ENERGY PERFORMANCE CONTRACTING AGREEMENT
An Energy Performance Contracting (EPC) agreement is a contract entered into between two or more parties with the aim of promoting actions and investments to enhance energy efficiency in specified buildings, businesses, or institutions. This agreement can take various forms, but its main objective is to reduce energy consumption and costs, as well as decrease greenhouse gas emissions. It is verified and monitored throughout its validity period, whereby investments (works, supplies, services) are repaid from the realized effects concerning the agreed-upon level of energy efficiency improvement or another agreed-upon criterion of energy performance, such as financial savings.
Key elements of the Energy Performance Contracting Agreement include:
- Parties to the Agreement: The Energy Performance Contracting Agreement can be entered into between different parties, such as building owners, businesses, public institutions, and energy service providers.
- Objectives and Goals: The agreement should clearly define the objectives and goals of improving energy efficiency. This may include specifying specific energy efficiency indicators to be achieved.
- Measures and Actions: The agreement specifies concrete measures and actions that will be taken to achieve energy efficiency goals. These may involve investments in energy-efficient technologies, building upgrades, photovoltaic installations, energy-saving programs, and other initiatives.
- Schedule and Timelines: The agreement should include a schedule of actions and define the timelines within which energy efficiency goals are to be achieved.
- Monitoring and Reporting: The parties to the agreement commit to monitoring progress and providing regular reports on the achieved results in terms of energy efficiency.
- Financial Terms: The agreement may contain information regarding the financing of energy efficiency improvement actions, including investment costs, funding sources, and potential energy savings.
- Penalties and Rewards: The agreement may include provisions regarding penalties for not meeting energy efficiency goals but also rewards for exceeding these goals.
- Sustainable Development and Environmental Protection: Energy Performance Contracting Agreements often emphasize the importance of sustainable development, environmental protection, and the reduction of greenhouse gas emissions.
Energy Performance Contracting agreements aim to encourage actions that contribute to reducing energy consumption, lowering energy costs, improving the quality of life, and protecting the environment. Such agreements are often utilized within government programs, private sector initiatives, and projects related to sustainable development.
EPC is the purest form of financing investment in energy efficiency improvement. According to the standard EPC agreement, the contractor commits to implementing specific measures to improve energy efficiency, aiming to reduce the costs of energy consumption (including thermal energy, gas, water, etc.) for specific buildings or installations. Simultaneously, the economic risk associated with achieving such reductions rests with the contractor. The reimbursement of any capital expenditures incurred by the contractor is made from the contractor’s share in the savings generated on the beneficiary’s side as a result of entering into this agreement. If the guaranteed level of savings is not achieved, the contractor’s compensation would be reduced by the amount of compensation due to the beneficiary.
The functioning of the EPC agreement is depicted in the diagram below:
ENERGY DELIVERY CONTRACT
Energy Delivery Contracts (EDC) refer to the operation of energy sources (heat and electricity) at the contractor’s own risk, based on long-term agreements. The main features of EDC agreements include:
- Guaranteed Deliveries: EDC agreements include a commitment from the supplier to deliver a specified quantity of energy within a defined period. This provides the customer with certainty regarding energy supplies, which is crucial, especially for businesses and institutions that need to operate continuously.
- Fixed Prices: In EDC agreements, the price of energy is specified or the method of calculating the price is defined. This allows the customer to predict energy costs and avoid sudden increases in energy prices.
- Maintenance of Delivery Quality: The supplier commits to maintaining a specified quality of energy delivery, including uninterrupted access and minimizing disruptions in delivery.
- Long Contract Period: EDC agreements are typically entered into for a longer period, providing both parties with assurance regarding future deliveries and costs.
- Budget Predictability: For customers, EDC agreements enable better control over budgets and costs associated with energy.
EDC agreements are frequently employed in the industrial sector, particularly in high-energy consumption industries such as manufacturing, chemicals, and processing. These agreements assist companies in minimizing the risk associated with energy deliveries and controlling costs. However, before a client signs an EDC agreement, it is crucial to thoroughly analyze and understand the terms of the contract to ensure they meet their needs and expectations.
In practice, we deal with investments involving the installation (construction) of new energy sources, replacement (modernization), OR expansion of existing energy sources. This type of agreement outlines the tasks of the contractor, which include financing, planning, and the construction or takeover of the energy generation source, operational management, especially maintenance, fuel procurement, and the sale of utility energy.
The essence of EDC agreements is the transfer of the facility (in the case of expansion or modernization) or the transfer of the land for construction (in the case of building an energy source).
The client should consider the necessity of entering into a separate agreement regarding the transfer of ownership of the facility, land, or premises to the contractor (e.g., the requirement to maintain the form of a notarial deed in the case of agreements transferring real estate ownership to the contractor).
The functioning of the EDC agreement is illustrated in the diagram below.