Share performance risk in your energy projects while saving energy, money, and reducing your carbon emissions.
What is energy performance contracting
Energy performance contracting is supported through SI 426 of 2014, and defined by the Energy Efficiency Directive 2012/27/EU (as amended) as:
- 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
Pay for performance
Energy Contracting is a 'pay for performance' approach to installing and operating energy technologies in your business. The option you choose influences the level of energy and cost savings guaranteed. The two ends of the continuum are:
- Simple - Contractual guarantee making a portion of payment conditional on performance
- Complex - Third parties take full performance and finance risk of the energy project but on the basis of having future savings as a revenue stream.
Types of energy contracts
There are various labels applied to Energy Contracting approaches. They will generally fall under one of the three types listed below. There is usually a risk/reward dynamic in each type of contract i.e. the more risk you want to transfer to a third party the more it will reduce the reward to your business in the short term.
|Energy Performance Related Payment (EPRP)
|A contractor undertakes energy efficiency works and guarantees the energy savings for an agreed fee. If savings fall short of expectations, the contractor loses a part of their fee.
|Energy Performance Contract
|A contractor installs energy efficient works and through the contract, guarantees savings. The client pays the contractor from these savings over a number of years. If savings fall short, the contractor covers the difference.
|Local Energy Supply Contract (LESC)
|An Energy Services Company (ESCO) installs works and supplies energy (usually electricity or heat) to a particular point at the client/host’s facility. The ESCO is paid for the quantity of energy supplied over the term of the contract.
National Energy Services Framework
SEAI has developed a National Energy Services Framework (NESF) to support the non-domestic energy efficiency market in Ireland. The framework sets out the roadmap through which energy efficiency projects and an energy contracting process is developed. SEAI provide a range of guidance and support documentation to assist any business wishing to consider this route.
Contact us for more information on the available NESF guidance, documentation, case studies, and funding.
Plan a project
Before you get to the stage of selecting and entering into an Energy Contract, there’s a lot of planning to be done. However, SEAI are happy to support you in your journey to becoming more energy efficient. As detailed in our Energy Performance Contracting Handbook, there are 5 stages that we recommend you complete to install any energy saving project.
Step 1: Get organised
- First step is to ensure you secure senior management commitment. One way can be to enter partnership with SEAI.
- Complete an energy audit with your Energy Advisor to identify opportunities
- Your Energy Advisor will produce a report which will recommend a number of energy saving measures (including projects)
Step 2: Initial appraisal and feasibility study
- Review the above findings with management
- Look at budget and methods of delivery and appraise each contract route
- SEAI has grant support to help you identify this formally. For example, if you have an energy spend up to €1m, you can receive 50% of costs up to €7,500; over €1m, 50% up to €15,000
Step 3: Detailed appraisal and final business case
- Finalise the form of contract or guarantee and appraise the financial outcome
- SEAI has also has grant support to help organisations progress financially viable energy efficiency projects that are proposed for implementation through EPC or EPRP procurement routes
Step 4: Procurement
- Negotiate and confirm the contract deliverables and expected energy savings
Step 5: Contract implementation and operation
- Deliver value for money. A long-term contract manager is put in place to supervise new contract payment arrangements, the measurement and verification of savings, and the on-going contract management