Prevention and control of risk in energy performance contracting

Energy performance/management contracting (EPC or EMC) is a new environmentally friendly business operation model that uses market mechanisms to promote energy saving. The model is being widely implemented internationally. In 2013, energy service companies in China already numbered in excess of 3,000, with a gross output exceeding RMB150 billion (US$24.5 billion). By 2015, the gross output of the energy service industry in China will reach RMB500 billion. In the current climate of concerns about a global energy crisis, EPC has become a rising investment sector vigorously supported by national governments.

Features of the model

Under the EPC model, an energy service company (i.e. the investing and constructing party) executes an energy performance contract with the user to provide energy audit, investment/financing, alteration and construction services to the user, and recovers its investment and profit through sharing of the energy savings. The energy service company seeks to make a profit by providing the customer with professional energy efficiency management, investment/financing and services. The definition of user is relatively broad, including but not limited to owners or users of industry, construction, transport, public agencies, etc. This model not only greatly reduces the funding pressures and technical risks of energy saving alterations, but also fully mobilises the energy user’s incentive for energy saving alterations.

In practice, the models generally used in an EPC are BOT (build-operate-transfer), BOO (build-own-operate), TOT (transfer-operate-transfer), lease financing or combinations of these. The author has had a hand in all the above-mentioned models as used in an EPC project.