Energy performance contracting (EPC) is a mechanism to organize energy efficiency financing. A profitable contract, but with a very delicate point: the remuneration of the ESCO (Energy Service COmpany) depends on the achievement of the guaranteed savings. It is therefore key 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 compliant with IPMVP® guidelines (International Performance Measurement and Verification Protocol).
- What are Energy Performance Contracts.
- Advantages for the companies that opt for an EPC.
- How ESCOs can demonstrate real savings achieved (IPMVP models used for Measurement & Verification).
- Automated reports and real-time dashboards.
Energy Performance Contracts (or EPC or Energy Performance Contracting) have been introduced with the aim to encourage energy retrofitting by implementing energy efficiency or a renewable energy project.
What are Energy Performance Contracts?
Without going too far into this part, 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 advantages for companies in entering into an Energy Performance Contract
It is clear, from the two points above, that there must be a careful preliminary assessment phase to allow the supplier to accurately indicate the energy savings that will be achieved during the validity of the contract. This peculiarity of EPCs is advantageous for both companies, as the service fee to be paid is closely linked to the forecasts made by the supplier: if the energy savings are lower than promised, the remuneration that is due to the professional will also be revised downward.
The other big advantage is that the interventions for energy efficiency are self-financing thanks to the savings achieved over time.
HOW an expert in energy management or ESCO can prove the real savings achieved
For an optimal follow-up of the contract, it is clear that both, the supplier and the client company, have an interest in accurately measuring the savings achieved.
For the supplier, the correct calculation of the savings allows him to be remunerated adequately for his work; for the company, the accuracy of the calculation guarantees paying the just amount and not more than what is due to the supplier; it is also a way to have a clear view on the ROI (Return On Investment).
The supplier must provide the client company with software to monitor energy consumption (and production), which is the only way to calculate the savings accurately. However, not all software provides precise information on energy consumption before and after the implementation of a project. It is therefore important that the software chosen offers the guarantee of precise calculations, in line with the IPMVP® (International Performance Measurement and Verification Protocol).
The IPMVP® protocol, which we will discuss extensively in a dedicated article, is the point of reference for professionals who want to put into practice the best guidelines for the verification of the results of energy efficiency projects. Using an energy monitoring software that is certified IPMVP® is therefore fundamental.
Our Energis.Cloud platform has been programmed to perform calculations compliant with IPMVP® standards and is able to provide with utmost precision the calculation of savings achieved by energy professionals. The Modelling module makes it possible to produce statistical models ranging from simple linear regression to complex statistical models. The implementation of these models is simple and intuitive. The use of this modeling tool does not require 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 customers 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 necessary to recover the investments and the moment in which the BEP (Break Even Point) is expected to be reached is immediately visible.
Automated reports and real-time dashboards
End customers often ask for updates and reports not only at the end of the contract but throughout its duration. It can be expensive for an Energy Manager, Esco, or another supplier, to prepare and make this data available each time, especially when working with tools such as Excel.
Furthermore, during the project, it is important to be able to monitor the trend of consumption and costs, to adjust its interventions. A significant aspect linked to this is the possibility to activate alerts to be immediately notified if any parameter is abnormal.
Software that allows you to have an automated reporting system and real-time dashboards saves a great number of working hours and increases customer satisfaction.
- European Commission, Energy Performance Contracting.
- Eur-Lex, DIRECTIVE 2012/27/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL.