Partnership in building energy performance contracting

Abstract

Building energy performance contracting is a business strategy to assist building owners overcome the financial barriers for improving the energy performance of their buildings. In return for the investments made into the energy-saving measures, the energy service contractors would share with the building owners the energy cost saving. Although the contractual arrangement is meant to create a win-win situation, disappointments could arise due to mismatches between the expected and actual outcomes. From a micro-economics viewpoint, the key factors contributing to the failure of a building energy performance contract are reviewed. To solve the commonly encountered problems in building energy performance contracting, it is proposed the conventional performance contract is replaced with a partnership formed jointly by the building owner and the energy service contractor, with the latter assuming the role of the performance contractor. This would unite the goals of the two parties and cultivate genuine cooperation between them. The key features for this new contractual arrangement are described along with how this arrangement could resolve typical energy performance contracting problems.La contractualisation des performances e´nerge´tiques d'un bâ timent est une strate´gie commerciale qui vise à aider les proprie´taires de bâ timents à surmonter les obstacles financiers lorsqu'il s'agit d'ame´liorer les performances e´nerge´tiques de bâ timents. En retour pour les investissements consentis dans des mesures d'e´conomie d'e´nergie, les contractants des services e´nerge´tiques partageraient avec les proprie´taires des bâ timents les e´conomies re´alise´es sur le coû t de l'e´nergie. Bien que les dispositions contractuelles aient pour objectif de cre´er une situation satisfaisante pour toutes les parties, le manque de corre´lation entre les re´sultats attendus et les re´sultats re´els risque de de´cevoir. Se plaçant dans une perspective micro-e´conomique, cet article e´tudie les principaux facteurs qui contribuent à l'e´chec d'un contrat portant sur les performances e´nerge´tiques d'un bâ timent. Pour re´soudre les problè mes les plus courants en matiè re de contractualisation des performances e´nerge´tiques d'un bâ timent, on propose de remplacer le contrat de performances classique par un partenariat regroupant le propriétaire du bâ timent et le contractant des services e´nerge´tiques, ce dernier e´tant contractuellement responsable des performances. Les objectifs des deux parties seraient ainsi réunis et une ve´ritable coope´ration pourrait s'instaurer entre elles. L'auteur de´crit les principales caracte´ristiques de ces nouvelles mesures contractuelles et explique comment ces dispositions pourraient permettre de re´soudre les problè mes courants de contractualisation des performances e´nerge´tiques.

Risks in Energy Performance Contracting (EPC) projects

“…This is in line with previous research findings that difficulties were encountered in establishing a reliable energy consumption baseline in existing buildings [41,42]. Since there is a weak awareness for keeping proper record of building operating data, as experienced in the previous decades, incomplete and poor record of building operating data (e.g.…”

“…Interviewees mentioned that the risk of payment default is much higher when the amount of payment is completely linked to the measured savings. This is because energy performance is rather difficult to measure accurately and equitably [41], it is not uncommon for the host to dispute the amount of energy savings being achieved by the ESCO, especially when the building operation and occupancy level vary considerably from time to time.…”

“…As for the EPC projects for which the ESCO pays the upfront capital for project implementation, the regular payment to the ESCO is crucial to maintain a positive cash flow. Yik and Lee [41] highlighted the difficulties in measuring energy performance accurately and equitably, and therefore the actual energy savings may be disputable, especially in circumstances where the energy baseline and adjustment mechanism are not well established at the pre-retrofit stage. Apart from possible dispute on actual savings, host's bankruptcy and dismissal of a building management body are also possible reasons for non-payment.…”

Strategic design of cost savings guarantee in energy performance contracting under uncertainty

“…Among the key barriers to profit in EPC are the uncertainties about attaining the realized energy cost savings and the potential disputes over the guaranteed cost savings. Deviations between the guarantee and the realized energy cost savings frequently occur during the implementation of EPC [13]. Shonder and Hughes [16] analyzed the measurement and verification reports from all ongoing projects of the Oak Ridge National Laboratory database.…”

“…Since the ESCO is encouraged to develop more desirable energy efficient solutions, the well-designed savings guarantees go a step further to unite the ESCO and the owner for a shared goal [13]. In practice, the forms of the energy savings guarantee might be tailored to fit the particular requirements of legislation, regulations and owner due to the uniqueness of each project [5].…”