PROJECT DETAILS
Disclaimer. This Case Study has been produced from basic information provided to the author by the firms involved; no attempt has been made to independently verify the accuracy of this information.
Acknowledgment: This Case Study has been previously published as part of the series in the BDP Environment Design Guide. For further details contact BDP Environment Design Guide Project Officer at RAIA Practice Services on Ph (03) 9650 2477, Fax (03) 9650 3364.
Energy Performance Contracting (EPC) is an innovative form of contracting, developed (primarily in the USA) since 1982, to overcome the major barriers to delivering cost-effective energy efficiency – risk and capital cost. EPC can be used in any facility in which energy is used, including all types of buildings and industrial processes.
Under a performance contract for energy saving, an external Energy Services Company (ESCO) will examine a facility, evaluate the level of energy savings that could be achieved by certain techniques, offer to make the necessary investment and guarantee the return on that investment. Energy Performance Contracting is the implementation of improvements to the energy efficiency of a facility by an outside ESCO, whereby guaranteed future energy savings pay for the cost of upgrades.
Energy Performance Contracting allows facility owners and managers to upgrade energy-inefficient assets, and to engineer solutions for new projects without increasing capital costs . The performance contractor takes the financial risk and guarantees the savings – if guaranteed savings don’t match actual savings, the contractor makes up the difference.. At the end of the capital repayment period, the full benefits of the cost savings revert to the facility owner.
The procurement process for EPC is more complex than typical procurement for other contracts, as it is more of a partnership than traditional procurement contracts. The methodology of performance contracting also differs from traditional contracting; which is invariably price driven. Performance Contracting is results driven, thus ensuring quality of performance. Other factors that differentiate performance contracting are:
· The customer is not required to make an up-front capital investment.
· The payments to the ESCO are contingent, to varying degrees, upon the level of energy savings achieved.
· As the outcomes are guaranteed by the ESCO, technical and financial risks are shifted from the customer to the ESCO.
A full explanation of energy performance contracting is given in the Best Practice Guide available to download free of charge from the AEPCA web site www.aepca.asn.au
Mid-western Area Health Service comprises 22 hospitals and a linen service. It had an annual energy consumption in 1999/2000 of 674,453 GJ.
An EPC has been signed in five of the hospitals and the linen service which address many different operational and technical issues and achieve the following annual savings:
Total energy savings 29,691 GJ
Total water savings 19,690 kL
Nett Guaranteed Annual Savings $437,414 pa in first year rising to $547,563 pa in Year 6
The total EPC capital investment is in excess of $2.1 million, which is provided through NSW Treasury’s EPC Fund. The contract runs for five (5) years, finishing in 2005, with an internal rate of return (IRR) of 20%.
Overall Energy reduction:
