Energy Performance Contracting (EPC)

EPC – Energy-Performance Contracting

Energy performance contracting (EPC) describes business ventures that use future energy savings to finance energy conservation measures. Energy service companies (ESCOs), engaged in EPC, conduct an “investment-grade audit” of a facility to assess the potential for profitable energy-saving investment.


Owners sign energy performance contracts for numerous reasons including the following:

  • Increase employee productivity and decrease complaints
  • Reduce energy costs
  • Repair aging equipment
  • Improve building control and occupant satisfaction
  • Mitigate indoor-air-quality problems
  • Pay for capital improvements with energy savings

The most critical element in the EPC project’s success is developing a mutually beneficial contract for both the owner and the ESCO. The contract terms usually last five years or more. The contract must chart the consumption profile for the base year, which is a year of energy consumption before the improvements. The amount each party is compensated, depends on measurement and verification of the post-project energy consumption.
The difference between base-year consumption and post-project consumption defines the savings. The savings pay for the improvements and hopefully reward both the ESCO and owner with any excess.

Multiple Aspects of Effect

EPC involves technical, financial, and legal expertise. Enlisting the right in-house staff together with outside contractors is essential to a successful EPC business venture. Large companies often undertake energy-efficiency projects using their own staff and financial resources. This in-house approach works even on a small scale when a technically oriented manager assembles the staff, contractors, and finances needed to design and manage the project.
Retro-commissioning is a custom quality-assurance plan for existing buildings and is often an integral part of EPC. It is an excellent way to evaluate an energy-performance project. The advantage of beginning with retro-commissioning is that you can make the inexpensive improvements, reap the savings, and identify the best major investments before signing an energy-performance contract. Retro-commissioning commences with project design, continues through startup, and extends for some months after project completion.
ESCOs actively seek EPC customers with annual energy costs of $300,000 or more. Energy-performance contracting is quite successful in the public sector because they can group buildings together into a single contract.
The City of Baltimore employed energy-performance contracts to save more than $1 million in energy and other operating expenses annually. Baltimore’s EPCs accomplished $7 million of improvements to 2.3 million square feet of building space. Future projects will transform the city’s traffic-signal system to LED lighting, saving the city $600,000 a year.