading lighting systems, or optimising HVAC.
Once the energy efficiency measures are agreed, the ESCO takes responsibility for the design, installation, and maintenance of the advancements. In addition, the ESCO typically guarantees a certain level of savings over a specified contract period.
This is necessary for the payment mechanism: in effect, the ESCO is paid on the basis of actual energy savings achieved, creating a self-financing mechanism that minimises the financial burden on the organisation.
In this win-win system between the ESCO and the company, the ESCO’s profit is (usually) half of the savings achieved each year for a certain number of years defined in the contract (10, 15 years or more).
The following is a hypothetical case of an EnPC contract structure.
In order to calculate the profit, there is a tolerance threshold (which varies from business to business) that creates 2 possible cases:
-Exceeding the threshold: if the savings achieved are greater than those agreed in the contract, the company has saved more than what was predicted and the ESCO receives an additional (monetary) bonus.
-Savings well below the threshold: a malus is imposed on the ESCO, which has to pay a penalty to the company for forecasting potential savings that were not realised.
This threshold depends on the contracts and the ESCO itself, as well as the length of the contract and the scope and objective of the refurbishment.
In any case, before embarking on any kind of assessment and subsequent implementation of energy-saving measures, it is necessary to have a baseline, i.e. to understand how the ESCO’s work can be verified and measured; in short, to know whether the ESCO is doing its job in delivering energy savings for the company.
And this is where the importance of having a tool that best defines the baseline comes into play.
Measurement and Verification (M&V) applied to EnPCs
Watch the full webinarSuccessful EnPC: the importance of a good baseline
Numerous organisations around the world have successfully implemented EnPCs and achieved remarkable results.
Let’s take this as an example to better understand the mechanism.
A firm has an obsolete production plant and needs to invest in energy-efficient machinery to cut down operating costs and comply with environmental rules. It lacks the necessary financial support, and the technical management team is unsure which specific upgrades would generate the greatest energy savings.
The firm then begins discussions with an Energy Service Company (ESCO), that offers a turnkey EnPC package including financing and performance guarantees allowing it to carry on energy efficiency upgrades without direct costs.
This is a typical case where the capabilities of Energis.Cloud could come in handy.
Under these circumstances, one of the challenges for Energis.Cloud as an energy management software to help the ESCO is to identify and establish a good baseline that is both understandable to the customer and reliable.
The baseline, which serves as a point of comparison for assessing the energy savings, is typically defined by the ESCO, and it’s the starting point for the pre-investment reference. In fact, it makes it possible to verify the efficiency of the investments during the measurements carried out throughout the duration of the contract.
By using its AI toolbox to automate and scale the baseline calculation process, Energis.Cloud can save valuable time for both the ESCO and the customer; in fact, it enables continuous monitoring and optimisation of equipment performance, maximising efficiency gains.
Even if there are some deviations from the model (which could compromise the reliability of the baseline), the software is able to identify a trustworthy baseline model for new contracts and adjust the reference situation according to the conditions of use.
In addition, models can be present in the consumption data and extracted (e.g. weekly consumption models); you can then monitor all types of savings, charges, data quality and influencing factors (weather, occupancy, area, density, climatic evolution…).
This flexibility to adapt to changes makes then Energis.Cloud a powerful tool that handles all the necessary calculations and ensures accuracy.
Added Value of Energis.Cloud: simplifying baseline calculation and standardization
Energy Performance Contracts are emerging as a beneficial solution at the confluence of sustainability, cost efficiency, and environmental responsibility, and with Energis.Cloud, having a good baseline is not the only empowering application you can have.
In fact, our energy management software makes standardisation a reality. Scopes and targets can be easily defined, allowing users to set specific goals (e.g. reduce heating costs by 10% and/or electricity consumption by 2%).
In this way, Energis.Cloud breaks down the goals into actionable steps and provides a comprehensive overview of progress across different scopes. All you have to do is enter our platform and start navigating easily through the different perimeters and projects.
In fact, as an open platform, it can easily accommodate non-habitual changes in buildings and allow information to be organised in a streamlined way. In as little as 15 minutes, all the integrated EnPC-related raw data is selected, pre-processed and transformed into organised and actionable insights (e.g. converting temperature into degree days), saving ESCOs from manual errors and the tedious task of using multiple Excel spreadsheets.
By standardising information and calculations, Energis.Cloud frees up time for ESCOs, making the process more efficient and scalable to manage multiple contracts.
In the pursuit of a cleaner and more energy efficient world, Energy Performance Contracts offer a pragmatic way forward that balances economic prosperity with environmental responsibility.
If you’re an ESCO offering EnPC services, Energis.Cloud is the tool for your needs.
Contact one of our experts today and let us help you scale towards sustainability and energy efficiency.
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