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Energy Performance Contracting (EPC) is a mechanism for organising the financing of energy efficiency. It is a lucrative contract, but with a very delicate point: the ESCO’s (Energy Service COmpany) remuneration depends on the achievement of the guaranteed savings. It is therefore crucial for the ESCO to be able to demonstrate the savings achieved throughout the project. In this article we talk about how an ESCO can prove the savings achieved thanks to its intervention and the importance of using software that complies with the IPMVP® (International Performance Measurement and Verification Protocol) guidelines.
What are Energy Performance Contracts?
Benefits for companies that choose an EPC.
How ESCOs can demonstrate real savings (IPMVP models used for measurement & verification).
Automated reporting and real-time dashboards.
Energy Performance Contracts (or EPC or Energy Performance Contracting) have been introduced with the aim of encouraging energy retrofitting through the implementation of an energy efficiency or renewable energy project.
What are Energy Performance Contracts?
For the definition of the Energy Performance Contracts we refer directly to Article 2 of the European Directive 2012/27/EU, which describes them as follows:
« Energy performance contracting’ means a contractual arrangement between the beneficiary and the provider of an energy efficiency improvement measure, verified and monitored during the whole term of the contract, where investments (work, supply or service) in that measure are paid for in relation to a contractually agreed level of energy efficiency improvement or other agreed energy performance criterion, such as financial savings».
We highlight two important points here:
- The supplier is not the supplier of the energy resource, but the supplier of an energy efficiency improvement measure; the improvement must be verified and monitored.
- The benefits for companies of entering into an Energy Performance Contract
The advantages for companies in entering into an Energy Performance Contract
From the above two points, it is clear that there needs to be a careful pre-assessment phase to allow the supplier to accurately indicate the energy savings that will be achieved during the life of the contract. This peculiarity of EPCs is advantageous for both parties, since the service fee to be paid is closely linked to the supplier’s forecasts: if the energy savings are lower than promised, the remuneration due to the specialist will also be revised downwards.
The other major advantage is that energy efficiency measures are self-financing thanks to the savings achieved over time.
HOW an expert in energy management or ESCO can prove the real savings achieved
It is clear that both the supplier and the customer company have an interest in accurately measuring the savings achieved in order to optimise the follow-up to the contract.
For the supplier, the correct calculation of the savings will allow him to be properly paid for his work; for the company, the accuracy of the calculation will guarantee that it pays the correct amount and not more than what the supplier is due; it is also a way of having a clear view of the ROI (Return On Investment).
The supplier must provide the customer company with software to monitor energy consumption (and production), which is the only way to accurately calculate savings. However, not all software provides accurate information on energy consumption before and after the implementation of a project. It is therefore important that the software chosen guarantees accurate calculations in accordance with the IPMVP® (International Performance Measurement and Verification Protocol).
The IPMVP® protocol, which we will discuss in detail in a separate article, is the reference point for professionals who want to put into practice the best guidelines for verifying the results of energy efficiency projects. The use of IPMVP® certified energy monitoring software is therefore essential.
Our Energis.Cloud platform has been programmed to perform calculations in accordance with the IPMVP® standard and is able to provide the most accurate calculation of the savings achieved by energy professionals. The modelling module allows the creation of statistical models ranging from simple linear regression to complex statistical models. The implementation of these models is simple and intuitive. Using this modelling tool does not require any special mathematical knowledge and only takes a few clicks.
In the screenshot above, taken from our Energis.Cloud software, we see the main elements that allow consultants and clients to follow the progress of the project with extreme precision:
- Expected project cost.
- Expected annual savings.
- IRR (Internal Rate of Return) of the project.
The number of years required to recoup the investment and the estimated break-even point (BEP) are immediately visible.
Automated reporting and real-time dashboards
End customers often require updates and reports not only at the end of the contract, but throughout its duration. It can be costly for an energy manager, Esco or another supplier to prepare and provide this data each time, especially when working with tools such as Excel.
It is also important to be able to monitor consumption and cost trends during the project in order to adjust interventions. An important aspect of this is the possibility of activating alerts to be notified immediately if any parameter is abnormal.
Software that allows you to have an automated reporting system and real-time dashboards saves a lot of man-hours and increases customer satisfaction.
- European Commission, Energy Performance Contracting.
- Eur-Lex, DIRECTIVE 2012/27/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL.